AUKUS pillar two needs more than Defence
Advanced manufacturing

Advanced manufacturing is about more than just Defence. Shutterstock images

Written by

Lesley Seebeck

Amidst recent speculation over the Defence Strategic Review and budget funding, it’s far from clear the promises of AUKUS are to be met. While pillar one of AUKUS, the nuclear-powered submarines, has garnered most attention, it is AUKUS pillar two that’s more interesting—if realised.

Ideally, pillar two offers Australia a means of being more than a technology taker. In a world driven by technological competition, being able to create, drive and sustain technological innovation is ging to be key not simply to prosperity and well-being, but security. Building that technological creation capability should be central to any national security strategy, and our own economic and security statecraft.

But delivering on the promise of pillar two will be difficult. There is—as yet—no set, separate funding. Pillar two remains wedged within the closed world of Defence, shuttering interactions, with no apparent mechanisms to enable a broader realisation of its benefits.

The embarrassing censoring of the Peever Report on defence innovation is reflective of a slow, timid, and unimaginative bureaucracy—hardly the wellspring of energy, contentious debates and radical ideas that drives breakthroughs and builds industries.

Nor will we realise the potential benefits from pillar two simply by buying it in. Such practice exacerbates—rather than rectifies—the continuing decline of Australia’s knowledge capability and inability of government to seriously innovate.

Measures of Australia’s economic complexity, from both MIT’s Observatory of Economic Complexity (OEC) and Harvard’s Atlas of Economic Complexity, both show Australia’s continuing slide. 

Economic complexity matters. It measures the knowledge composition of products and services, as well in the case of the MIT data, the knowledge generation of locations. It is correlated with prosperity, and sheds insights into a range of other measures including inequality.

The more knowledge creation a nation can do, the more it can generate a diversity of increasingly valuable products and services. It is better able to shape the means of production and the standards that shape the world.

Australia’s poor performance—an indictment of public policy over the last 20 plus years—leaves us an outlier amongst developed nations. No other comparable country has suffered the decline evident in the graph above. It demonstrates how much heavy lifting we need to do, as a country—and how much of our economic prosperity is on borrowed time and increasingly vulnerable to the whims of others.

And it matters for AUKUS. Innovation of the sort needed to realise the national benefits of AUKUS cannot be found within a restrictive, risk-averse Defence.

Nor should we rely on ‘spillovers’ from within the high walls of Defence to the broader economy, as anticipated by outgoing Ambassador Sinodinos in his conversation with CSIS’s Charles Edel in March 2023.

In part that’s because such spillovers are few, hard to capture and patchy—we can see that from existing defence projects, from the Collins class submarines to Bushmasters to Jindalee, where access is restricted and foreign primes the preferred contractors and support.

Certainly, those programs realised some local employment. But the intellectual property, the know-how, was largely retained overseas and the opportunity for new industries and innovation was limited by design, security constraint or limited customer base.

As Ambassador Sinodinos also recognised, in the case of AUKUS, the high walls around specific technologies will be there to stay: ‘We’ve assured Americans and shown them the sort of protection of information measures that we take to make sure they understand that their technology is safe in terms of leakage to third parties and all the rest of it.’

That leaves us with a difficult problem that cannot be solved by Defence alone. We need the knowledge creation capability that Australia has neglected for over twenty years to realise the benefits of AUKUS. Yet AUKUS, as designed and being implemented, will not contribute to the broader capacity and capability it needs to succeed.

AUKUS pillar two has two parts. One is the translation of products and services into military capability, operational concepts, doctrine, and skills. The difficulty here should not be under-estimated: real change in Defence is tough and will need close attention and sustained pushing from ministers.

The other part, the exploration and creation of technologies, products, and services, should reside outside Defence, amongst civilian organisations, companies, and individuals. The technologies are largely civilian in origin. And the civilian world is where competition, market signals, diversity and contestability can be most readily found.

But Australia has not invested in a rich ecosystem of idea and systems generation and testing—such as in the US engineering laboratories and federally funded research and development centres. Worse, innovative capacity within our public service has long been outsourced to extractive consulting companies.

It’s a capacity and capability problem. Much as water poured onto barren, infertile ground does not of itself generate healthy growth, money alone, such as through the National Reconstruction Fund, will not create the conditions for knowledge creation.

Institutions matter. And ours, shaped by and adequate for an earlier age, both timid and jealous, will not serve the promise or needs of AUKUS, nor sufficiently nourish a thin, parched knowledge ecosystem. That leaves a big challenge for ministers, and one many aren’t keen to grapple with: nurturing a vibrant, technologically adept Australian public sector.

Deep change takes time: if we’ve spent 20 years digging ourselves into a hole, we might need another 20 to dig ourselves out. But that assumes we swing the rudder hard over today. The need is for urgent action. We should be looking at ambitious civilian moonshots of the type that pull major institutional and market reforms behind them, rather than continuing down a ‘safe’ conventional path, restraining technology development to within Defence walls, and expecting different outcomes.