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Reader riposte: Defence debate - we need to hedge

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COMMENTS

23 April 2009 10:34

Peter writes in with this reply to our defence debate. Here are parts one, two, three, four, five, six, seven, eight and nine.        

Hugh White’s paper has usefully reinvigorated the debate about whether Australia should focus on the current small-wars or instead agonize about the possibility of a big-war in 20 or 30 year’s time. The Obama administration is clearly emphasizing winning now. Should we follow? Is an approach of committing large sums of money today the best solution when we do not know how the future will really turn out?  China may not become an adversary; there could be big opportunity costs acting on a worse-case assumption that does not eventuate.
 
Maybe Australia’s defence strategy should be a merged approach of both perspectives something along the lines of helping weak states while hedging against the return of interstate conflict. Perhaps the uncertainty of China's rise can be met by more than an investment in hundreds of JSFs and dozens of submarines.
 
The use of hedging strategies can give the ADF’s force structure the ability and the means to develop to meet such emerging circumstances. Hedging strategies aim to minimize expenditures and long-term commitments, spending only limited funds and resources until the end-point becomes more certain.

When evidence accumulates that the international system is developing in worrying ways, then the overall force development strategy can be modified to counter this by either expanding or contracting particular hedging sub-strategies as needed.
 
Scarce resources can be spent on forces appropriate for more immediate and pressing threats ­current wars — while developing options to be expanded if required. A robust package of hedging sub-strategies is a portfolio of real options; the greater the uncertainty, the greater their value, just like with financial options. However, hedging is not free; some expenditure may ultimately prove unnecessary, as not all hedges may prove useful as the international system evolves. And it is not a set and forget investment strategy; it needs continuing adjustment.
 
What might it mean practically? The ADF force structure should be wide and thin, not narrow and deep. Hugh’s focused defence force needs broadening to be able to see and deal with all that the future may bring. The recent development of the RAAF air transport fleet might be an example. Yesterday’s airlift fleet was narrowly focused and deep, comprising mostly many C-130 Hercules aircraft aimed mainly at troop-lift in the defence of Australia.

Today the airlift fleet includes multiple aircraft types and is able to concurrently support small-scale operations in the Solomons and distant larger deployments in the Middle East. However, this more adaptable and versatile force, is narrower with small numbers of each aircraft type. The trick in hedging is that as the future evolves and becomes clearer the defence investment profile changes and those segments of the original thin force structure actually needed can be deepened.
 
A similar approach might be the modifying of the Super Hornet aircraft so they can become electronic jamming aircraft if required later. In time, new technology may be unable to unmask stealth aircraft like JSF, hedging against this is prudent. In a similar vein, the Center for Strategic and Budgetary Analysis in DC notes that the JSF is best able to operate over short ranges with small payloads.

This may be exactly what Australia needs in 2030 but it is also possible that an entirely different capability may be needed for the circumstances of that decade. Important alternatives could be overlooked in choosing to buy hundreds of one aircraft type now as Hugh seeks.        
 
The answer to an uncertain future is not to make all the big decisions now and choose a lot of a few types of expensive weapons hoping that tomorrow’s strategic circumstances turn out to be best managed by today’s sole big-bet.

The future has proven to be unknowable: the Berlin Wall’s demise was missed, 9/11 was a big surprise, Iraq was not close to developing a nuclear weapon. Advocating costly equipment solutions to the distant future is an intellectual gamble that does not reflect the reality of an unknowable future. A defence investment strategy that emphasizes hedging is an alternative.

Photo by Flickr user Saxonfenken, used under a Creative Commons licence.

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