Top Gun-onomics

How would you like to pay $1000 now for an iPhone 10 in 2020?

You’d have to deal with not knowing if Apple will still exist as a company then, if smartphones will still be a thing, and if they will be delivered on time and even have the promised features.

That’s the sort of decision a country faces when it buys a warship or fighter jet.

They commit to the delivery of an extremely expensive product – often a ship or a plane – before it has even been properly invented.

But if you get a smartphone, you at least expect to use it as intended.

There’s every chance that we will have our defence materiel for a 30 year lifespan and never even find out if it does what it says on the box. We sent some bombers to Vietnam, but the only Australian fighter jet action since the Korean war was 14 F/A -18 Hornets that dropped 122 bombs in the first Iraq war. The rest have been limited to training and ceremonial runs over the shrine on Remembrance day. (source)

One of the most interesting economic decisions a country can make is spending its defence budget. At around $7 billion a quarter it’s a similar amount to what we spend on home renovations.

We’re buying safety. But without ever knowing if we needed to spend it to feel safe.

On my very first day at Treasury, in February 2005, I went to my very first meeting with two colleagues from the National Security Unit.

Two senior air force men came to brief us on project AIR 6000. The Joint Strike Fighter. The project was then listed as 100 jets for $12-16 billion. They assured us everything was going well. I remember my clever and apparently prescient older colleague asking tough questions about whether locking ourselves in to Lockheed Martin was such a wise idea.

Treasury did Defence advice. Every time a submission went to cabinet, we got the chance to make formal comments. In one way, the merit of getting Treasury involved is a scarecrow effect. It makes Defence behave better just knowing we were there. We did a lot of analysis but rarely had any real wins as the Howard era coffers overflowed and the procurement juggernaut rolled on.

Field trip which Defence used to try to effect "capture" of young Treasury officers
Field trip which Defence used to try to effect “capture” of young Treasury officers

Just yesterday, the Abbott Government announced it would spend another $12 billion on the Joint Strike Fighter jets, taking Australia’s total purchase to 72. That is fewer than was slated to be bought in 2005 and I see the fingerprints of my Treasury colleagues all over the decision. Kudos to them.

Defence procurement has always been a basket case. Traditionally the US makes its own things with great difficulty then sells them to us. It bears the development costs and we then pay through the nose. Or we make our own things with great difficulty (e.g. those damn subs).

The plan of the JSF program was to re-imagine the procurement process, by having a jointly developed platform owned by all western countries. It would share development costs and thereby reduce the risk to any one country. And everybody got to share in the supply chain, which meant local jobs.

It was just an idea. The risk was a lack of fall-back options. That would mean Lockheed Martin could get away with doing a bad job. That risk was identified and managed eight ways to Sunday with clause upon clause. But clearly no clause is as powerful as the threat of competition.

Is the JSF even a decent plane?

The point of JSF is not that it is agile. It is also not meant to be fast. The F-22 could kill it in a dogfight. Our old F-111s could beat it in a straight line.

It was supposed to deliver superior results by being really sneaky. Low radar profiles meant it could get very close to radar stations before it showed up.

That was combined with high-quality sensors that meant it would discover and network information. So not just one pilot knew where the missiles were coming from or where the bad guys were. Every pilot did. It was not supposed to ever be in a dogfight, because it was meant to shoot before the other plane was in sight.

Is that strategically wise? That is a hot topic. I am not an Air Force pilot, but the thing about a procurement program is that the parameters are set by air force experts. They know what they think will make them feel safe behind the joystick, and go buy it. I am not going to second guess that judgment here.

(Obviously, they set project parameters in 2002, and it’s now 2014 and other countries powers have increased. But that is not an issue just for JSF. It is an issue for all defence projects, because the world moves fast…)

Spending money on defence is difficult. Nobody, I think, would argue we should spend nothing.

But given our island location and our fairly un-strategic location on the way to nowhere, do we really need to be 13th in the world for military expenditure? As for Tony Abbott’s plan to lift expenditure to 2 per cent of GDP, that seems wasteful and quite backward. Should we not think about what we need first, rather than first thinking about how big our budget is?

I’ll leave you with this quote:

“A famous maxim in Australian defence circles is that “strategy without funding is not strategy”. … A reversal of the same maxim also applies to Tony Abbott’s new white paper. Funding without strategy is still not strategy.” (source)

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

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