Productivity Commission ignores capabilities Australia already has

James Riley

Productivity and competition go hand in hand, so it’s no great surprise that the Productivity Commission’s (PC) five-yearly productivity inquiry doesn’t advocate for increased sovereign capability across the Australian economy.

From the PC’s perspective, doing so might upset the international competitive balance that our trading partnerships have helped create.

What is surprising is that the PC seems to believe that when it comes to technology and innovation, Australia is so far behind the pack that it isn’t worth even trying to make or produce anything at all here in Australia, not even to bolster our own defences and protect our national security interests.

As reported in, “Citing the ‘extraordinary complexity of much defence equipment, systems, and software’ which often requires ‘sophisticated manufacturing, information technologies and a highly skilled workforce’, the report reiterates ‘it is not feasible for Australia to develop expertise or domestic capabilities for all such equipment and software’.”

Retired Army Major General and business consultant Marcus Thompson

After almost three-and-a-half decades in the Australian Defence Force and through my current work in the private sector, I’ve developed a reasonable understanding of Australia’s defence capabilities – in particular where ICT and cyber capabilities are concerned.

I can tell you that my assessment of the capability of Australian companies is significantly more positive than that suggested by the PC. Notwithstanding, the implications of essentially ignoring local capability development in the defence context – which the PC is suggesting – are quite frankly, potentially disastrous.

Imagine a scenario that is not unrealistic in today’s international climate. Two vessels, one US and the other Australian, dock in an Australian port to be resupplied with munitions.

If the only munitions manufacturers in Australia are US companies and supplies are limited, then which vessel gets supplied with the missiles? Both are docked on Australian soil, but both are being supplied by a foreign multinational company over which our government has no jurisdiction to issue orders.

What the PC report has neglected to call out is how foreign multinational corporations have become the massive Primes they are today.

It’s an open secret in defence industry that in their home countries, Primes are rarely required by their home governments to compete for defence contracts.

Rather, large contracts which enable those countries to build sovereign industrial capabilities are awarded to them in the interests of supporting their respective nations’ sovereign defence capability.

Foreign governments do this all the time and are permitted to do so under free trade agreements (FTAs) – to which we are also party – that allow carve-outs for government procurement that is in the national security interest.

These carve-outs extend to all sectors and capabilities that support national security and critical infrastructure, including ICT and cyber security.

The PC report calls for greater ‘diffusion’ of technologies through open trade to boost local innovation. Not only does this imply, incorrectly, a lack of local innovation here in Australia, it also misses the crucial nuance of technology being diffused into local sectors to uplift them.

Doing so creates a pull-through effect where Australian companies are able (and many do currently) licence international capabilities and fuse them with their own, innovating to create capabilities and solutions that are uniquely relevant to Australia’s specific requirements.

Defence has broadly been an exemplar of this. The ICT and cyber security sectors should follow Defence’s example.

One of the most disappointing blind spots in the PC report is the “danger that calls for ‘sovereign capability’ can encourage rent seeking, which would entail significant economic costs’.” That is an unfair and unreasonable charge to lay against Australian industry given the low percentage of government contracts which flow in that direction.

Such a charge would be more appropriate if made against multinational giants sitting comfortably on whole-of-government contracts and multi-decade procurement programs handed to them by Australian government departments.

It’s disappointing that over a five-year period, the PC has not analysed and measured the (lack of) productivity and innovation these arrangements have delivered to the economy and local industry.

Ultimately, this report misses too much in terms of Australia’s current capabilities and the geo-strategic challenges we face today. It also dismisses the positive ‘buy Australian’ intent the Albanese Government has driven as part of its sovereign capability and economic rebuild agenda.

To that end I applaud Cybersecurity Minister Clare O’Neil reiterating the Government’s position on the heels of the PC report, that Australia should develop a sovereign cyber security industry.

Underscoring the more disappointing elements of the report of course is AUKUS. Australia has the opportunity – as our AUKUS partners have already done – to develop a thriving sovereign capability in industries where it makes sense to do so. This aspiration is entirely reasonable and realistic.

In the meantime, we need Australian institutions to champion Australian industry and innovation, and celebrate what it can bring.

Marcus Thompson is a retired Australian Army Major General, who was the inaugural Head of Information Warfare for the Australian Defence Force. He is currently Chair of ParaFlare and Penten, and is a business advisor to several Australian ICT and cyber security businesses including Macquarie Telecom Group.

Do you know more? Contact James Riley via Email.

  1. Adrian Turner 1 year ago

    Completely agree Marcus. Additionally innovation is deflationary. We are not going to save our way to relevance and prosperity. The US aligns the entire system (govt as buyer, NSF, DARPA, SBIR, VC) behind strategically significant new industry. They do it behind a vision. It takes leadership and entrepreneurship, and we need to do everything we can to back our entrepreneurs. Without them, there are no new ventures. No new exports. No new S&T currency. No economic growth. No new jobs. No economic diversity. Self defeatist signals are unhelpful.

  2. Ian Dennis 1 year ago

    Hallelujah! Well said Marcus Thompson. The continued obliviousness to our domestic technological capabilities by these, and other, federal bureaucrats, borders on the wilfully blind.
    Technological sovereignty is, as indicated here, a significant component of national security. Over reliance on any ally is,of itself, dangerous.

  3. Extremely well written and articulated thought piece Marcus, thank you. We’ve seen the same in Australia’s Space sector. Australian “spin-in” companies bringing technologies from other sectors that are the equal – or better – than the global state-of-the-art, in areas a diverse as remote sensing, positioning navigation and timing, inertial navigation, autonomous robotic systems, control, AI, space medicine, metal printing, composites fabrication, RF beam forming, optical computing, quantum sensors, system engineering… the list is incredible. The PC report seems oblivious to the opportunities to lift these from high-value, high-TRL capabilities at the SME level to internationally-competitive and integrated supply-chains led by Australian primes. Jim Chalmers’ comments on the need for a rethink of the Productivity Commission so it has better data are notable.

  4. John P 1 year ago

    The government should shut the PC and hire this guy

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