In trying to explain the purpose of our armed forces, defence ministers often fall back on that plangent phrase “the defence of Australia”. In a recent speech to the Australian Strategic Policy Institute (ASPI), Defence Minister Stephen Smith reminded his audience that the 2009 Defence White Paper “underlined that Australia’s most basic strategic interest remained the defence of Australia against direct armed attack”. He then foreshadowed that the next White Paper, promised some time next year, would come to the same conclusion.

This appealingly simple idea, that the reason we have a defence force is to defend ourselves against direct attack, has been central to defence policy for at least the past 40 years, and the public seems to accept it. But few people in government or Defence think that Australia faces any credible risk of major military attack, and fewer still believe we could defend ourselves if we did. As a result, neither the government nor Defence has taken what is supposed to be the main task of the ADF very seriously, which goes a long way to explaining why Defence has been lurching from one arms procurement or maintenance fiasco to another.

Of course, apart from defending our shores, the ADF has always had something to do – peacekeeping in the Middle East, nation-building in East Timor, tsunami relief in Indonesia or fighting bushfires in Victoria – but these aren’t reasons enough to have a defence force. This financial year Australians are spending $24.2 billion on defence; that’s more than $1000 for each Australian man, woman and child. We don’t willingly spend those sums just to lend a hand in Somalia or support an election in Cambodia, or even to try to reconstruct Afghanistan. We only spend that kind of money to protect ourselves. Decade after decade, the biggest share of the defence budget has gone on capabilities, such as fighter jets, major warships, submarines and heavily equipped land forces, that are irrelevant to the lighter tasks we have been sending the ADF off to do. If these capabilities make sense at all, it would only be in fighting a major war. Yet hardly anyone believes this is a realistic prospect, let alone a winnable one. No wonder Defence doesn’t seem to know what it’s doing.

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This kind of muddle is not new. Australians first started thinking about their security in the 1880s, when the rise of powers like Germany, Russia and the United States started to challenge British power. Until then, they had blithely assumed that the Royal Navy would always be on hand to defend them. As Britain’s power waned, Australians began to realise not only that the mother country’s protection could not be taken for granted, but also that they could not defend themselves without Britain’s help: the continent was too big, the population too small, and their potentially threatening neighbours, though poor, were too numerous to be fended off without aid.

This dilemma racked those charged with developing Australia’s defence policy. We couldn’t depend on our allies to defend us because we couldn’t be sure they would be willing or able to send forces halfway around the world when crisis struck. Yet we had to depend on our allies, because we could not defend the continent alone. These conflicting realities drove us in two separate directions – to build forces to support our allies wherever they fought, in the hope they would reciprocate when we needed them, and to do what we could to defend the continent unaided. In trying to do a bit of both, we ended up doing neither well.

In the 1970s, things started getting easier. China seemed less a communist menace and more a promising partner. Indonesia stopped being so threatening and became a mostly responsible neighbour. Above all, surprisingly, the US emerged from failure in Vietnam as the uncontested leader of Asia. After Nixon’s visit to China in 1972, Mao accepted US primacy in return for Washington’s recognition of Beijing’s communist government. The likelihood of a major direct attack on Australia decreased, and we were confident that if any serious threat did develop, the US would come to help. Consequently, Australia felt more secure from direct armed attack than at any time since the Pax Britannica had begun to fray in the 1880s.

All this emboldened Australia to take responsibility for its own defence. In November 1976, the Fraser government tabled a White Paper that said we should be able to defend the continent without direct combat support from our allies. Self-reliance in the defence of Australia has been the main tenet of our defence policy ever since.

But defence against whom? The 1976 White Paper boldly predicted that the powers of Asia – India, China and Japan – would not pose any strategic problems for Australia, and that our defence policy could therefore afford to ignore them. “No more than the former Great Powers of Europe,” it stated, “can we expect these powers individually to play a large military role in strategic developments directly affecting Australian security in the foreseeable future.” True enough, none of the Asian powers was foolish enough to risk threatening a close American ally. With Asia’s main players off the board, we only had to be able to defend ourselves against our immediate neighbours – and Indonesia was the only conceivable adversary.

This made self-reliance rather easy. Indonesia had a large army, but weak naval and air forces. Australia’s navy and air force were always superior, thanks mainly to Australia’s much greater GDP.

But “the foreseeable future” is now past. In 1976, no one expected the Asian century, or foresaw that within 40 years China would be on the verge of overtaking the US economy, and India would be following fast in its footsteps. No one could have foreseen that Indonesia’s GDP would surpass Australia’s, and that the country would be spoken of as a great power in its own right. These things have come to pass, sweeping away the assumptions that have framed Australia’s defence policy for more than a generation. We haven’t really escaped the old dilemma between defending ourselves and relying on distant allies; we have just enjoyed respite from it, and now the holiday is over.

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China’s rise, and the broader ascendancy of Asia, is the biggest shift in the distribution of global power in at least a century, and the biggest shift in the balance of strategic forces in our region since Australia was settled by Europeans. The implications for Australia’s defence are fairly clear, and very significant. Firstly, the era of Asian stability based on uncontested American primacy has come to an end. A new, significantly different yet stable order in Asia may emerge, but we can be far from sure that this will happen, or that it will last. We therefore face a much greater risk of major-power rivalry and conflict in Asia over the coming decades. Secondly, as the economies of China and other countries continue to grow, the US will demand more support from its allies, including Australia, especially if it aims to retain its power in Asia. Thirdly, there remains a significant risk that in a crisis the US would not be able or willing to support Australia. And lastly, if Indonesia realises its potential, we will for the first time face on our doorstep a great power, one with an economy much larger than our own and the capacity to build formidable air and naval forces.

Just as we need more than ever to rely on our allies for security, it becomes less and less certain that we can.

Finding a way through this maze is the task of the Gillard government’s new defence White Paper, due in 2013. The 2009 White Paper, released by Kevin Rudd, tried and failed. Though it went further than previous attempts in describing the trends in Australia’s strategic circumstances, the government ducked taking any serious decisions by assuming nothing much would change before 2030. They talked big about Australia as a “middle power” in the Asian century, but kept plans for new capabilities almost exactly where John Howard had left them. Since then, even these modest plans have been filleted by repeated budget cuts. The 2012–13 budget is 10% below last year’s in real terms. All the headlines about plans to double the submarine fleet from six boats to 12 overlooked the key fact that 20 years from now we will still have only six boats, and we won’t have 12 until almost 2050.

Next year’s White Paper will need to do much better if Australia’s defence policy is to respond to the challenges of the Asian century. It must start by offering a far more sophisticated account of the risks we might face – especially from China. In the 2009 White Paper, and in things he said publicly and privately as prime minister, Rudd gave the impression that he saw China’s growing power as a threat, but it is not that simple. At present, nothing in China’s policy and outlook justifies an assumption that it will threaten Australia militarily. It is possible for China to continue to rise peacefully, if a way can be found to accommodate its growing power and ambition within a new Asian order that also protects everyone else’s vital interests. Helping to create this kind of new regional order is perhaps the most important diplomatic imperative Australia has ever faced.

Yet there is a clear possibility that these efforts will fail, and that Asia will become fractured by major-power rivalry. So while China’s emergence does not threaten Australia, it overturns the stable regional order of the past 40 years, and raises huge questions about what will replace it. Likewise, there is no reason to assume a stronger Indonesia threatens Australia, but it similarly increases our long-term strategic risks: the stronger Indonesia becomes, the more serious the consequences for Australia if we do come to blows.

The new White Paper will also need to recognise how fast these changes in Asia are happening, and how little time we have to decide how to respond. After all, the key changes are already far advanced, and any response will take time to implement. Should the next White Paper conclude that we will need different kinds of armed forces in the 2040s and 2050s, when by some projections, China’s GDP will be double that of the US, we have to start building them now.

Most importantly, the new White Paper must decide whether Australia will hang on to the objective we set ourselves in the 1970s – that of defending the continent independently against a direct military attack – in circumstances where a threat from a major power can no longer be as easily dismissed. The alternative is that we rely ever more deeply on the US, even as its relative power in Asia declines. This is perhaps the most fundamental strategic question we face, testing our seriousness about being a middle power. It will take real political courage and leadership, as well as policy insight and imagination, to address it squarely – so don’t hold your breath. If the response is fudged, we are likely to end up with the worst of both worlds. We will waste a lot of money on things we don’t need, while still not doing what is required to stop us sliding swiftly into the ranks of the small powers. Which, in fact, is exactly what we are doing now.

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We can define a middle power as able to stand up to one major power without relying on another. So should we be one? To answer this we need to weigh up the costs of building the armed forces we’d need against the benefits of reducing risk. Looking at risk first, Australia is in many ways an intrinsically secure country. We are – or at least have been – far from the major centres of world power, with neighbours much weaker than us. We possess a huge territory not easily dominated, and we are surrounded by vast oceans. Add to this that we have had the region’s dominant military power as our close ally, and Australia seems very unlikely to be attacked, which is precisely why for the past 40 years “the defence of Australia” has seemed such a hollow policy precept.

In the next 40 years, our island-continent geography will continue to ensure that only radical changes in the political, economic and strategic settings in Asia will substantially increase the risk to Australia. But such changes are indeed underway. If Indonesia fulfils its potential to become a major power, distance will do less to protect us than it has done. Other powers will be much stronger than they have been, and more inclined to compete with one another, so it follows that the risks of us being drawn into major-power rivalry and conflict must also be higher. Australia’s strategic risks will also depend on how we behave as the region evolves. Our policies towards our neighbours will make a big difference in how we’re viewed. It is not clear that we really understand this yet.

Perhaps the most we can say at this stage is that, while the risk of direct attack on Australia will remain quite low in the Asian century, it will nonetheless be higher than we have known for several generations. We should try to reduce this risk through diplomacy and other non-military means, particularly by promoting a stable regional order that minimises great-power rivalry. But we cannot assume this alone will work, so we must at least consider building the armed forces we would need to defend ourselves from a major power without relying on America.

What kinds of forces we would need exactly, and how much these might cost, are then the critical questions of military strategy for Australia’s defence. We would expect the ADF and the Defence Department to devote much effort to answering them. My impression is that they have done no such thing. Like the rest of us, they find it hard to take the possibility seriously, and have not yet woken up to how the changing strategic setting makes it essential that they do so. Designing large-scale campaigns is not the ADF’s kind of thing. Australia’s military has always been focused on tactics – the business of fighting battles on the ground – an area in which they excel. It has been happy to leave higher level questions, such as deciding which battles to fight, to our allies. The ADF does not feel at home with these questions, and I suspect even feels intimidated by them. It seems uneasy about taking on the responsibility for defending Australia independently, and reluctant to open up discussion that might entail significant changes to the kinds of forces we require. The ADF would rather stick to what it knows, and successive ministers, with no appetite for hard questions and harder answers, have been happy to leave them be.

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To most of us, the idea that Australia could stand up alone against a major power seems far-fetched. Our experience as part of global coalitions in the two world wars makes us think that success in a conflict means vanquishing the enemy and occupying their territory. Against a major power, Australia is never going to be able to do that independently. The most we could hope to achieve would be to raise the costs and risks of attacking Australia to the point where it is not worth an enemy’s while. But, fortunately, that may not be as hard as we might think.

There are two ways it could be done. One approach would be to threaten an adversary’s own country with a direct attack –“to rip an arm off any major Asian power that sought to attack Australia” as my old friend and colleague Ross Babbage so colourfully put it. This defence might suit a nuclear power, but not Australia. The other approach would be to attack directly the forces being projected towards us. This looks inherently easier, and less likely to lead to escalation. Most importantly, it would allow us to exploit the fact that it is much easier to stop someone else projecting power over the sea than it is to project power oneself.

Here, we need to distinguish what naval strategists call ‘sea control’ from ‘sea denial’. Sea control is the ability to protect your own ships by preventing others from attacking them, and is needed to safely advance by sea. Sea denial is the ability to attack an enemy’s ships, and thus deprive it of sea control. The most crucial operational fact for the defence of Australia is that sea denial is much easier to achieve than sea control. This hasn’t always been so. Back in the days when Britannia ruled the waves, protecting your own ships and attacking the enemy’s were almost two sides of the same coin. Technology has now shifted the advantage to sea denial, and this trend shows no sign of reversing. This means Australia should be able to achieve sea denial against even a major power without too much trouble, if we focus our efforts on it single-mindedly.

Sea denial has two essential steps: finding ships and sinking them. Finding the ships means building an effective and reliable surveillance system capable of covering Australia’s air and sea approaches thousands of kilometres from our shores. We already have some of the key elements, including the JORN over-the-horizon radar system, and technological innovations should make it easier to enhance this over the next few decades. In the age of Google Earth, a ship moving slowly over the surface of the sea is not that hard to find. Sinking ships is not that difficult either. Today’s torpedoes and missiles make ships easy to target and very hard to defend. Indeed, most of the technologies in today’s warships are devoted to self-protection rather than attack.

The challenge is to carry the torpedoes or missiles within firing range. It makes no sense these days to carry them in a warship, which is itself both expensive and vulnerable. Instead, they are most effectively carried in submarines and aircraft. Within range of airbases, aircraft are cheaper, but beyond that range – anything over a few hundred kilometres – submarines are the sea-denial platform par excellence, because they are so difficult to find. That makes them perhaps the most important single capability for the independent defence of Australia, because the further from our shores we can start to deny the sea to an adversary, the further its costs and risks rise. What’s more, over coming decades, submarines might be the only way we can project power against significant military forces in the Western Pacific. The advantages of sea denial over sea control only work in our favour so long as we are not trying to project power using ships ourselves. Australia has no serious chance of achieving sea control against any major Asian power, even in our own immediate maritime approaches. That means if we want the ability to use armed forces to protect our wider strategic interests in a major-power conflict, submarines could be the only option we have.

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This is why the government’s failure to make the new submarine project work is so serious. Most of the myriad problems have come about because the government has no coherent idea about what the submarine fleet is supposed to do. In fact, the project has been driven not by strategic imperatives but by commercial concerns about where the boats will be designed and built. This has shaped the debates that have raged over whether the boats should be large or small, designed here or overseas, to a new design or off the shelf. Little or no thought has been given to the two most critical issues: numbers and timing. Once we start to ask how Australia might defend itself with a sea-denial campaign, it becomes clear that we need at least double the 12 submarines currently being planned. At the same time, there is no need for the exotic and expensive options that are adding so much to the cost, risk and schedule of the proposal. What Australia needs, if we decide to invest in the capacity for independent defence over coming decades, is large numbers of good, quiet, lethal boats optimised solely for the task of sinking ships. And we need them soon.

A big fleet of submarines like this would cost a great deal of money, and would only be one element of a range of capabilities needed for the independent defence of Australia. Effective denial of our air and sea approaches would require a much larger air force than we have been planning – perhaps 200 front-line combat aircraft rather than the 100 being considered. It would also, perhaps surprisingly, require a somewhat larger and more heavily equipped army, because a maritime-denial posture relies on there being a substantial land presence to drive up the scale of forces the enemy has to project. So the ADF needed for our independent defence would look very different from the force we have known for the past 40 years, or indeed since World War II.

Obviously, building and operating this force would make unprecedented demands on the ADF and the department. We could hardly expect the outfit that has failed to crew and maintain a fleet of six submarines to do any better with 24 or more. But these problems do not reflect any inherent weakness in Australia’s demography or skills base. Although it is crystal clear that our current defence force and department aren’t up to the task, as long as we can get access to key technologies, Australia has the capacity to build and operate the kinds of forces we would need to defend ourselves. It would simply take a lot of work.

Which brings us back to money. Whether we should build the forces to defend ourselves independently in the Asian century depends on how much it would cost. New technologies such as drones could help to keep some costs down eventually, but there’s no dodging the fact that independent defence will cost a lot of money – certainly a lot more than we have been spending recently. There is, however, one big offset – the potential for savings. We waste a lot of money in defence in ways large and small, but the biggest drain of all is the billions spent on capabilities we do not need.

The Gillard government is currently building three air warfare destroyers (AWDs) at a cost of $8 billion. We simply do not need them. We do need smaller, cheaper warships, such as the Anzac frigates for low-level operations, but the AWDs are equipped at great cost for high-end naval battles. They are supposed to escort and protect the huge new amphibious ships in which our army, like US marines, might be deployed to assault the territory of an enemy in a major war. Yet this scenario is fanciful. Even with the AWDs, we have no chance of achieving sea control against a capable enemy. Just as it is easy for us to achieve sea denial against an adversary, it is easy for them to deny us. The amphibious ships would stand too high a chance of being sunk with all troops on board to ever be put to sea, and even if they went to sea and found their way ashore, a couple of thousand soldiers would have little if any strategic effect. In any major conflict, amphibious assault is simply not a credible option for Australia, and in low-level contingencies amphibious forces would not need AWDs to protect them.

This appalling waste of money and effort is happening because the Howard government ordered these ships, on the advice of Defence, without anyone apparently having thought through whether these would contribute cost-effectively to achieving Australia’s strategic objectives.

Yet even if we cease wasting money, an independent defence capacity is going to be expensive. It is impossible to give a precise figure, but if we were careful to spend money only on the capabilities we really needed, it would cost between 3 and 4% of GDP. For the last 20 years, we have spent an average of about 2% of GDP on defence, so that means a steep increase. But to put it in historical perspective, during the 1950s and ’60s we spent an average of 3.3% of GDP, so this would take us back to what we spent before the great strategic changes of the early 1970s allowed us, for a time, to ignore the possibility of conflict with great powers.

Australia could afford this level of defence spending. It would mean higher taxes, but our tax levels are still quite low compared to those of other countries. Nonetheless, to go down this path would be a huge decision. Despite what the industry lobbyists say, defence spending is in the end a form of consumption, not an investment. We should only spend this much money if the strategic risks of the Asian century are grave. It is quite possible that they will be. This is what the next defence White Paper must assess. For the first time in a very long period, our political leaders are going to have to take defence seriously.