Opinion: DIDS – a dangerous policy framework that doubles down on offshore dependency

Defence Industry Minister Pat Conroy released the government’s Defence Industrial Development Strategy the day after Australian Security Intelligence Organisation (ASIO) boss Mike Burgess told the country that a former politician had sold out our country to a foreign spy agency. That was good timing for him, because it meant the 114-page policy document has gone largely unnoticed.

But while this new Defence document is an incredibly turgid, badly written tome, it’s important to grind your way through it to understand the dangerous policy framework it is built upon.

The framework is based on a new definition of sovereignty. To quote it: “Australia’s defence industry is comprised of businesses with an Australian industrial capability and an Australian Business Number (ABN) providing products or services used in, or which can be adapted to be used in the Australian Department of Defence supply chain and/or an international defence force supply chain. This is Australia’s sovereign defence industrial base.”

The document then explicitly states, “Only in limited circumstances is Australian ownership critical to sovereignty,” but does not define what those circumstances are or could be.

This definition deliberately includes big foreign primes that have operations in Australia – like Lockheed Martin, Boeing, Northrop Grumman, BAE, and Thales. Under it, these firms are as Australian and “sovereign” as actual Australian companies which have majority Australian ownership and controls and headquarters in Australia. Companies like EOS, DefendTex or NIOA.

The effect of this new definition will be to further mainline the Defence budget into projects and contracts with the big foreign primes, because they now have the added attraction of apparently being sovereign Australian industry. The Defence Department won’t even have to pretend to give actual Australian companies any additional focus, let alone investment. America’s Northrop Grumman is now as Aussie as Bega Cheese’s Vegemite.

The deep conceptual flaw at the heart of this new “industry development strategy” is not understanding that sovereignty does matter, particularly in a time of crisis or conflict. This new definition empties the word of meaning.

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The most powerful practical effect of sovereignty is that a company headquartered in the US with home operations there is subject to US legal jurisdiction and, in a time of crisis or conflict, will, of necessity, meet US government needs first. Everyone else, even the most trusted partners, will be in the queue after the US military. The same is true for UK and EU-headquartered firms like BAE and Thales – they will be subject to the sovereign direction of their home governments and will prioritise these customers first. This is as it should be. It’s what sovereignty involves at its core.

An Australian company with its headquarters and home operations in Australia – like Macquarie Technology, for example – will similarly have no choice but to prioritise the Australian Defence Force as its critical customer in a time of crisis or conflict – because the Australian government will be able to exercise the control that it has over Macquarie Technology here in its home jurisdiction. Of course, the company will also have the motivation to prioritise the ADF at such times, but it also will have no choice. The same is simply not true of even the most cooperative big foreign firm.

To illustrate its absurdity, the definition of “sovereign defence industrial base” would also include Huawei Australia, security camera maker and distributor Hikvision and Landbridge, the Chinese company operating Darwin Port. These three companies have Australian Business Numbers and supply services here which could be adapted by Defence. Huawei and Hikvision services and products are certainly used in international defence force supply chains – notably as suppliers to the Chinese military. Hikvision’s cameras had been widely installed on Defence bases until their removal began recently, so it is great to hear they are now part of our sovereign industrial base.

How has this definition been seen as at all sensible inside the Australian Defence Department halls at Russell Hill? The answer lies in its vision of “industry” as set out in the document. This “industry” comprises the big familiar defence firms that supply the complex, the expensive and the few – weapon systems like surface ships, joint strike fighters and heavy armoured vehicles. The industry that makes them mirrors the products – by being large, complex and small in number.

It’s this big end of town whose leaders Defence proposes will meet on industry matters with Defence seniors and unions – a vision suitable to the pre-oil shock 1970s industrial landscape when “industry” was about steel making and car manufacturing. Innovative military capabilities will not be the product of this tripartite meeting series.

The fact that in every war for the last 10 years – from Azerbaijan and Armenia to Ukraine, the Middle East and the Red Sea – highly successful and destructive weapons have been made by medium and small firms making the “small, the smart and the many” has passed the Department of Defence by and made no impact on its vision of industry.

That’s extraordinary wilful blindness and a mystifying vote of no confidence in Australian companies that are currently succeeding in making products vital to the Ukrainian military, and which are being bought by militaries other than Australia’s who do see what’s happening in the world of war and weaponry.

The industry strategy talks more about “global supply chains” than it does about autonomy or national agency, at a time when globalisation has fractured and economic nationalism and geoeconomics are driving factors in industrial structuring. It doesn’t seem to have noticed that digital and autonomous systems are remaking many industries, including defence, and big incumbent firms are struggling to keep up with new entrants and smaller, fast-moving outfits.

“Urgent” and “urgency” make a total of nine appearances in the document and no impact on the 39 “Implementation Actions”. That list of actions reads like the internal “to do” lists on multiple Defence bureaucrats’ desks. It includes several things that were meant to have been done years ago as a result of the First Principles Review back in 2017 – like Defence becoming a “smart buyer” or streamlining the hulking “ASDFECON” set of contract documents.

The role that Defence does see for actual Australian companies is selling inputs and subcomponents into the big foreign firms’ “Global supply chains” – as is happening with Lockheed’s F-35s. Any thought that finished systems or products like secure data centres, drones or counter drone systems could be bought directly by Defence from Australian companies is missing. Funding for Australian companies is limited to small grants – like the $100,000 each given to 11 companies after 250 Australian companies responded to a request about small general-purpose unmanned drones.

As if to confirm the disconnect between Defence and Australian industry, the media release announcing that drip feed of funding noted that the responses revealed local companies whose capabilities and products had been unknown to Defence.

If you haven’t been hearing of the struggles US and European firms are having trying to meet Ukraine’s needs, and you had any thought that simply doubling down on big foreign firms was the right answer for Australian security, then reading the US government’s National Defense Industrial Strategy released in January would remove that delusion.

In its 60 pages, it provides an honest acknowledgement that the “post Cold War period saw the wider contraction of America’s overall production capacity across many industries”. It confirmed that “The events of recent years dramatically exposed serious shortfalls in both domestic manufacturing and international supply chains.”

In other words, America is struggling to meet its own needs, let alone being able to meet concurrent demands of its partners and allies. Now is not the time to increase our dependency. For our sake and for our US ally, we must be able to do more for ourselves.

Unlike the Department of Defence’s effort with its “Defence Industrial Development Strategy”, the US government sees a need for urgent action. Its counterpart to this Australian strategy includes key efforts to grow the role of small and medium American enterprises and dynamic new approaches which bring new industry entrants to supply its military, as these two quotes show:

“Guided by this first-of-its-kind strategy, the [US] DOD will develop more resilient and innovative supply chains, invest in small- and medium-sized businesses, and strengthen and grow American innovation and manufacturing ecosystems across both the private sector and the government-owned organic industrial base.

“Building a more robust, modernised defence industrial ecosystem will require a dynamic effort across the US government to create the legal and policy conditions that allow new entrants into the defence production and services community.”

US Defense Deputy Secretary of Defense Kath Hicks’ foreword summarised things in a disturbing but clear way with insights drawn from the real world that drive a call to action in the US: “The current and future strategic environment requires immediate, comprehensive, and decisive action in strengthening and modernising our defence industrial base ecosystem to ensure the security of the United States and our allies and partners. As this strategy makes clear, we must act now.”

In contrast, Pat Conroy has been convinced by the Department of Defence to release a damaging, slow-moving new policy framework that will make Australia more dependent on big foreign firms who are struggling to meet the needs of their home governments.

His new strategy will undercut Australian companies’ successful efforts to provide systems and services that increase Australia’s military power to make us more secure in an increasingly dangerous region. And the industry that Defence is focusing its budget on will remain one suitable to equip the Australian military of the 1990s with traditional platforms built slowly and at great expense, unable to be lost and replaced in conflict. That’s not a military suitable for the destructive, autonomy-heavy wars that the future will hold if deterrence fails.

The document is permeated with Defence’s comfortable “crawl, walk, run” approach to developing new military and industrial capabilities. How walking, let alone crawling, is commensurate with the nation’s urgent strategic circumstances set out in the government’s own strategic policy documents, such as last year’s Defence Strategic Review, is mystifying. Moreover, as the experience of the French Attack Class submarine, the cancelled Arafura Class OPV, and the Hunter Class frigate show, as Defence crawls, the real world is running into the future, leaving Defence with irrelevant, stranded investments.

Meanwhile, Australian companies are ready to run right now – it’s just that they aren’t producing the mega platforms that Defence cherishes.

Until an Australian government directs the Department of Defence to get out of its bunker and notice what Australian companies can do and provides a directed line of funding for Defence to acquire systems and services from actual – sovereign – Australian companies, we will not have an industry development strategy in Australia. And our security will be the worse for that, at a time when this is unacceptable.

Michael is director of Strategic Analysis Australia. From 2018 until September 2022, he was the director of the Defence, Strategy and National Security Program at the Australian Strategic Policy Institute (ASPI) in Canberra.