Globalization of Navy shipbuilding: a key to affordability for a new maritime strategy

Naval War College Review, Autumn, 2007 by Robert J. White

Industry blames low and unstable production rates for high material costs and low productivity. But those factors have existed for sixty years. Moreover, toward the end of the Cold War the Defense Department recognized that military demand would no longer generate the economies of scale required for affordable production. The present emphasis on dual-use technology, relaxation of former requirements to use military-specification components where industry specifications are sufficient, and the preference for COTS items wherever possible have all been outgrowths of that realization. Unfortunately, their effectiveness has been limited by the segregation of U.S. shipbuilding between the commercial and military sectors. Few shipyards work in both. (29)

Commercial shipbuilding, then, depends solely on protectionist legislation, and military shipbuilding hides conveniently behind national-security claims. The Department of Commerce states this claim succinctly: "It is essential that the capability and infrastructure needed to build these [military] ships is resident in the United States because it provides added assurance that they can be built, repaired, and maintained during times of conflict." (30) The problem with maintaining such a "surge" capability is twofold. First, as the Commerce Department freely admits, maintaining excess industrial capacity drives up cost and degrades competitiveness. Between 1997 and 2002 the cost of a surface combatant rose 30 percent above inflation; (31) in comparison, competition and overcapacity in shipyards on the world market drove the price of a new commercial vessel down 19 percent. (32) Second, the complexity of modern combatants renders a World War II-style mobilization entirely infeasible. (33) In fact, a three-to-five-year construction cycle means that a warship ordered at the beginning of a conflict is not likely to be available before the end. (34) Further, it is plainly unrealistic to believe that all foreign shipyards in friendly and allied countries "would simultaneously turn down revenues and deny access." (35) Finally, as early as 1988 the national security strategy recognized that defense industrial mobilization is not a unilateral matter but requires coordination between the United States and its allies. In the words of President Ronald Reagan, "Fortress America is an obsolete concept." (36)

GLOBALIZATION OF PRODUCTION

Globalization is not new. Certainly the increasing rate of globalization since World War II is significant, but as Stephen Brooks contends in his book Producing Security, the real difference in the latter half of the twentieth century was the introduction of geographically distributed production. (37) In this "globalization of production" an item may cross international borders repeatedly in various stages of manufacture. Finished products can represent "work done in ten, twenty, or even thirty countries." (38) Cheap transport and the free flow of capital allow companies to combine the advantages (e.g., in labor costs, technological prowess, heavy industry, banking, government subsidies, etc.) of any number of countries in a single product. Such cost-benefit analysis is continual: when the advantage shifts, so too does capital, always seeking the path of least resistance.