THE OUTLOOK FOR DEFENCE AND MANUFACTURING

PETER ROBINSON

My subject has been entitled “How Much Protection?-The Out- look for Defence and Manufacturing”.

One has to admire the people responsible for thinking up headlines: the ambiguity in this is very apposite. For clearly there is a double- edged meaning to the word “protection” in this context. There is also a convergence point at which both the meanings come together. That’s where there should be a focus of Government policy-making, but it is also where we lack even the machinery, let alone the will, to set about rational decision-making in defence.

The word is very evocative in the context of Australian elections. Up until the election of the Whitlam Government in 1972, every election campaign in Australia since the end of the ’40s had a khaki tinge to it. Even though successive Menzies Governments neglected defence quite shamefully they were still able to be re-elected by raising a Red bogeyman and implying that the conservative side of politics was sounder on defence than the other side. What they meant by “defence” was simply military security. Preferably provided by some- one else-great and powerful alllies like the United States.

After a gap of eight years, we are now coming up to another election in which defence seems certain to play a significant role and the same compartmentalisation of defence is already apparent. The Fraser Government has announced a five-year defence build-up-a rearmament programme-which will cost just under $18 billion at current prices. This represents an average annual increase in defence spending of about 7 per cent in real terms. It is a massive programme for a country of 14 million people which, according to Government prognostications, is embarked upon national development and mineral projects worth around $29 billion.

Concurrently with these proposals, of course, the Government is pursuing a policy of austerity in the public sector, restraint in social welfare benefits, handouts to selected industries, but no overall manu- facturing development policy, cutbacks in education and health and the active encouragement of foreign investment in Australian resources.

In one sense this demonstrates clearly enough that the Government realises-as I suspect the early Whitlam Government did not-that what is spent on one sector of Government activity limits what can be spent in other sectors. That if you are going to spend very much

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more on defence, you must squeeze expenditure elsewhere. But what it does not demonstrate is whether there is any rational and co- ordinated economic policy toward defence spending.

Defence is about securing the welfare and living environment of the Australian nation and protecting its interests. It is not simply a military problem to be measured in how many aircraft carriers, F111C bombers or tactical fighters we possess. The fact is that the level of spending on this kind of hardware could just as well demonstrate insecurity as security. Military skills, the armed services, the defence establishment and the hardware they deploy are simply some of the tools in a Government’s inventory for securing the welfare of the nation.

The level of social welfare spending, the quality of worker training, the effectiveness of our foreign policy and the policies devoted to the development of manufacturing industry and foreign trade are all elements in our defence posture: if they are damaged by an emphasis on military hardware and armed bellicosity then Australia’s defences are gravely weakened. In one sense, indeed, it could be argued that the damage is graver than the deterioration of our armed power would be. In the one case, damage is being done to the very thing we ar trying to defend and nurture; in the other case it is raising the future risk level for our way of life but is not necessarily affecting its present vigour or growth at all. It is really like a prosperous company that takes risks with its insurance policies.

The proper management of defence therefore implies a planning and co-ordination ability. We have to have the skills to assess the best balance between all the defence tools available in the workshop and to decide which ones are best for which particular role, taking account of the cost of using them, the long-term effects they may have on our internal economy and our external relations and also whether they interact with our other interests in a positive or negative kind of way.

The Department of Industry and Commerce is dedicated to propping up existing Australian industries and bowing to the demands of industry lobbyists on matters of protection and assistance to industry. It is a great wheeler and dealer. The Department of Transport con- ducts a foreign policy of its own, handling Australia’s participation in international aviation-an industry of some consequence in both a military and a diplomatic sense. The Department of Foreign Affairs tries hard to be a very proper foreign service. I t is professional and diplomatic and also has little influence within Australian Government.

It is obvious that protection policy-using it in the broadest indus- trial sense,-has a vital influence on Australian international relations and that this influence, in turn, has important implications for our strategic assessment of the military environment in which we find ourselves. The damage that has been done to Australia’s previously very good relationships with the ASEAN nationals by the clumsy

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handling of international and aviation policy is a good example of how such non-military defence issues interact.

The ASEAN countries were completeIy united on the issue- although both our Transport Minister, then Peter Nixon and the Foreign Affairs Department tried to promote the line that the issue was dividing ASEAN and that Singapore was the villain. The sugges- tion was constantly raised, sometimes in highly emotional terms, that this civil aviation policy was simply an extension of Australia’s generally protectionist attitude toward industry: that there was no difference between protecting Qantas and protecting Bradmill or Julius Marlow and that the ones the policy was aimed at were primarily our regional neighbours.

It certainly seems to me that there was perhaps more than a tinge of racial chauvinism in our international transport policy-that it was directed first of all at benefiting a cartel composed of Qantas and British Airways, than cartels composed of Qantas and other European or American airlines and then, as the lowest priority on the list, we would deal with the Asian nations.

Certainly it is true that there has been a shift in general protectionist philosophy over the past decade from broad brush tariff protection to more specific forms of assistance, particularly quantitative import restrictions and even more specific aid such as infrastructure assistance and electric power subsidies. Between 1968-69 and 1977-78, the average nominal Australian tariff rate feIl from 24 per cent to 15 per cent while the effective rate fell from 36 per cent to 26 per cent. But protection provided by quantitative restrictions rose and by 1978-79 about 10 per cent of manufacturing production in Australia was protected by quotas-including cars, clothing, textiles and footwear.

In terms of our relations with developing countries such as those of the ASEAN bloc. this implies that as soon as they have any success in the Australian market they are going to be restricted. It is easier to live with a tariff-ven a high one-where the barrier is firm and well defined than it is with the constantly shifting ground of quanti- tative restriction where an exporter can never win.

This shift in emphasis toward cartelisation of interests and arbitrary and changeable import restrictions is a fine way to aggravate bad feelings in any area which once had pretty good feelings toward Australia. Obviously, one should not exaggerate the defence impli- cations of textile quotas-or even the extent to which the resentment they arouse would spill over into adversely affecting serious mutual interests that might arise in regional security.

But they are a factor in reducing Australia’s influence in the area, damaging the respect in which it is held and holding its Government up to ridicule.

More importantly, they reflect an attitude toward manufacturing development in Australia which has more direct defence implications.

Manufacturing capability is unquestionably a measurable factor in our overall defence stance. It has been called “the fourth arm of

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defence” by one Defence Minister and for an isolated country such as Australia it has particular significance. Canada, for example, could be in a position to truck or rail defence supplies over the U.S. border at very short notice. Australia, apart from being less directly linked with America’s own defence interests than Canada, has to ship its supplies 10,OOO kilometres.

In this context, almost any manufacturing capacity is a potential contribution to defence capabilities. As World War I1 showed, there are thousands of ordinary workshops which could theoretically be turned to making shell casings or gun parts. We have the basic industries-steel, aluminium, copper, plastics, wool and cotton- necessary to support most manufacture and we have a moderately advanced technological base.

The question is constantly raised at Industries Assistance Commis- sion hearings that surely defence needs justify Government protection for almost any industry. It is a superficially attractive but spurious argument and it goes to the heart of my point about the real cost of the various tools available for national defence purposes.

The economic cost of protecting every industry that could demon- strate a defence significance would be incalculably high and the end result would almost certainly be a gross weakening of our defence capabilities.

Not only would the free availability of significant protection add very considerably to the costs already being borne by the community as a whole (all in addition. of course, to the very considerable burden of the actual defence budget), but it would also have an irresistible tendency to tie our military capacity to increasingly obsolete tech- nologies. There is plenty of evidence to demonstrate that high pro- tection tends to lead to a secular decline in the technological quality of the protected industries. To prevent this happening, it would be necessary to outlay public money for the regular upgrading of indus- trial technology. One does not have to be a free marketeer to recog- nise the prospects for bureaucratic proliferation, inertia and eventual decay that would arise from this policy path. In a somewhat dif- ferent context there are adequate examples of what can happen to industry dependent on Government policies for support in Britain.

In my view, a realistic appraisal of the requirements of the military side of defence for industrial support would lead to relatively small outlay for the retention of speciaIised areas. Defence has a great deal to offer Australian manufacturing on the technological front as well as being a major customer for a vast range of standard of production items. What is needed in the high technology area is a combination of systems management skills, design skills and basic technological capability. We obviously cannot contemplate manufacturing an F1 1 1 or an F18A but we certainly should have the ability to maintain them completely on our own and, if necessary, to fit new systems to them. There is no reason why this kind of capacity cannot be provided

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economically, realistically and in a way which benefits the standards of manufacturing industry as a whole.

It was really quite astonishing to read the Myers report on techno- logical change and find out that it was impossible to discuss defence technology because it is classified. I would venture to say that there are very few areas of defence technology in the Australian military inventory which are not thoroughly familiar to technical specialists in the field. What is interesting-and potentially useful to industry- are the studies the Defence Department does of the costs and benefits of acquiring or maintaining technologies for this country. It really would be useful to know the hard-headed, analytical basis on which the Department and its hand-maiden, the Department of Productivity, decide that one particular technology should be imported while another should be developed here.

I turn now to Mr. Alan Renouf’s assessment of Southeast Asia and Australia in the 1980s and its implications for our defence and, particularly, the manufacturing base of defence.

Mr. Renouf divides the outlook into two categories-the reassuring and the not so reassuring. I’m not sure that I find this a particularly satisfying classification since from a defence-manufacturing viewpoint the implications of the events in these two categories seem to be much more ambiguous.

In broad terms, of course, it must be good for the region and good for Australia that ASEAN has been something of a success and that the area is achieving some kind of political cohesion. But growing ASEAN unity and the achievement of a common sense of purpose may by no means be all good for a country like Australia which is floundering a bit in seeking its own identity and which certainly seems unable to de ide who represents a “threat” in the region and who should be regarded as a friend.

After all, virtually every “scenario” for some “threat” to Australia that is ever published these days seems to talk about unexpected contingencies, raids on the Australian coastline, “lodgements” of foreign forces in resource-rich areas, harassment of shipping, raids on oil rigs and so on. Moreover, there is every indication that those responsible for the military side of our defence take this nonsense seriously and that we uctirully are planning a military structure which is aimed at countering an unpredictable “threat” from one of our neighbours.

In thlis climate, and bearing in mind that our manufacturing and economic policies have considerably strained our popularity in the region, the growth of a more unified ASEAN could be seen as rather disturbing. Australian industry is fearful of ASEAN competition and lobbies our Government and its agencies frantically for more pro- tection. The military authorities talk vaguely about defending Aus- tralia against regional threats. Our transport authorities emphasise the role of aviation in retaining our “ethnic” ties with Europe and America.

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Quite frankly it a l l sounds quite nasty to me and the nastiness will be aggravated rather than relaxed by growing ASEAN military power and industrial capacity. I would hope that our Government sees the dangers of an Australian neurosis about the region growing to a point where it will create undesirable political imperatives. We need a fence- building exercise with the ASEAN nations to be carried out on a multi-front basis-manufacturing, trade, foreign policy, transport, tourism and defence.

Mr. Renouf points out accurately that economically AS’EAN members have shown much more satisfactory economic progress than might have been anticipated. It might be pointed out that their pro- gress may have been even more substantial if Australia had played a more helpful and generous role and our own security would have been enhanced.

Whatever we do in our region carries risk. If we try hard to develop more integrated economic relationships with the countries there, we are obviously putting ourselves at risk in a number of ways-we risk having our own economy affected by the policies of other countries and we will increasingly be unable to avoid being drawn into all kinds of arguments and disputes.

That’s what being part of a community means. If we adopt a semi or total isolation policy we will almost certainly

feed the resentment which already exists in the region and may- particularly if we insist on rattling our heavy weapons-accelerate a confrontation .

Personally I see the only sensible course as adopting a friendly and co-operative attitude toward the region and, in enlightened self- interest, encouraging our manufacturing industry to become involved. As Alan Renouf points out, it has enjoyed political and economic success beyond what anyone predicted. A large part of our manu- facturing and trade policy creation should at the moment be directed toward involving us in the action rather than protecting us against it.

The military side of our defence policies should be played down. It is fantasising to suggest that sending an aircraft carrier to Asian ports raises Australia’s influence and prestige in a regional sense. The feelings aroused are likely to be much more ambiguous than that.

I fully agree with the Renouf suggestion that Australia is creating problems for itself by apparently aspiring to play a world role. We had better recognise right now that we are never going to be as important a world power as Indonesia, for example. No wonder, in Mr. Renoufs words, that ASEAN may now think that Australia is getting too big for her boots.

As one of the less reassuring factors he points perceptively to the growing educated middle classes in the region and the problems they may have in getting satisfactory employment. This could be bad for the region in that it could lay the groundwork for disaffection of the kind that has occurred in Europe among young educated classes.

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But it could also have a backlash for Australia-a land which, if we continue our present bumbling, lackadaisical way, may be seen as unfairly rich. A place where lazy incompetent and uncultured people live well while the superior peoples of the neighbourhood live on the breadline.

Our first h e of defence, ultimately, is not the military hardware we dispose, nor the manpower we have in uniform, nor even our ability to make armaments. It is our growth as a humane, thoughtful, intelligent community with values that are compatible with those of our neighbours.

Large investments which will lead to that will not be wasted.

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