Tilling the soil: Creating the environment for a successful defence industrial base

Unique among the world’s developed nations, Australia, the “Lucky Country”, has enjoyed a record-setting, unbroken period of three decades’ worth of economic growth, seemingly without hiccup, that is until the COVID-19 pandemic.

Now, on the other side of the pandemic, the various economic policy leavers pulled throughout the darkest days of the pandemic, namely, the waves of quantitative easing, coupled with the incredible vulnerability revealed by the “just in time” supply chains, have combined to reveal the cracks in our national economy.

Adding further fuel to this public policy fire is Russia’s invasion of Ukraine, and the daring and equally devastating sneak attack by Hamas on Israel, on 7 October, which have served to reveal a number of startling and uncomfortable truths about the declining industrial capacity of many once formally great industrial and economic powers, especially Australia.

Each of these factors are set against the broader backdrop of renewed global multipolarity and great power competition, all of which are combining to reinforce the growing importance of a reliable, sovereign industrial capacity.

Yet for many Australians of all ages, the various attempts at rebuilding Australia’s industrial base is often synonymous with costly budget overruns, delays in delivery, and entry to service and through-life complexities surrounding maintenance, sustainment and operation. Many would be forgiven from gasping at the mere mention of the term “Australianising”.

But please bear with me, because in the context of designing and implementing a foundational industrialisation, or in our case, reindustrialisation policy, “Australianising” will be critical to the long-term success.

In the first part of this short series, we took a closer look at the high-level focal points of a new, industry developed report, titled, Developing Australia’s defence industrial base: A time for urgency, optimism and action, developed by NIOA Group, Gilmour Space Technologies, Austal, Macquarie Technology Group, and the Australian Industry & Defence Network (AIDN), encouraging the Australian government to develop and implement a “national defence industry policy”.

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However, getting the supporting policy mechanisms, legislative, regulatory and investment environment right is a unique challenge in and of itself, as the industry-driven report identifies.

Industry policy in a troubled economic climate

It is no secret that the economy does not operate within a vacuum, rather, if anything, the events of the past five years, at least, have served to demonstrate that the operating environment, namely the legislative, regulatory, and investment factors are fundamental to the success of any industry policy and business.

Equally, any changes must be measured against the overall economic reality, namely, the health, resilience, competitiveness, and the health and availability of key inputs, whether that be labour, capital, energy or raw materials.

In the current Australian context, we face a host of economic challenges, whether it is constrained supply chains, both domestic and global, a startling lack of domestic manufacturing capacity or a tight labour market and serious contraction of investment capital, again both in the domestic and global markets.

Fortunately for us, a lot of the heavy lifting has already been done, particularly when viewed through the context of similar economic circumstances as was the case in the American economy in the late-1970s and early-1980s, as explained by the Harvard Business Review’s Robert Reich in 1982.

“Rampant inflation, high unemployment, and negative trade balances have not only plagued the American economy of late; these symptoms of a worsening international competitive position have also proved stubbornly resistant to the familiar medicine of Keynesian demand management. Recent experience has shown that aggregate fiscal and monetary policies can no longer be counted on to generate the type of new investment needed to improve the nation’s industrial competitiveness. But what are the alternatives?” Reich asks.

Despite the heavy criticism of industrial policy being a form of central planning masquerading as benevolent market intervention, Reich argues that a good industrial policy advocates for quite the opposite.

Reich states, “Industrial policy focuses on the most productive pattern of investment, and thus it favours business segments that promise to be strong international competitors while helping to develop the industrial infrastructure (highways, ports, sewers) and skilled work force needed to support those segments ... Pro­ponents of industrial policy argue that an American company cannot achieve international leadership without government support.

“They do not mean, however, that government should second-guess the strategic decisions of business by picking ‘winners’ and ‘losers,’ or that business should depend on government largesse. They mean simply that the strength of the United States economy will increasingly rest on public policies that complement the strategies of individual companies. Indus­trial policy is emphatically not national planning but rather a process for making the economy more adaptable and dynamic,” Reich expands.

So where to begin in the case of Australia’s own development of a robust, competitive, and resilient defence industrial base, again, lucky for us, a section of industry has some ideas.

The Goldilocks zone: Creating the environment

Central to creating a hospitable environment, is the belief that rather than an oppositional, combative relationship existing as the unwritten status quo, the relationship needs to be one of partnership and urgency in light of our rapidly deteriorating geopolitical and strategic environment.

In particular, the industry-driven report articulates, “The drive, urgency and partnership in the Australian government’s energy and manufacturing policy areas must be brought to its defence industry agenda.”

The report goes further, adding, “Industry policy for our nation’s security can no longer be set by the Defence organisation, because the Defence Department’s reach across policy levers is too limited and it has failed to deliver effective policy despite multiple attempts over the past two decades.”

This key realisation is not solely meant as a criticism of government policymaking, rather it is a recognition that a heavy emphasis on central planning is more cumbersome than policymakers would have you believe.

Simply put, while trying to be a scalpel, government is in fact a sledgehammer, having often dramatic first and second order effects on both business and individuals.

In order to affect positive change, the industry report identifies a need for a rapid departure from the status quo of defence industry policy making, stating, “Instead of Defence industry policy – where the capital ‘D’ indicates the Defence Department – we need sector-wide defence industry policy directions set by government. Policy must then be delivered by the key central agencies of government in partnership with the Department of Defence and Department of Industry, Science and Resources, as well as the Department of Finance, which governs the Commonwealth Procurement Rules.”

Unpacking this further, the report states, “That new defence industry policy must recognise the direct role that Australian industry must have in ensuring access to the support and systems that our military – and broader society – will need in a sustained conflict, when even our most trusted partners have their own priority: [their own] national needs.”

New, “inclusive” policy and a partner-focused mindset is a good start; the peak and troughs of Australian defence spending means many industry partners struggle to sustain themselves in the marketplace.

In response, the industry also needs heightened certainty to avoid “valleys of death” and to maintain a minimum level of viable industrial capability to be capable of rapid acceleration in the event of major military or broader national security threat.

“Government must provide one essential thing to Australian companies that can provide powerful capabilities to our military in our dangerous world: cash flow through contracts. That requires a new, stand-alone provision in the defence budget for acquisition contracts between Defence and medium and small Australian companies, starting at $500 million in its first year and growing to a minimum of $1 billion a year in the next three,” the report states.

Further supporting this, the industry report identifies a need for a major overhaul of the Commonwealth’s procurement apparatus and policy, with an emphasis on assuring “our military and economic security” has “explicit and high-priority selection criterion for decisionmakers” in a similar manner to the way contracts are awarded on the basis of economic, value for money, and Indigenous impact grounds.

These aren’t the only direct policy changes the industry-led report articulates the need for, with the report adding, “A clear public statement of government directions for the new defence industry policy, investment and approach must be issued to the federal departments and agencies involved in implementing it. That public statement must direct that barriers to Australian companies contracting directly with Defence on capabilities are to be removed.”

It goes without saying that the current series of economic and industrial challenges arrayed against the United States and broader Western alliance network, especially Australia, are truly immense and without precedent.

Accordingly, our response should equally be immense and without precedent in order to deliver the opportunities now presented by the rapidly changing world order. In order to do so, we need to look at the last time we faced peer competitors, albeit through a radically different lens because this time, we’re really on the back foot.

Final thoughts

Importantly, in this era of renewed competition between autarchy and democracy, this is a conversation that needs to be had in the open with the Australian people, as ultimately, they will be called upon to help implement it, to consent to the direction, and to defend it should diplomacy fail.

This requires a greater degree of transparency and a culture of collaboration between the nation’s strategic policymakers and elected officials and the constituents they represent and serve – equally, this approach will need to entice the Australian public to once again invest in and believe in the future direction of the nation.

Expanding and enhancing the opportunities available to Australians while building critical economic resilience, and as a result, deterrence to economic coercion, should be the core focus of the government because only when our economy is strong can we ensure that we can deter aggression towards the nation or our interests.

This also requires a greater degree of transparency and a culture of collaboration between the nation’s strategic policymakers, elected officials, and the constituents they represent and serve – equally, this approach will need to entice the Australian public to once again to invest in and believe in the future direction of the nation.

Additionally, Australia will need to have an honest conversation about how we view ourselves and what our own ambitions are. Is it reasonable for Australia to position itself as a “middle” or “regional” power in this rapidly evolving geopolitical environment?

Equally, if we are going to brand ourselves as such, shouldn’t we aim for the top tier to ensure we get the best deal for ourselves and our future generations?

Now is the time to till the soil of our future potential and the opportunities we now face, because if we don’t, generations of Australians will be unlikely to forgive 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..