Australia has a history of naval shipbuilding, which, as a heavy industry began with WWI and Cockatoo Island. Between the wars Cockatoo Island produced HMAS Albatros. After the war ship-building expanded to Williamstown with the Daring-class though John Jeremy argues that the main contribution of Australian shipyards was "in ship repair and conversion and the construction of small ships."

More recently we have seen the large projects of the ANZAC Frigates, Collins-class Attack Submarines and the Huon-class be built in Australian shipyards as well as the ongoing repair, conversions and production of smaller ships. Unlike Australian aerospace which was largely shut down in the 1970s, the maritime industry continues to have strong support from government defence contracts.

There is no doubt that defence expenditure acts as a nationalist subsidy, unfortunately, Australia has traditionally used that subsidy for procurement or manufacturing, rather than science, engineering or high-tech. By comparison the US subsidises it scientists and engineers by mammoth amounts in their defence budget.

From this point of view I am unsure why Australia chose to persist with the maritime industries rather than aerospace, despite both being complex industries. Probably because local maritime companies, manufacturers and producers were a better lobby than the aerospace industries. Or alternatively, external salesmen were better lobbyists than the local ones. Even now much of of Australian defence technology is integrating American technology rather than the development, or R&D, of indigenous Australian technology.

I think Australia should invest in high-tech through defence in a sustained manner. Increasing technology is the best arbiter for improved productivity. Economists such as Nicholas Gruen and Andrew Leigh have argued increased productivity is the best predictor of increasing salary/wages in the local economy. Another reason is the uber-nationalism of defence. It is a means of central subsidy in such a way that external treaty agreements or bodies cannot stop; such as the WTO. However the subsidy to defence must be sustained over a long period.

Senator Mark Bishop in a speech argued that the sustained and contiguous nature of indigenous defence development is key:

The biggest single problem with Defence procurement is that Defence is a monopsony--that is, a single or sole purchaser. The history of Defence procurement is one of industry capture, inefficiency, poor specification, overspending and serious time delays. On top of that, purchases are often ad hoc and of a limited time span. Our past naval shipbuilding is just another example of that, and the responsibility for that poor state of affairs really needs to be sheeted home to government.

In my view, there are three critical factors for a viable industry on a long-term basis: firstly, continuity of Defence demand; secondly, long product runs, which give you economies of scale; and, thirdly, long-term planning. I believe the government has failed all of these critical needs. The decision on new ships should have been made five or even seven years ago. The mix of ships should have been more numerous for economies of scale purchases. Plans should already be on the drawing board for the next generation of ships.

It does seem clear that, with the frigates project at least, a sound level of cost effectiveness might have been achieved, but only because we produced 10 units--that is, we got the savings on the production run through economies of scale because of the volume of production. That again is the experience all around the world with commercial shipping. It applies equally to naval shipping. What we have here is a decision for just three AWDs and two LHDs.

Through sheer experience we know these projects, in isolation, cannot be viable. We would certainly like to see the economic analysis and the benchmarking which has been done, if any has been done. We do not decry the decision to build in Australia. But it is simply tragic that a serious effort has not been made to ensure the re-establishment of a long-term industry as part of that plan. To be blunt, responsibility stops there with the government.

The other issue that Mark Bishop raises is that many of the defence procurement choices are political, which is never good for efficiency.

I think there is a role for Australian spending on research and development within large projects - and not necessarily limited to maritime - as seems to be the current fashion. Far more money should be poured into aerospace and telecommunication for sustained periods. We may even find disruptive technologies popping out locally - like an Australian version of DARPAnet. It is worth the investment.

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