Celebrating Australian sovereign capability – sovereign capability and how to get it

In the first of two articles in our new series – Celebrating Australian Sovereign Capability – Lance Worrall argues that sovereign capability depends on Australia’s reindustrialisation and rediscovering the positive role of government in setting directions for inclusive growth.

The phrase ‘sovereign capability’ re-entered our lexicon during the pandemic.

Covid severely disrupted international supply chains, creating public anxiety about the availability of goods essential to Australians’ health and security.

A reckoning

The pandemic provided a public reckoning on three decades of deindustrialisation and neoliberalism.

It exposed Australia’s lack of essential industrial capabilities associated with advanced economies, and of being able to meet the critical survival needs of the population.

Instead we found ourselves acutely dependent on other countries for supply of critical goods and services.

Many wondered: ‘How did we narrow down our economic base so much? How did we become so reliant on imports from other countries? If we no longer make things, what happens if another pandemic or major international conflict hits us?’

This signalled a major shift in thinking. But the truisms of the past still rule our economy and society.

The loud media and powerful vested interests that shouted an Australia reliant on resource extraction, real estate and financial services was a good thing, perhaps the only things we needed – are still railing against government intervention, and against industrial policies.

Their tired orthodoxy must give way to recognition of the essential and creative role of public institutions in shaping a more broadly-based economy that works for all.

One able to again make things, and meet population needs in times of calm and of crisis alike.

Sovereign capability needs industrial strategy

Sovereign capability means ensuring a degree of self-sufficiency and security for a nation, avoiding the vulnerability of extreme external dependency in key areas of national interest: defence, population health, security of energy and essential materials, food, information
and communications, and environmental sustainability (climate abatement and response). (More on this in part 2 tomorrow.)

Australia cannot today claim sovereign capability with the smallest manufacturing sector of all the OECD advanced economies (leaving aside Luxembourg – a tiny tax haven), together with the greatest reliance on overseas imports for manufactured knowledge-intensive products.

Being serious about sovereign capability means arguing for active industrial policy, to develop essential capabilities, steer the development of the nation’s industrial structure and, in Australia’s case, to reindustrialise.

Critical elements: Production and policy

At the forefront of achieving Australian sovereign capability are two things, production and policy:

• There is no sovereign capability without the nation’s ability to produce goods that are of strategic value to the national interest. Direct onshore production and manufacture are almost always the necessary condition (if not always a sufficient one) for capture of dynamic broader capacities relating to design, systems integration, technological innovation, through-life support and maintenance, and overall operational capability, that are also critical to sovereign capability.
• Unless national policy and government set directions consciously and purposefully for the future development of the economic, technological, organisational, logistic and operational capacities of the nation, sovereign capability is just a hope. Political leadership, authoritative, expert and accountable institutions, and explicit targets are critical.

Other countries, such as the United States, constantly practice intervention, whilst claiming world leadership in ‘free markets’. President Biden’s recent Inflation Reduction Act targets accelerated development of strategic sectors such as semiconductors and clean energy, explicitly on grounds of sovereign capability and ‘containing’ China.

Strategy, not protection

Inevitably, these propositions will be criticised using rote and lazy formulae: ‘This is protectionist and anti-trade. You want to shut Australia off from the world’.

For the record, that is neither possible nor desirable. What is proposed is strategy, not protectionism. It is a targeted approach, not a blanket one.

We achieve sovereign capability not by isolating ourselves from trade, but, as in military strategy, by targeting the ‘decisive points’ in complex production processes and supply chains that can yield the greatest leverage and returns to Australian sovereign capability.

It targets the points that make the greatest difference and is the opposite of a scatter gun approach.

We are today far from where we need to be, although prospects have improved. The Albanese government’s National Reconstruction Fund is highly positive in specifying sectoral priorities for investment, including on grounds of national sovereignty: defence, renewable
energy, medical science, resource processing, transport, and key enabling technologies such as AI and robotics.

But the NRF must be more than a funding source for projects, becoming part of a comprehensive national industrial strategy – a complete cycle of future-oriented and directions-setting processes, policies and interventions, to move whole industry sectors on to positive developmental pathways.

A plan for manufacturing

And, relatedly, there is as yet no commitment to an expert and accountable national institution, such as the National Industrial Strategy Commission advocated in this forum as part of a New Deal Plan for Manufacturing, which is required to design, implement, and give direction and momentum to such a strategy.

But the NRF is a basis upon which to build.

Tomorrow’s second article in this series will illustrate concretely these issues by discussing the position across the key sectors essential to a sovereign-capable Australia.

Note: Many of these themes are expanded on in a report the author worked on for the Australian Industrial Transformation Institute (Flinders University), <ahref=”https://www.flinders.edu.au/content/dam/documents/research/aiti/Australian_sovereign_capability_and_supply_chain_resilience.pdf”>‘Australian Sovereign Capability and Supply Chain Resilience’.

Further Reading:
CELEBRATING AUSTRALIAN SOVEREIGN CAPABILITY – INTRODUCING OUR NEW EDITORIAL SERIES

Picture: Lance Worrall

Lance Worrall was Economic Adviser to Mike Rann as both Opposition Leader and Premier of South Australia. He has been a public sector Chief Executive and has most recently worked on industrial transformation initiatives for the Innovative Manufacturing CRC and Flinders University. He is the author of significant analyses in political economy and economic-and-industry-development.

@AuManufacturing’s editorial series – Celebrating Australian sovereign capability – is brought to you with the support of Nova Systems and Titomic.