Last year I warned about the proliferation of unsubstantiated claims about the economic benefits to Australia of AUKUS and the domestic construction of nuclear submarines.
Such claims are nonsense. All economists will tell you that defence spending simply transfers resources from productive sectors of the economy to one that generates no direct economic benefit. The analogy I have used is one of a tractor factory that produces tractors that simply drive laps around the factory, never approaching the exit.
They may be nice tractors and talented tractor builders, but the tractors aren’t going into the world to generate economic activity. In return for that drain on the economy, defence spending is meant to generate security, which of course has huge economic benefits through the avoidance of war and all the losses and damage that brings. Any other criterion for assessing the return on defence spending fundamentally misses the point.
Politicians intuitively understand this, which is why they dial back defence spending in times of peace and only very grudgingly increase it when threats appear. If defence spending did in fact generate economic benefits at the national level, they would fall over themselves to continue to spend on domestic defence industry in peacetime. The state of the United States and United Kingdom’s submarine industrial bases illustrates this phenomenon at work.
With the burgeoning AUKUS grifter class, these fundamentally misleading claims are becoming louder and more frequent—all without any evidence to support them. Unfortunately, think tanks seem to be echoing some of these grifter notions.
Recently the Australian Strategic Policy Institute published an article reporting the outcomes of an event held in its Washington DC office aimed at ‘improv[ing] AUKUS messaging strategies and public understanding through open and inclusive dialogue.’
ASPI’s Washington DC office was recently in the news after the Government released the Independent Review of Commonwealth funding for strategic policy work. The review’s author, the former Secretary of the Department of Foreign Affairs and Trade Peter Varghese, recommended that the Commonwealth cease funding the Washington office on the grounds it muddied the waters around Australian messaging in DC. I’m agnostic about this recommendation, although I find it hard to imagine that US policy makers would be unable to distinguish between the position of the Australian government and the opinions of a think tank, particularly given how adept they are at understanding that US think tanks don’t speak for them. But if parroting nonsense about the supposed economic benefits of AUKUS to Australia is the best the DC office can do, then saving Australian taxpayers’ money is a good outcome.
The piece seeks to recommend ways to ‘fill gaps in AUKUS communication efforts’. Like myriad other advocates for AUKUS, this one assumes the product is fundamentally a good one and the problem is simply one of messaging. This is an area where some self-reflection might help.
Instead, the well-worn cliches come thick and fast without the slightest shred of evidence to support them. Apparently AUKUS ‘presents an opportunity for partner nations to reshape their economies by revitalising their defence industries and integrating them with each others.’ But there’s no analysis of how AUKUS spending, which the Government has said will be less than 0.15% of Australia’s GDP for the Pillar 1 component (i.e., nuclear-powered submarines), can reshape our economy.
Apparently AUKUS will help young Australians currently struggling in ‘a cost of living crisis’—they just don’t realise that yet. So the ‘promise of economic stimulation needs to be at the centre of the story that is communicated to the public. Citizens must be shown how investment into the defence priorities of AUKUS will improve their lives.’ The only ‘evidence’ that it will improve their lives is a reference to the hoary old chestnut that defence spending created the internet and GPS.
How Australia spending huge amounts to assemble submarines based on designs, technologies and components from the US or United Kingdom will generate life-changing everyday technologies for young Australians is not explained. Let’s be clear, AUKUS Pillar 1 is not the kind of program that will generate significant new Australian technologies to improve the lives of young Australians. We will be building overseas designs incorporating overseas technologies that are designed and produced overseas. And all this will happen in a secret bubble where leaks of tech knowledge to the civilian economy will involve jailtime.
Indeed, to emphasise the low risk involved in the program, the Government has emphasised that our submarines will be the same as the US and UK’s. So, the last thing this program is about is generating new Australian technologies.
As usual the muddled economic thinking is mixed up with muddled thinking about ‘social licence’. Even though there is no credible argument in the piece about economic benefits, it advocates that ‘to justify [AUKUKS] spending, the Australian government must communicate beyond the security benefits of the program and highlight the economic benefit AUKUS will bring to Australia, particularly in the form of high-paying science and technology jobs.’
In short, if we can’t convince people of the merits of AUKUS on security grounds, apparently we should try to buy their support with the promise of jobs. But AUKUS, if it’s about anything, is about making Australians more secure and anything else is simply a byproduct. So we should be hearing more about what the compelling security benefits are, if these can be clearly articulated without relying on too much arm-waving, assertion and ‘apex predator’ hyperbole.
As to ‘high-paying science and technology jobs’, these are not an economic benefit to the nation when they are being paid for exclusively by the public purse to produce tractors that drive laps around the factory; they may be economically beneficial to the tractor builders, the owners of the tractor factory, and perhaps even the town the tractor factory is on. The same is true for the economics of making and supporting weapon systems like submarines.
Those ‘high-paying’ jobs are an opportunity cost taking skilled people out of productive sectors of the economy. We could get the same dismal economic result by pumping money into any heavily subsidised activity (in the case of defence spending, this is essentially 100% subsidised activity by the monopsony government customer).
The Government could get a better economic result by judiciously supporting productive activities that might have customers other than itself. There is nothing in the piece that says why AUKUS is a better bet as a form of economic stimulus than anything else.
Of course, this piece is not the only one that makes weak arguments about benefits and social licence. At a conference last year I heard a British speaker state that it was important to gain social licence for naval nuclear programs and the way to do that was through jobs. They argued that without nuclear submarines, communities like Barrow would have few economic prospects therefore the people of Barrow like the UK’s naval nuclear programs. That may be true, but the point of SSNs is not providing jobs for economically disadvantaged communities.
Moreover, such advice is essentially irrelevant for Australia. SSNs are planned to be built in Adelaide and sustained in Henderson near Perth (and possibly also in Adelaide, that part of the plan is not quite clear). Adelaide and Henderson are two of the most economically privileged locations in the world—do they really need massive subsidies from the rest of Australia to create a few thousand jobs, particularly with Australia effectively at full employment in the ‘high-paying science and technology job space’?
Unfortunately, the first British speaker’s arguments were somewhat undermined by a second British speaker whose company was involved in the construction of SSNs. They stated that they couldn’t get new workers to move to the regional towns where construction of SSNs and their key systems occurred, therefore they need to move the work to the workers who want to live in major cities. That certainly sounds sensible, but it reinforces the issue of opportunity cost; even in the UK with an established civil and military nuclear industry, it’s hard to find workforce with the right skills.
There are many more weak arguments offered in favour of AUKUS. One of the Australian Government’s favourite ones is an oddly quaint one that exudes nostalgia for a by-gone era (if it ever existed) in which people grew up and did the same job that their parents and grandparents did: AUKUS will provide the children and grandchildren of shipyard workers with jobs building submarines for generations to come, much like nineteenth-century Yorkshire coalminers, or twenty-first-century Barrow-on-Furness submarine builders.
I don’t know about you, but I don’t know a lot of Australian kids who are dreaming of spending their careers doing the same job as their parents, or vice versa. Outside of submarine-land, we keep getting told how we need to be prepared to have multiple careers over our working lives. This ‘argument’ is really just the same social licence argument put another way—we’ll buy support with guaranteed jobs. But the economic cost aside, is it really a compelling one for modern Australians? Particularly when only a very few of them will get those jobs.
Overall the Australian Government’s case for AUKUS Pillar 1 has been weak. One of the more glaring shortcomings has been the complete absence of any economic analysis, independent or otherwise. Media releases on dollars spent on Australian industry, or unsubstantiated claims about the number of jobs to be ‘created’ are not economic analysis. If the Government does have analysis about the economic benefits, let’s see it. But to be credible, this analysis must consider opportunity costs as well as benefits.
To give credit where credit is due, this is an area where ASPI has previously done good work in explaining what good economic analysis looks like and what defence projects that maximise economic benefits look like, particularly in the work of Rob Bourke. His ABCs of defence industry economics and peerless Defence projects and the economy would be good places to start if there’s an appetite to inform rather than manage the Australian public’s understanding of issues in the important public debate around AUKUS.