Defining sovereignty from the perspective of an Australian defense company
June 1, 2021
There is a lot of talk in Defense (and more broadly in the Covid economy), about sovereignty in the supply chain. Of course, sovereignty can mean many things, and in the sovereign house there are many mansions, not to mention the Gospel of John. And there is undoubtedly a place for every layer and every corporate flavor in the defense landscape.
Most advanced defense economies have put in place policy or legislative instruments, or a mixture of the two, to regulate and inevitably restrict to some extent the activity of foreign firms in the domestic market.
The United States has, for example, the Buy America Act, the SSA regime for foreign ownership, and ubiquitous ITAR regulations. The UK has enabled the creation of a huge national champion in BAE Systems and France has substantial government stakes in its major players in the defense industry, thus, in domestic transactions, being both the buyer and seller.
There are many other examples around the world and in each case the home country has used its market power or monopoly legislation (market with one buyer) to shape the domestic supply.
Another description could be the use of industrial policy to regulate the defense market in the interest of national security. This is a noble goal, because the first job of government is to protect
its citizens. Perhaps another way to look at this question is to look at the industrial landscape of the three defense economies we interact with the most in Australia – the US, UK, and France. The United States, as you might expect, is dominated by American companies all along the supply chain, from bonuses to SMEs, and the same is true of the United Kingdom and France.
Australian industrial activity in these markets is tiny compared to the size of the market. Now we look at Australia and we find that up to 80 percent of our acquisition dollars are spent with the big bounties from the US, UK and France. The same goes for support, but at least the support dollars are creating jobs in Australia.
Australia has taken a different view of industrial policy and national defense. But that may be starting to change in the wake of the Covid-19 pandemic and the light that has shined on preparedness and self-reliance.
In defense economics, this will likely manifest itself around a discussion of the meaning of the term ‘sovereign’ in relation to sovereign industrial capability priorities – the 10 government-designated capabilities that Australia needs to support. sovereignty.
This clearly means more than just jobs in Australia as this goal is supported by properly enforced Australian Industrial Content Rules (AIC). So what extra is needed to ensure that Sovereign Industry Capacity Priorities (SICP) have a lasting presence in the Australian industrial landscape? For example, what type of industrial construction will give these designated capabilities the best chance to last and thrive?
An answer could be one or more companies owned, controlled and managed by Australians, meaning that the majority shareholders are Australian and the head office is in Australia.
We also need to ensure that there is little or no foreign influence on decisions about:
● The raising and allocation of capital;
● The financing and protection of intellectual property;
● The financing and creation of R&D; and
● Mergers, acquisitions and disposals.
The operation of particular sovereign industry capacity priorities all enables one or more sovereign entities to achieve sustainable scale.
Of course, no single definition will suit all concrete cases and we should not continue to center the conversation around the definition of sovereign, otherwise the debate will continue unresolved.
Rather, we should start from a position of equal sovereignty with control and ask ourselves the question – what is the best sovereign position (control) that we can reasonably obtain from a declared SICP? ”
I accept that many verticals of CISPs have already given way to us and that the best we can hope for is jobs, jobs and investment. But we shouldn’t be content with that if we don’t need it.
The only SICP we don’t have to settle for is test and evaluation, systems assurance and certification, where we can have complete autonomy as Australian controlled companies. And I would say Nova Systems is probably the biggest of those in Australia, and that SICP is our bread and butter.
As was misquoted in the first paragraph; in this house, there are many mansions, and it is hoped that the large owners of very large mansions will not push too hard some modest bungalows with real sovereign foundations in the interest of national security.
Jim McDowell is Managing Director of the Nova Systems Group.