Deterrence and Defence Manufacturing: Australia Faces a Major Challenge

By Graeme Dunk

Deterrence has been this Government’s mantra from the early stages of its time in office. Initially promoted under the guise of “impactful projection”, the position was reinforced in the Defence Strategic Review (DSR) with the stated, repeated, need to ‘focus on deterrence through denial, including the ability to hold any adversary at risk’ with the aim to compel an actor to defer or abandon a planned action.

The Strategic Review, and the Government, has focused on the acquisition of defence capabilities that are expected to have a deterrent effect; primarily the acquisition of nuclear submarines under AUKUS Pillar I and long-range guided weapons under the Guided Weapons and Explosive Ordnance (GWEO) Enterprise. Deterrence is also a factor in the recent Enhanced Lethality Surface Combatant Fleet Report and in the Defence Industry Development Strategy (DIDS).

As stated by Colin Gray, deterrence is essentially a state of mind that has developed in the potential aggressor and ‘what matters most is not our capability, but rather what the enemy believes our capability to be’. Therefore, not only do we need the appropriate military systems and hardware, but we also need to be seen to be able to efficiently, effectively, regularly and (if necessary) continuously operate, maintain and develop those systems and that hardware.

Having a visible, capable domestic industry, capable of providing the systems, support and re-supply that the defence force might need, is therefore a key component of deterrence.

In contemporary Australia, this is where the aspirations and the reality diverge.

Whilst the Strategic Review has highlighted that a national industrial base with a capacity to scale when necessary is critical for deterrence to be effective, Australia’s manufacturing and industrial prowess is lacking. The Organisation for Economic Co-operation and Development (OECD) has placed Australia last among its members for manufacturing. Perhaps more tellingly, a recent report has noted that ‘no Australian industry has shrunk more than manufacturing in the last 15yrs – with some urgently needed manufacturing occupations declining by 70%’.

Over the past decades, Australia has become addicted to the primacy of market forces, and the cost competitiveness delivered by global supply chains, over investments in domestic manufacturing. This position was cruelly exposed during the COVID pandemic when, as reported in a Parliamentary Inquiry, ‘Australia’s ability to secure vital supplies became problematic’. These vulnerabilities have, in part, been recognised in the Prime Minister’s recent “Future Made in Australia” announcement.

The latest geostrategic assessments for Australia are that warning time has evaporated and that major conflict is possible in the near term. All Defence planning is supposedly progressing with this in mind. However, the recent DIDS is well and truly rooted in the past, in having time to prepare, and in thoughts of ongoing international resupply. Crucially, the Defence Industrial Development Strategy is also out of step with the Government’s Future Made in Australia plan.

As we are likely to be in the same fight as the supplier of most of the systems and consumables that the ADF uses, resupply will be (at best) uncertain when it is most needed. Solutions such as stockpiling, and/or the greater alignment with the United States and their supply chains, have been promoted as options. Whilst these strategies may have a short-term benefit, they are unlikely to be successful during a prolonged conflict.

The current war in Ukraine has starkly demonstrated that Australia needs more manufacturing. We need to be able to produce the systems and consumables that we will need in volume. We need to be more resilient and more self-reliant than we currently are. We need to show a potential adversary that we will be able to sustain our effort over the long haul. As stated by the US Undersecretary of Defense Acquisition and Sustainment in October 2023, “production itself is deterrence. It’s as simple as that”.

The difficulty arises in that we currently don’t have the manufacturing capability and capacity that we are likely to need. It needs to be developed. As it will cost, prioritisation of investment is necessary. Prioritisation decisions need to be made primarily on strategic, rather than economic, criteria. We need to explicitly address the risks and vulnerabilities that we face rather than pretend that others will help us through the crisis.

The DIDS does not do this. It does not lay a foundation for the development of the defence industry that we need, at the scale that we might need it. Artificially reducing the number of headline Sovereign Defence Industry Priorities by folding everything into seven buckets does not prioritise, does not improve manufacturing, does not improve resilience, and does not provide deterrence. Nothing is a priority when everything is a priority.

There needs to be a more granular linkage between capability and criticality (risk). Four bands of criticality (linked to the mitigation of strategic risk) can be envisaged: the critical, the nearly-but-not-quite critical, the important, and the not-so-important. This would enable the policy levers available to government for industrial development, of which there are many, to be tailored to align with the assessed risk. The greater the risk, the more focused and “hands-on” the potential intervention.

And the Commonwealth Procurement Rules, that arbiter of value-for-money, need to be amended to place greater emphasis on the strategic value of critical capabilities. It makes a mockery of strategic-based decision-making when such considerations are subordinated to an economic rationale that is inconsistent with the prevailing geopolitical circumstances.

In this way the Government can drive towards the development of domestic industry capability and capacity that is likely to be of greatest value should major conflict occur.

More of the same in the industrial space, which we what we are getting, is demonstrably an inadequate response to our current circumstances. The world has moved on. The world is watching.

The development of a visible, vibrant, innovative, and capable industry sector, a sector able to design, manufacture and upgrade critical capabilities, is important. Without that, there can be no deterrence.

Graeme Dunk has completed a PhD into defence industry sovereignty at the Strategic and Defence Studies Centre, Australian National University and is Head of Strategy at Shoal Group, a defence-oriented company.

This article was published by Strategic Analysis Australia on April 15, 2024.