Australia’s security needs a national approach to defence industry

As our geostrategic environment deteriorates, the Australian Government has adopted the concept of national defence – the defence against potential threats arising from major power competition – as a new approach to defence planning and strategy.

A National Defence Strategy is to be released in the early part of 2024. But the government has so far been largely silent on what kind of defence industry this requires, how government can ensure Australia has the required depth in this crucial area, or even how to think about the role of defence industry in national defence.

In a new report with colleagues from the Australian Industry Group – Defence Industry in National Defence – we argue that Australia’s approach to defence industry policy of recent decades is no longer fit for purpose.

Defence industry is not only a ‘fundamental input to capability’, linked to specific defence acquisition programs. It’s much more important than that.

Put simply, defence industry needs to be considered as a national capability, which allows Australia to adapt and meet the strategic challenges laid out in the recent Defence Strategic Review.

Our report argues that although the government has repeatedly acknowledged the strategic value of certain capabilities and the critical contribution of local industry to delivering those capabilities, the focus has remained on achieving value-for-money and minimising project risks through the acquisition of military-off-the-shelf solutions.

Attempts have been made to build specific industrial capability, such as shipbuilding and the guided weapons enterprise. But these attempts have been hampered by a lack of clear purpose and intent, a lack of direct connection between strategic objectives and industry policy and a continuing project-by-project approach.

The result is a domestic defence industry that requires restructuring so that it can do more than survive from contract to contract and is better equipped to deliver what the Australian Defence Force (ADF) is likely to need in a major conflict.

This is simply not good enough for the situation in which Australia finds itself. As recently commented upon by one observer of US policy – “You go to war with the industry base you have, not the industry base you want”.

Australia’s defence industry is a critical enabler of our ability to defend the country, and to build and re-build the defence forces before and during major conflict. Without a defence industry of appropriate size and shape, the ability of the ADF to adjust and grow to the demands of major war will be very limited. Industry, therefore, needs to be viewed, planned and managed in a national context. 

The current war in Ukraine has demonstrated that the importance of supply chain security and the vulnerabilities that develop from interruptions to supply chains. Ukraine has also shown that items such as drones and weapons are consumed in large numbers, and that deep and adaptive industrial capabilities are critically important in major conflict.

In a time of conflict, the Australian defence industry will need to produce consumable items, many of which are not currently produced here, at scale. It will have to adapt and improvise military systems and platforms to respond to operational lessons and requirements. Parts of the industrial base not typically associated with supporting the defence force will most likely have to be involved. Only through the consideration of ‘industry as a capability’ at the national level will this be possible.

This will require substantial change in both defence industry and the broader national industry policies. It will require defence industry to be embedded within and managed as part of Australian broader national industry structure and policy. It will require strategically prioritised defence industries to be supported to achieve scale, and positioned for surge and flexibility. It will require changes to the way that value-for-money is assessed for these capabilities.

The government has an array of powers that allow it to shape and foster its desired industrial structure and to control and incentivise industrial behaviour. It is not just a contractual partner to industry but can also be legislator, regulator, provider of direct or indirect support, landlord and part- or full-owner. If government is to develop and manage defence industry as a national capability, it is important that it make use of the full range of these tools. A sovereign but internationally linked defence industry will be an asset during a period where the risk of major conflict is rising. Action needs to be taken now to set the nation on the path to the industrial capability that is likely to be needed.