Implementing the National Interest Framework: nuclear submarines

Implementing the National Interest Framework: nuclear submarines

Originally published on The Australian

The Future Made in Australia provides a policy framework for jointly assessing the economic and security aspects of policy ­proposals. The “bare bones” framework that was announced will develop substance through application.

Domestic manufacture of ­nuclear submarines falls firmly within FMIA objectives. It is not too late to bring this project within the National Interest Framework (NIF), with hugely consequential implications for security, industry policy, the budget and the overall economy.

The NIF divides proposals into two streams. Projects in the first – net-zero transformation – have to demonstrate comparative advantage: we should do those things that best use our skills and endowments. The test is: will the mature project be competitive in world markets?

The security stream, implicitly, does not need to pass the comparative advantage test. Treasury, a traditional defender of rigorous economics, accepts that security can sometimes outweigh free-market economics. Nevertheless, any proposal should pass the test of opportunity cost. There are many ways our security can be ­enhanced. We can’t do them all. Is this proposal better than the other possibilities?

Whatever the initial arguments for constructing submarines in Australia, much has changed since then. If this project were to go through the NIF process, what would be the current considerations?

First, there are wide differences of opinion, even among experts, on whether the original specification is still feasible. Vice Admiral Jonathan Mead, in charge of the program, says that it is all on track, supported by Jennifer Parker. Peter Briggs and Matthew Mai question whether America will supply the Virginia-class boats. The AUKUS submarines are even more doubtful given the cost/time overruns and “parlous” underperformance of the current UK nuclear submarine program. Briggs says we are relying on “hope over experience”. Long-term AUKUS critic Hugh White has recently ­refreshed his powerful arguments against nuclear submarines.

Second, the Ukraine war has provided stunning lessons on the power of missiles against the best ships of Russia’s navy. Perhaps we need more missiles and fewer ­submarines.

Third, China’s monopolisation of critical minerals raises new ­security concerns. Australia, as a major source of many of the critical mineral ores, has a key role to play. Assuring this supply will take huge investment in mining and processing, beyond the risk-taking capacity of the private sector. Former defence minister Kim Beazley has highlighted the need, without suggesting what would be displaced within the constraints of opportunity cost.

Fourth, it is now public knowledge that, even after the performance issues of the Collins-class boats were eventually sorted during the 1990s, for much of the subsequent decade the operational availability of submarines was sometimes zero and rarely more than just a couple of the six-boat fleet. There were, at most, three operational crews, with severe doubts about their readiness and experience.

Fifth, recent analysis of the 2012 Coles Review argues that most of this underperformance has come, not from any inadequacies of the Collins-class itself, but from problems in sustainment and crewing, in turn a reflection of managerial and organisational failures in both the Australian Submarine Corporation and the bureaucracy.

All this ought to be enough to reopen the project to root-and-branch evaluation. The NIF provides the policy framework for this, as well as an example of how it might work in practice.

The proponents of solar-panel manufacture put forward a 200-page report making a detailed case, under the security stream. With China’s scale and subsidies providing near-limitless supply of panels at giveaway prices, spending $7.8bn on subsidising domestic manufacturing makes no economic sense. With both the US and Europe ready to join this oversupply with their own subsidies, the security-of-supply arguments also look threadbare.

These unpropitious realities haven’t stopped the project from proceeding, but this format, with its detailed costing, provides the model for others. With enough transparency, the economic/security case can be argued. It is then up to the political process to decide.

In the case of submarines, the changing environment creates new options. For example, Sam Roggeveen has made the case for an Echidna Defence stance, in which submarines are not vital. Missiles are more important.

The number of submarines needs re-evaluation. We are planning on eight, but Peter Briggs ­argues that if we can’t have 12, then “we are better off not continuing down this path”.

Maybe this is too pessimistic. In the post-Coles Review reforms, the time taken for a full refit went from over three years to two – ­effectively a one-third increase in the operational capacity of the fleet. If we could optimise sustainment, each asset would do more.

One option which maximises flexibility would be to buy as many off-the-shelf Virginias as America will sell us, terminating our involvement with the AUKUS ­submarines. We would concentrate on expanding our own industry capacity through providing sustainment not only for our own fleet, but for that of our allies, building on our proven skills and experience. Sustainment is an even larger challenge than boat-construction and would provide an abundance of “good jobs” for South Australia, to meet the political imperative.

Could our current significant capability to manufacture submarine components be integrated with the US Virginia-class supply chain, giving scale (and thus efficiency) to our production, while boosting American production?

Meanwhile, the risks of “too many eggs in one basket” could be addressed by diversification: ­directing part of our industry support into drone and missile manufacture, where we have existing capacity and technology. More “good jobs”.

The Collins-class debacle was finally fixed, following the Coles Review, by reassessing and reforming. It is time to do this with the nuclear submarines.

Areas of expertise: Regional economic integration; Australia's economic relations with East Asia; international financial flows and the global financial architecture; financial sector development in East Asia