Nothing Found

For over 15 years now, there’s been an ASPI presentation on the defence budget at the Australian Defence Magazine’s annual defence industry conference. Mark Thomson did the lion’s share of them, but I’ve been the bunny in the headlights for the last couple of them—including this year’s. Mark retired from ASPI a couple of weeks ago, and I’m on a countdown to next month, so today’s appearance was in many ways a valedictory defence industry talk.

It’s an interesting time to be reflecting on the defence budget and the state of Australia’s defence industry policy settings. To paraphrase the prime minister, there’s never been a more exciting time to be in local defence industry. In stark distinction to the disappointments that followed the 2009 defence white paper (and the only marginal improvement after the 2013 white paper), the past two federal budgets have fully delivered on the fiscal promises of the 2016 paper. While the big ramp up of investment in new equipment is just getting underway, defence got a 6.5% real budget increase this financial year. Australian wage earners should be so lucky.

For those who care (and you really shouldn’t), the defence budget this year is 1.9% of GDP. On current projections of the defence budget and GDP growth, it will hit the ‘magic’ figure of 2% sometime around 2020. Nothing significant will happen when it does.

The mid-year economic and fiscal outlook (MYEFO, PDF) was fairly neutral for the defence budget, just bringing forward a little money from the last two years of the forward estimates into the next couple of years. (Note that ‘little’ is relative here—it amounts to a billion dollars.) The broader economic outlook in the MYEFO contained a slight downgrading of projected GDP growth for this year (from 2.75% to 2.5%) but predicts 3% growth in the three subsequent years. Recent history suggests that those projections will prove to be slightly optimistic, and we can never rule out a major shock in the world economy—that’s really what cruelled the 2009 defence white paper, which was prepared before the full impact of the GFC was apparent. But failing a major downturn, the money will be there for defence if government priorities don’t shift.

The one danger lurking in the wings for defence is actually good news on the economic front: the budget deficit is shrinking, and doing so faster than previously predicted. The MYEFO projects a deficit of $23.6 billion this year (down from $29.4 billion at budget time) and $20.5 billion next year. And it might be still better than that, as recent Department of Finance data shows. Mark Thomson has written extensively about the tendency for governments to grab money back from the budget to reach surplus a year earlier if the difference is small enough. The most egregious cases—at least as far as defence is concerned—were the Swan/Gillard budgets, when a narrow surplus seemed possible (how innocent we all were back then), but there are precedents from both sides of politics. With an election set for 2019, the narrowing of the deficit might portend some ‘borrowing’ from the outer years.

Not that all of the challenges facing Defence are from the government’s control of the purse strings. If all the money gets delivered, Defence has to be able to spend it. And there’ll be a lot to spend. Five years ago, the defence capital investment program amounted to $5.7 billion and represented just 22.4% of the overall budget. This year it is $11.6 billion and 33.4% of the pie. By the middle of the next decade it will be $19.2 billion (in this year’s money)—fully 40% of a substantially larger budget.

In my ADM talk last year I fretted about the implausibility of getting enough project approvals through the National Security Committee of the cabinet to keep the white paper program on track. It seemed like a very big ask. The average number of approvals (both first and second pass) over the preceding 15 years (i.e. after the Kinnaird reforms) was 22, while at least 44 were required in 2016–17 to keep on track. Even the biggest years saw just 27 approvals. I couldn’t see how it was all going to work.

I was wrong. The 2016–17 Defence annual report cites no fewer than 15 first pass, 31 second pass and 15 ‘other types of IIP project approvals’. I wish I could tell you how they did it—and how robust those numbers are—but there simply isn’t enough information in the public domain to tell. For reasons best known to itself, the government has decided that it will be highly selective in the approvals it announces.

Nonetheless, that’s good news, right? I wish I could be so sure. Of the approvals that have been announced, several of them have big unanswered questions about project fundamentals. Mark Thomson and I wrote about some of them late last year, and nothing I’ve heard since has made me any more confident that the technical specifications and industrial arrangements have been sorted.

That matters. There’s abundant data that shows the bad outcomes that ensue from rushing into complex projects. (See my earlier piece here and the GAO report linked to therein.) And that was, of course, the rationale for the Kinnaird two-pass process in the first place—to spend time and money before final approval to reduce risk and improve project outcomes. As near as I can tell, the Kinnaird reforms had a positive impact on project cost and schedule estimates (with the effect most noticeable on costs), but effectively acted to slow down the number of approvals by requiring more upfront effort.

So the sudden flurry of approvals, accompanied by apparent confusion in some big projects, makes me think that everything old is new again. It’s possible that the can has just been kicked down the road and that rapid approvals today will be tomorrow’s projects of concerns. Time will tell.

The release of the Trump administration’s 2018 national defence strategy (NDS) in January highlighted a more dangerous threat environment with an assertive China and aggressive Russia at the top of US concerns. The document states that ‘it is increasingly clear that China and Russia want to shape a world consistent with their authoritarian model—gaining veto authority over other nations’ economic, diplomatic and security decisions’. China and Russia are certain to push back against the new US strategy, and thus the stage is set for a new period of major-power competition akin to the Cold War.

The US plans to enhance cooperation globally by developing ‘an extended network [of allies] capable of deterring or decisively acting to meet shared challenges of our time’. It also wants to reinforce ‘collaborative planning and deepen interoperability in a manner that could also include supporting foreign partner capability development to ensure an ability to integrate with US forces’. In the Indo-Pacific region, the US says it will build ‘a networked security architecture capable of deterring aggression, maintaining stability, and ensuring free access to common domains’ and ‘bring together bilateral and multilateral security relationships to preserve a free and open international system’.

Australia must quickly respond by talking to Washington about US expectations of its allies. We can’t afford to send mixed signals like we did recently, with defence minister Marise Payne supportive of the NDS one day, and foreign minister Julie Bishop distancing Australia from its key message the next. Our policy on the alliance has to be coherent and robust. The government should explore ways to strengthen the US–Australia alliance that enhance the likelihood of the NDS’s success and, at the same time, improve Australia’s security in a more contested environment.

The NDS refers to developing more survivable and dispersed basing arrangements in the face of a Chinese anti-access and area denial (A2AD) capability that’s increasingly long-range, accurate and responsive. Our contribution to that effort could include giving the US more access to Australian military facilities. For example, we could offer the US Navy home porting rights in Fleet Base West, and expand the enhanced air cooperation component of the US–Australia Force Posture Initiatives to a sustained presence, rather than only short-term rotations. That would enhance the survivability of US forces in the face of Chinese A2AD in East Asia, and reinforce extended deterrence below the nuclear threshold. It would also contribute to a more credible strategic deterrence posture for the US against China overall.

Strengthening our alliance arrangements will require us to discriminate between critical security interests and secondary concerns. If we’re going to help build the webs between the spokes in the ‘hub and spokes’ security arrangements, we must be careful to avoid commitments in which there’s a mismatch between our interests and the risks involved. That may call for some hard-headed choices about where, when and what we contribute. Making those decisions may be the most challenging aspect of developing a higher defence profile in Asia.

The Turnbull government has recently made good progress in facilitating closer defence relations with Japan, and is once again supporting a revival of the US–Japan–India–Australia ‘quadrilateral’ dialogue. These diplomatic efforts suggest useful pathways to playing a greater security role in Asia alongside the United States. But they do carry risks. We must not be naive about building ties that bind. We have to distinguish carefully between partners we want to cooperate with and those we seek a closer alliance with, because the latter group potentially entails defence obligations. These strategic conundrums aren’t new, but they’re becoming more acute and will force Australia to engage in a more mature strategic debate in more adverse circumstances. Our strategic holiday is coming to an end.

Indonesia also must, of course, be a priority for Australian defence diplomacy because it sits in the maritime fulcrum of the Indo-Pacific region, astride vital sea lanes and maritime straits. If China is to dominate Southeast Asia through the South China Sea, it ultimately must control Indonesian waters as well. The territorial dispute over Indonesia’s exclusive economic zone around the Natuna Islands, and China’s declared ‘nine-dash line’ which overlaps that zone, is likely to be a focal point for future crisis in Indonesian–Chinese relations.

Maintaining our strategic partnership with Indonesia is important because, as Stephan Fruehling noted recently, unless China gains access to, or control of, bases in Indonesia (as Japan did in 1942), the strategic geography makes it much harder for China to threaten Australia directly, at least in a sustained and substantial way. We should work alongside the US to boost Indonesian naval capabilities because a more powerful Indonesia that’s able to resist Chinese pressure on the high seas in turn limits Chinese territorial ambitions.

Taking on greater defence burden-sharing in Asia to support the US and counterbalance China will have significant defence capability and budget implications. I’ll consider those issues in my next post.

The US National Defense Strategy paper, which was unveiled by Defense Secretary James Mattis on 19 January, is a brutally frank statement of the threats facing America.

This is the Pentagon’s first new defence strategy in a decade and it carries the personal endorsement of Mattis, who proclaims that it is ‘my intent to pursue urgent change’.

The paper stresses that great-power competition, not terrorism, is now the primary focus of US national security. The US is emerging from a period of strategic atrophy, aware that its competitive military advantage has been eroding. Sixteen years of war, the longest continuous run of armed conflict in the nation’s history, ‘has created an overstretched and under-resourced military’, Mattis says.

The central challenge to US security is the re-emergence of long-term, strategic competition by what the paper calls ‘revisionist powers’. It is increasingly clear that ‘China and Russia want to shape a world consistent with their authoritarian model’—gaining veto authority over other nations’ economic, diplomatic and security decisions.

China is leveraging military modernisation, influence operations and predatory economics to coerce neighbouring countries and reorder the Indo-Pacific region to its advantage. Beijing will continue to pursue a military modernisation program ‘that seeks Indo-Pacific regional hegemony in the near term and displacement of the United States to achieve global preeminence in the future’.

Russia seeks veto authority over nations on its periphery ‘to shatter the North Atlantic Treaty Organization and change European and Middle East security and economic structures to its favor’. The subversion of democratic processes in Georgia, Crimea and eastern Ukraine is serious enough, ‘but when coupled with Moscow’s expanding and modernizing nuclear arsenal the challenge is clear’.

Thus, the US is facing increased global disorder with a security environment that’s more complex and volatile—including from rogue regimes such as North Korea and Iran—than any it has experienced ‘in recent memory’.

The new strategy commits the Department of Defense to build a more lethal joint force, strengthen alliances, and radically reform the department’s business practices. Mattis acknowledges that failure to meet these three key objectives will result in decreasing US global influence. And without sustained and predictable investment in its forces, the US will rapidly lose its military advantage.

For decades, the United States has enjoyed uncontested or dominant superiority in every operating domain. Mattis observes that in the past the US could generally employ its forces when it wanted, assemble them where it wanted and operate them how it wanted. Today, however, that’s no longer the case and every domain is contested.

Long-term strategic competition with China and Russia requires both increased and sustained investment because of the magnitude of the threats they pose to US security and the potential for those threats to increase in the future. Deterring or defeating such long-term strategic competitors is fundamentally different from managing the regional adversaries that were the focus of previous US strategies in the post–Cold War era.

So, what are the implications of all this for Australia? The great strength of this US defence strategy is the realistic geopolitical picture it paints of the world. It is decidedly grimmer in its outlook than either the 2016 Australian defence white paper or last year’s foreign policy white paper.

This should be a wake-up call for Australia. From Washington’s perspective, China isn’t the only threat. While Russia might be a weaker power than China at present, it is a more dangerous one and Canberra needs to understand that.

Moreover, while the Indo-Pacific is ranked ahead of Europe and the Middle East in the Pentagon’s list of key regions where aggression needs to be deterred, there’s no evidence that the US is capable of defeating two major-power regional contingencies—for example, China and Russia—at the same time.

As might be expected, the attention given to the strategic outlook is much more persuasive than the sections of the paper dealing with the future force structure and the urgent need to reform the performance of the Department of Defense. Little is offered other than generalities about the need to rebuild military readiness and field ‘a more lethal force’.

As for reform of the department, there are lots of meaningless modern management words used about the need to ‘drive budget discipline and affordability to achieve solvency’ and ‘streamline rapid, iterative approaches from development to fielding’. But the fact remains that the Pentagon has for decades resisted introducing a culture of performance in which results and accountability really matter.

But it isn’t only the Pentagon that’s recalcitrant in this regard. As Mattis said at the launching ceremony, ‘no enemy in the field has done more harm to the readiness of the US military’ than the combined impact of defence spending cuts, worsened by operating under continuing congressional resolutions for nine of the last 10 years.

All of this suggests to me that Australia needs to refocus on its own region of primary strategic concern, building the military capability to ensure that we can deny our vulnerable approaches to any potential adversary—including China.

Times change and we change with them, as the saying goes. Much the same could be said of warning times: as our strategic circumstances change, so we should reassess the consequences for contingencies that the ADF might be involved in and their associated levels of warning.

Warning time is a key concept. It has a pervasive effect on defence planning, being a strong determinant of the force structure, including the purpose and structure of reserve forces. It is a similar determining factor for the readiness spectrum of the ADF’s force elements and the associated levels of sustainability. At least in theory, it should have a strong effect on defence policy for industry. Perspectives on warning time are integral to the assessment and management of strategic risk. If views on warning time are too optimistic, the nation is subject to an inappropriate level of risk; if too pessimistic, then we incur unnecessary expense with little compensating benefit.

Over most of the past 40 years, Australia has been able to take a relaxed approach to warning time. Starting in the 1970s, the key observation was that the potentially hostile capabilities that might be used against us were at only modest levels. Further, it was difficult to imagine an issue of sufficient weight to cause military action against us to be contemplated. These conclusions led to the concept of the core force and expansion base: the capabilities of the ADF would be sufficient to handle those lesser contingencies that might arise in the shorter term, and be the basis for expansion in the event of serious strategic deterioration in the longer term.

This approach to defence policy accepted that motive and intent could change relatively quickly, given a sufficient catalyst, but that it would take an adversary considerable time—10 to 15 years—to develop the level of capability, including doctrine, necessary to mount a serious assault on Australia. Over the years, the structure and preparedness of the ADF evolved to be consistent with this policy, although the diligence with which these principles were applied tended to depend on the level of defence funding that was available at the time. Development of the force structure also reflected the priority for strong maritime forces and the defence of the sea–air gap to our north. While some elements of the ADF were ready to move within hours, such as counterterrorist forces, most elements were at a more relaxed state of alert, with readiness times varying between weeks, months and, in the case of parts of the reserve forces, years. Training levels and sustainability were influenced as much by the need for the ADF to meet high professional standards as by considerations of warning time.

In our recent paper, Australia’s management of strategic risk in the new era, Paul Dibb and I argue that times have indeed changed, and that it is now necessary to reassess warning times and the consequences for preparedness and the force structure. The basic proposition is that with the rise of China and its ambitious program of modernisation and expansion of its armed forces, it is no longer the case that potentially hostile forces have only modest levels of capability. Further, these capabilities will continue to increase over the years ahead. This situation takes away the main argument of previous decades that contingencies in the shorter term would necessarily be at a low level and that warning times for more serious contingencies would be long. This is not to ascribe to China (or anyone else) the motive and intent to conduct military operations against Australia; that is a separate argument. But it is to recognise that warning times based on assessments of motive and intent will necessarily be shorter—and more ambiguous—than those based on evidence of the absence of capability, as was so strongly the case in earlier decades.

It is important not to be alarmist: contingencies, least of all serious ones, are not waiting for us around the next corner. Nevertheless, Australia’s new and evolving circumstances will be more demanding. At the very least, the prospect of shorter warning times calls for a thorough review of the readiness and sustainability of the ADF. This review should include the expansion base, reserves and industry in its scope. In our paper, we suggest that areas which need attention for the shorter term include a sustainable surge capacity for round-the-clock operations, munition stocks, fuel resupply (especially in northern Australia), and forward operational bases. Even if the government cavils at the expense of higher levels of preparedness or is otherwise not persuaded by the arguments, Defence should at least identify the steps that would need to be taken to position itself to respond to contingencies within whatever warning time turns out to be available.

It really does make a difference who occupies the White House. Acknowledging that point seems beyond many commentators and policymakers in Australia. Yet, failing to recognise how important individuals can be may leave allies floundering as they struggle to keep up with the consequences of the Trump regime.

The great hope in Australian policymaking circles, of course, is that President Trump will be socialised by the institutions, traditions and practices of which he is now the most pivotal player. Trump’s recent address to Congress was seized upon by optimists and apologists alike as evidence of a more “presidential” style as the leader of the free world recognised the responsibilities of the Oval Office.

Within days that comforting illusion had been shattered by a series of ill-considered Tweets about his predecessor—someone who actually did look presidential and was the personal embodiment of many of the virtues and values that are frequently part of the rhetoric, if not the practice, of American policy inside and outside its borders. Indeed, for all the criticisms of Obama’s supposed indecisiveness, he looks better by the day when contrasted with the present incumbent.

The big question for observers of American politics—and the world more generally—is: Will Trump transform Washington more than it changes him? The assumption that the American system’s checks and balances, much less its political culture will rein in Trump and his advisors looks increasingly like wishful thinking.

Trump and his strategist-in-chief, Steve Bannon, appear to have a visceral distrust of the very institutions of government that they’re conspicuously failing to manage effectively. For Bannon in particular, the existing institutions of government are actually part of the problem; a “deep state” filled with political opponents who have to be torn down before something more effective and politically amenable can be put in its place.

Unfortunately for the rest of the world, the impact of that agenda won’t be confined to the US itself. On the contrary, America’s continuing economic and strategic importance means that many states are likely to suffer significant collateral damage as the policy revolution takes hold in the US.

Given that the Trump administration has only been in power for a couple of months its impact has already been remarkable. Trade deals have been shredded in favor of 19th century mercantilism; allies have been put on notice about America’s heightened expectations. In Trump’s world, it’s not even clear what the distinction between friend and putative foe actually is, as the administration’s murky ties with Russia remind us.

Trump’s admirers might claim that his famously transactional approach to policymaking rightly privileges America’s neglected national interest and brilliantly wrong-foots opponents. Critics might argue, that the entire administration lacks focus, much less a grand strategy, and blindly lurches from one Tweet-induced crisis to another. Even America’s closest friends should be considering their options in such circumstances.

In Australia’s case we ought to remember we’ve been here before. George W. Bush’s monumentally misguided decision to invade Iraq is now widely and rightly seen as one of the greatest and most unnecessary strategic blunders of recent years. Not only did it destabilise the Middle East in ways that are still reverberating with disastrous consequences, but it also sucked Australia into a series of conflicts that had little immediate strategic relevance.

At least Bush and his advisors looked like the sort of “rational actors” that populate the pages of international relations textbooks. The policies of the likes of Wolfowitz and Cheney may have proved to be delusional and hubristic, but they were in keeping with a well-established American approach to strategic policy generally and to the Middle East in particular. Even Jimmy Carter had promised to do whatever might be necessary to maintain American influence in the Persian Gulf.

The Trump administration looks positively irrational by contrast. It’s not just the absence of a clear narrative about the administration’s intentions that’s so concerning for friend and foe alike, but that the Trump regime seems to groaning under the weight of its own internal contradictions. Questionable, inexperienced and/or compromised appointments, flagrant conflicts of interest, and a famously thin-skinned president with a seemingly limited attention span and little knowledge of international affairs add to the overall sense of chaos and ad hocery.

We’ve barely begun a Trump era which could, theoretically at least, go on for another eight years. It’s hard to imagine what the world might look like if that happens. At the very least it’ll be a sobering reminder to academic observers that in the age-old debate about the relationship between structure and agency, agency really does matter—even if it doesn’t really know what it’s doing.