Public Sector Informant: Disconnect with industries shows there’s not a strategic bone in the nation’s body

An F/A-18F Super Hornet. The government has said it will increase its military spending. Picture: The Department of Defence

As a nation with interests but not much power, Australia has produced many strategic assessments, both official and unofficial, over the years. Until relatively recently, the working assumption behind these analyses was that Australia faced no direct threat to its interests, at least none that could not be handled through our alliance with the United States.

In recent times, though, the tone of this conversation has grown noticeably darker. Many commentators have pointed to the difficulty of maintaining good relations with our major trading partner (China) as well as our most important strategic ally (the United States). Australia, we are told, must become more militarily independent, a regional power capable of counter-acting Chinese aggression.

Responding to this perceived threat, the Prime Minister recently announced significantly increased spending on weapons and surveillance technologies and on cyber-security. But there is a missing dimension here. No amount of expenditure of this kind is likely to be effective unless Australian policymakers learn to make better connections with industry and in particular, with manufacturing. The success in this respect of our giant neighbour to the north has lessons, as well as implications, for us.

Ever since the Chinese discovered – or re-discovered – the power of international trade to underpin economic growth, they have used the attraction of their immense domestic market, the greed of many Western companies for profits, and the generally favourable (to China) practices of the World Trade Organization to build a manufacturing sector of immense power. Chinese firms have played their role in low-cost production, while understanding completely (as other Asian industrialisers have also done) the importance of knowledge, know-how and research to their national enterprise.

The Chinese state maintains sophisticated spying regimes to ensure that nothing of any consequence is missed. Industrial espionage is rightly feared by the West. But in the technological world, there can be very few Western secrets that have not already been appropriated by Chinese interests. For many years, it has been impossible for non-Chinese firms to sell anything in China without transferring considerable amounts of intellectual property to their Chinese partner.

So far, this strategically-engineered growth has been good for Australia. We have become accustomed to our role, which is to sell iron ore and coal to the industrial behemoth and, at least until COVID-19 interrupted the flow, to provide a scenic place for young Chinese students to pursue their tertiary studies. As long as the regime tolerated it, wealthy Chinese continued to invest their capital in Australian property and other businesses.

Many Australians believed these interconnections meant that we were not only trading partners but “friends” with China. There was even some surprise when the PM’s recommendation that the origins of COVID-19 be investigated, was interpreted as a hostile gesture. From China’s perspective, national self-esteem affects everything, even the response to pandemics.

Of course, realpolitik is ever-present. The Chinese will continue to buy our iron ore because it is in their interests to do so. And they may well relent when it comes to allowing Chinese students to return to Australian universities. But China will, as and when it suits it, harass Australian citizens in order to exercise pressure on Australian decision-making.

It is a brutal business and one in which the identification and pursuit of a productive Australian approach will become increasingly difficult. In navigating the delicate balance of values and interests that this kind of strategic thinking requires, questions of national power, and of the contribution of industry to national sovereignty, cannot be avoided. This is an awkward issue for Australian policymakers, because traditionally, choices relating to industrial structure have been left to market forces.

Australian governments, particularly Coalition ones, have understood little and cared less about the need for Australia to develop better ways of supporting its knowledge-intensive industries.

It is a line of thinking that has served us well in economic terms. But there is a downside: the shape of the economy that has emerged is very lop-sided, reflecting comparative advantage and convenience, but disadvantaging activities, such as manufacturing and related services, that are much more difficult to sustain. Without a developed manufacturing or high technology sector, the state loses its ability to deal intelligently with the issues of knowledge creation and commercialisation that are at the heart of meaningful national strategy.

It’s one of those self-reinforcing problems. The less manufacturing you have, the less bureaucrats understand about it, the poorer the policy environment, and the less manufacturing you have. It is not just business structures that wither. Skilled people go overseas, and many stay there.

The dimensions of this lack of understanding are becoming increasingly apparent. Research (except in the medical field) is neglected. Few prime ministers have understood anything at all about science. While most people know that Tony Abbott killed off what was left of the car industry, one of his less-publicised acts was to de-fund National Information and Communications Technology Australia, a promising Centre of Excellence designed to establish (among other objectives) a strong presence in research into machine learning in Australia.

No Australian government has had much time for the universities. Deregulated in the postgraduate sphere, the universities built their budgets by bringing in fee-paying students from overseas. Now they are facing financial catastrophe, with implications, in particular, for research funding. This is not just a problem for the universities, but for all of us. As the CEO of Universities Australia remarked, in addressing the research issue, government needs to articulate “a very clear policy view of what a future Australia looks like”.

COVID-19 has exposed other weaknesses as well. For many Australians, one of the discoveries of the pandemic has been how few of the goods we require in an emergency are manufactured in this country. For those who have followed the story of Australian manufacturing, on the other hand, the fact that a manufacturer of medical masks was discovered in rural Victoria seemed nothing short of amazing. The business, small in scale and dependent over the years on just a few loyal customers, suddenly became the centre of attention. The Commonwealth Department of Health spearheaded efforts to ramp up production. Let us hope that hospitals continue to support purchasing from this local source into the future.

When we put our minds to it, Australians can manufacture sophisticated products. But it takes political leadership, applied consistently and over the long haul, to exploit the potential that is there. There is a passage in Malcolm Turnbull’s breezy autobiography which seems to say it all, when it comes to the woes of high-technology manufacturing in Australia. This is the surreal saga of the new submarines. According to Mr Turnbull, Tony Abbott’s plan to buy Japanese subs had to be skittled, because of the need to open the process to competition.

Realising that Prime Minister Shinzo Abe might well have thought Japan was a certainty for the contract, Mr Turnbull made a special effort to brief him, and reports that the Japanese leader took the change of plan quite well. While disappointed, Mr Abe cannot have been all that surprised. The Japanese have been dealing with Australian governments over many years, and cannot have failed to notice how wayward our behaviour is, when it comes to managing the linkages between public purchasing and domestic production. The decision to buy from the French, with whom Australian governments have little history of working, is shaping as a predictable disaster. Even if they are built, the subs will not be available until the 2030s.

You would have to say that, considered overall, the Australian polity does not have a strategic bone in its body. As long as there is growth and jobs, it has not mattered that almost all of it has been in low-tech services. Australian governments, particularly Coalition ones, have understood little and cared less about the need for Australia to develop better ways of supporting its knowledge-intensive industries.

There is, however, one bright spot. As we claw our way out of the COVID-19 hole, it is apparent that, thanks to the Prime Minister’s interest, we do, at least, have one strategic industry – the Rugby League.

Published in The Canberra Times 7 July 2020

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