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Australian Policymakers Face a Trade-Off Between Paying a Price Premium and Benefiting from Broader Economic Development

• The Australian government must choose among three options: build the naval surface ships on Australia's acquisition list entirely in-country, build them partially in-country and partially overseas, or have them built at shipyards overseas. Each strategy carries costs and risks.
• Our examination concludes that domestic production of naval ships in Australia currently carries a price premium — estimated to be between 30 to 40 percent compared with similar ships built abroad.
• The premium to build in Australia could be lower than the 30 to 40 percent range if Australia adopts a continuous build strategy to avoid rebuilding an industrial and management capability with each new ship program, starts with mature designs at the onset of production, and minimizes changes during production. With such measures (and a cultural shift in industry toward continuous improvement), we can envision this premium being cut in half.
• Our examination of shipbuilding's economic effects suggests that there may be economic benefits associated with shipbuilding, especially when it occurs in areas that would otherwise have slack in their labor forces. The benefits are unclear and are largely dependent on broader economic conditions in Australia.