A country that makes things...badly

While debate rages over the value of subsidising the Australian automotive manufacturing industry, perhaps more people should be questioning just why we're thinking about building submarines.

Lowy Interpreter

The ongoing saga of manufacturing cars in Australia is going through one of its routine phases, where Detroit puts the hard word on Canberra for more taxpayer-funded subsidies, under threat of taking the production to some country where cars can be produced far more competitively.

This threat has a proven track record of success, and General Motors has now extracted another $275 million to keep Holden going for another decade.

The most powerful argument for maintaining the car industry is that it is very painful to restructure something that already exists. Cars are an established industry, with widespread beneficiaries and practiced lobbyists. It is also strategically located: strategic, that is, for anyone wanting to win an election. It is indisputable that if this industry didn't exist, you wouldn't create it. But the next prime minister who doesn't want to get re-elected can do the brave and noble thing, and put in place a serious industry restructure plan (aka industry funeral plan).

This post has a much less ambitious task: to draw out the corresponding arguments for producing a new batch of home-made submarines. The case for not doing this is compelling. The fact that we have a rump of a failed industry in Adelaide is a good argument for not doing it; at least the cars we produce are functional enough. No one involved in the Collins debacle deserves any more taxpayers' subsidy.

There was a time when you could talk about manufacturing being necessary for 'national security', but that argument was decisively shot down when the Aussie-built Boomerang went up against the Japanese air force.

Technology has made this sort of 'strategic drivers' argument even more irrelevant since. If we are preparing for a world in which Australia may be cut off from our allies' high-tech support for the gizmos that go inside a warplane or submarine, then we'd better dust off the plans of the Owen machine gun. No modern war equipment can be sustained from an industrial base as small as Australia's, no matter how much we subsidise it. We'll always need to be able to link to overseas capacity to keep stuff working.

The model for what we should do is in our approach to aircraft production. Sensibly, we no longer try to produce even a light plane (the tails fell off the last home-designed one, the Nomad). Where we can negotiate offset deals to do some manufacturing here, let's do that, despite the cost to commercial efficiency, because there is some social value in encouraging the skills involved.

But there is plenty of highly-skilled work involved in the very substantial repair and maintenance work, much of which it makes sense to do in Australia. When a 747 goes bung at Mascot, you don't want to have to ship it to Singapore to be repaired. If you are going to subsidise something to retain technological skills in Australia, better to subsidise maintenance. This is the sort of capacity you'll need in order to keep ships and planes (civilian and military) running in a war.

It just doesn't make sense for us to try to have the scale to design and build an Airbus A380 in Australia. Or a submarine. As a small nation in an uncertain world, our best chance is to be rich and highly efficient in what we do, and this means avoiding frittering away our resources on white elephant projects.

I don't know whether the right answer is to buy diesel submarines from the variety of high-tech suppliers who have proven capacity, or lease nuclear submarines from the US. But I'm sure it makes no economic sense to make subs in Australia. Why not put this question to the professionals at this business? The Productivity Commission should be asked to examine the economics of home-made submarines.

The cost of the subs puts the project on a par with the national broadband network and is more than one hundred times the cost of the latest Holden handout. Both the broadband and Holden deals have been endlessly debated in public. The home-made subs began as the germ of an idea and might become a fait accompli without ever getting some objective scrutiny.

Originally published by The Lowy Institute publication The Interpreter. Reproduced with permission.

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