Sea Power: Local shipbuilding value overrated | ADM April 2012
Katherine Ziesing | Sydney
A paper presented by ASPI’s Mark Thomson and Andrew Davies with Deloitte Access Economics economist Henry Ergas set the cat among the pidgeons with their conclusion about the marginal value of Australian shipbuilding efforts, in an economic sense.
“ The goal of defence self-reliance does not provide a sensible justification for bearing these excess costs. Complete self-reliance is not possible in any case. Policy setting is therefore a matter of degree in which the appropriate extent of self-reliance needs to be determined by balancing costs and benefits. As a result, the penalties associated with domestic shipbuilding should only be accepted if they are offset by commensurate benefits.
“While such benefits have often been claimed, closer examination reveals them to be slight or non-existent. In particular, domestic production of naval vessels: does not ensure, or reduce the cost of ensuring, the supply of vessels that meet Australia’s strategic requirements; is not necessary to ensure, or to reduce the cost of ensuring, the sustainment of the fleet in peace or in war; and, does not materially enhance Australia’s sovereignty. Nor is it the case that domestic production should be considered an inherently advantageous way of providing jobs, boosting incomes and hence tax revenues; in fact, the effect is the opposite. Nor is it an efficient way to secure technological and workforce training benefits more broadly.
“It is therefore crucial that future decisions about sourcing Australia’s naval assets are based on rigorous and transparent cost-benefit appraisal, with special scrutiny applied to decisions that involve customised or Australian-unique platforms. Moreover, that appraisal must be based on realistic evaluations of life-cycle costs, rather than the underestimates of future costs that have been a recurring feature of Australian defence planning.
“Unless credible offsetting benefits can be identified, and they have not been to date, the case for continuing the current preference for domestic production is very weak indeed.”
Predictably, the audience reaction was less than supportive of the hypothesis. The very dry economic outlook of the report is what people have come to expect from ASPI led papers but the full report is well worth reading given the wide range shipbuilding projects on the horizon.