The Global Financial Crisis and Its Likely Impact On The Future of Navies

HOW MIGHT THE CURRENT GLOBAL FINANCIAL CRISIS IMPACT ON THE FUTURE OF NAVIES?               

“If money is the bond that binds me to human life, that binds society to me and me to nature and men, is not money the bond of all bonds? Can it not tie and untie all bonds? It is the galvano-chemical power of society?”[1] 

The first line of defence for many nations is the Navy. Sea lines of communication are vital to safeguard the lifeblood of trade. If money can indeed ‘tie and untie all bonds’, then for island and archipelagic nations and those constrained by their geography to use the sea, there are grave security implications associated with any global economic fragility.  This essay will discuss how the global financial crisis (GFC) might affect navies together with their ability to employ the Principles of War as an essential requirement to execute strategy in a maritime environment.

Perilous Paths 

In a sustained recession or depression, perhaps the most important consideration from a military perspective will be the outcome of a ‘risk versus gain’ political analysis of whether or not to cut defence expenditure. The impact of a GFC inevitably impacts on all the elements of a nation state and navies are unlikely to be exempt from its deleterious effects. That navies are neither formed nor operate outside the influences of the elements of National Power (the DIME[2] construct) is an important consideration when discussing the possible impacts of the GFC. Navies, as part of the military arm of government, are woven into the fabric that holds together the societies they serve and protect. Seventy years on from the beginning of the Second World War, modern Western societies, both continental and island based, appear to have forgotten their dependence on the sea and moreover, their navies. 

Nearly three quarters of this planet is covered by water. Ninety percent of the world’s commerce travels by sea and the overwhelming majority of the human race exists within a few hundred miles of the ocean. Earlier this year, the outgoing British First Sea Lord highlighted the importance of the maritime environment when he accused politicians of “sea blindness” and “losing the ability to think strategically”.

 “People have no idea that by 2012 their lights are staying on because of liquid gas arriving in Milford Haven daily. There is a world out there with a huge maritime element. I mean, we call it earth; we should call it the sea.”[3]

 A Powerful Perspective 

These are extraordinary times and navies have not been immune from the momentous upheavals witnessed in a relatively short period around the beginning of this century. The links between the DIME elements of national power are complex, the task of determining definitively the effect each has on the other is complex, both within a single nation and across a region or globally.[4] The end of the Cold War and rise of global terrorism have strained both Diplomatic and political boundaries and relationships on an international and sometimes internal level to a degree only hitherto witnessed during the First and Second World Wars. The development and influence of the internet in an Information age, still well off its apogee, has brought unforeseen domestic and international pressures, from the need for electronic security for personal computers to experiencing a sustained national cyber offensive.[5]

Many Militaries which became comfortable during decades of Cold War posturing have since witnessed not only the conceptual ‘Revolution in Military Affairs’ but also upheaval across most accepted disciplines, with impacts being felt at all levels from the strategic to the tactical. Demands for a Cold War dividend coincided with pressures for many navies to reflect perceived changes within society. There were demands for various sexual and gender equities, demographic recruitment stresses were exacerbated by the requirements of rapid technological advances. Land mines and nuclear depth bombs became passé while acceptance or rejection of ballistic missile defence principles grew to be essential criteria for membership within several alliances. The change-driven insecurity experienced by professional armed forces has lasted almost twenty years. As yet it shows no sign of abating. In the 1990 ‘Options for Change’ restructure the Royal Navy accepted a cut in the number of frigates and destroyers from 50 to 40, anticipating that was all that would be required.Today the accepted number is 25 and this figure still comes under regular pressure from the British Treasury. So, years before the onset of this GFC, many navies had already faced sustained economic pressures.       

For most nations, with the exception of Japan and S.E. Asia, during the last decade of the twentieth century and much of the first decade of the new century, the Economic element of national power seemed relatively free from the effects of global turmoil. For example, between 1990 and 2006 the GDP of the United States increased by about 3.6% each year.[6] The influence of the GFC in different countries and blocs is dependent on issues such as the nature of the market, government controls, assets and capital; while population size, immigration, ethnicity, religion and human rights may all inform how different societies react to hard times. Therefore, while a resurgent Russia was planning on 25.7% defence budget increase in 2009,[7] other nations were deferring major defence orders. Other contributing factors in how navies may fare will include a nation’s information infrastructure and bureaucracy, the relationships between national bodies, available tools and technology and relationships with organizations both international and non-governmental.

Money and Principles

‘The sinews of war are infinite money’[8]

Ralph Waldo Emerson once observed that “a man is usually more careful of his money than he is of his principles.” A state cannot afford to be so imprudent if it is to achieve grand objectives at a strategic level able to exercise the military element of power through the broad but essential precepts of the Principles of War.[9] The Principles, a century in development following Clausewitz’s early 19^th Century observations,[10] became fully recognisable a hundred years ago this year in the British Field Service Regulations. Each principle has intrinsic merit but in respect to Strategy they cannot stand alone and must instead be intertwined for strength: the steel, hidden and ready, inside the velvet glove of diplomacy.   

Given the nature of federal and Westminster systems of government, policies are dependent on the whim of party political expediency. Regrettably, navies are easy targets when savings are required. While it is simple to effect economies in the short term, for example allowing oil prices to dictate ships’ programs, short term policy decisions may well have long term impacts and it is much less simple to turn around national strategy. Modern naval equipment and systems are years in development and often produced at substantial cost and significant political risk, for example Australia’s own Collins Class submarine. Australia’s government is to be commended for its stated intention to have a formal, quinquennial Defence White Paper process which will maintain strategy at the centre of a risk based approach to defending the nation.[11]

Maritime nations depend on their ability to conduct and protect trade, if necessary supported by naval operations. To be successful these must have the freedom to judiciously apply the Principles of War. Of the ten Principles of War recognised by the RAN, it is arguable none are immune to the effects of the GFC. Selection and Maintenance of the Aim is the foundation for all the principles. In democracies, governments seeks regular re-election and do not have the power of a totalitarian regime to compel its people to make sacrifices in hard times. This causes inevitable tensions when considering strategy and military employment. In the introduction to Australia’s 2009 White Paper, the Australian Defence Minister stated:

“The 2009 White Paper was developed in the midst of a global recession. The Government has demonstrated the premium it puts on our national security by not allowing the financial impact of the global recession on its Budget to affect its commitment to our Defence needs.”[12]

However, almost immediately in the Executive Summary we read:

“The global economic crisis is the most fundamental economic challenge facing this Government. At times such as these, the Government must be fiscally responsible. It would be reckless to commit substantial new resources to Defence while uncertainty surrounding the crisis remains.”[13] 

These statements appear to contain contradictions which result directly from the GFC and which may well affect the balance between force structure, capability investment and defence infrastructure. It is not the first time in Australian naval history that economic turmoil has affected strategy. For the Queensland Maritime Defence Force of the 1890s “the depression ruled out any further thoughts of expansion and greatly curtailed operations”.[14]

Co-operation between services and allies depends on the ability to communicate effectively and provide mutual support. This requires consistent investment if satisfactory levels of co-operation are to be maintained. A good example arose during the recent Royal Australian Navy’s Northern Trident deployment, when RAN vessels foiled an act of piracy off the Horn of Africa.

“The relative ease with which Sydney and Ballarat could coordinate with CMF Headquarters and other coalition ships in the area was largely because the RAN routinely operates in those waters and with allies. There are RAN officers working within CMF Headquarters and foreign naval officers are on exchange with the RAN, all of which builds trust, teamwork and understanding.”[15]

Of course, the principle of Offensive Action cannot be contemplated without fully trained and properly equipped assets.

“Fortunately, Ballarat had been fitted with a secure, web based communications capability which was required for her subsequent work in the United Kingdom. This system allowed relatively easy and secure communications with both CMF Headquarters and associated ships.”[16]

Without the smaller equipment purchases and rapid acquisition programs that may well be early targets for economic savings in a GFC, it will be difficult for naval forces to take or regain the initiative. Sustainment is a particularly vulnerable principle given the costs associated with modern technology and the fact that most navies rely on imported equipment. The Argentinean requirement for more Exocet missiles during the Falklands War is an excellent case in point. Some navies have mimicked commercial sector practices and their logistic chain now more closely reflects the practice of “just enough, just in time”. Unfortunately, wars and operations do not fall neatly into the category of commerce and a sustained economic crisis cannot fail to impact on the provision of effective sustainment. Equally, without adequate force levels there can be no effective Concentration of Force.

The principle of Security, which allows commanders to operate with minimal interference from their opposite numbers, is crucial in an information age. Developing network-centric capabilities has been a focus for modern armed forces in recent years but replacing IT systems is dependent on regular, structured investment. The pace of technological change shows no signs of slowing down and those who are unable to keep up economically will be left behind.

“Desert Storm forces, involving more than 500,000 troops, were supported with 100 megabits per second (Mbps) of bandwidth. OIF forces, with about 350,000 war fighters, had more than 3,000 Mbps of satellite bandwidth, which is 30 times more bandwidth for a force 45 percent smaller”^[17]

The ability to affect Surprise and defend against it will be directly impacted by negative economic measures. However, all is not bad news, because the requirement for economic stringency can bring change for the good.

“The British defence industry is already moving in directions which narrow the gap between long-term procurement and urgent operational requirements, providing the capacity to adapt equipment in theatre and showing the flexibility to produce solutions tailored to particular problems in short order.”[18]

The question now is how deep will the GFC be and for how long will we see its effects? The Flexibility to adapt plans will be influenced by any reduction in force numbers and equipment. Ironically, the GFC may ensure that Economy of Effort in allocating and applying naval power is enforced on commanders, a principle which may then limit rather than support the exercise of the military element of national power.

The Human Factor

“Isn’t the morale of a Service a thousandfold more important than its material?”[19]

Morale, the last of the Principles of War, may be subject to rapid stresses in a market and consumer driven economy exposed to a GFC. Economic influence is very important for sustaining an effective naval force, particularly those formed by volunteers. Even without the existence of economic strain, there has been a dichotomy in post Cold War Western navies between the ostensibly constant pressure for transformation and the average sailor’s natural antipathy to change.

As Australia’s Chief of Navy has stated, “The most important factor … are the personnel challenges that confront me”.[20] The United States’ Chief of Naval Operations voiced a similar opinion: “The most important thing we have are our Sailors, our people”.[21] The effects of the GFC on the staffs of large scale civilian enterprises are reported daily in the media. Workers have been presented with the closure of final salary pension schemes, pay freezes, offers of unpaid leave, part time working schemes (not an accepted practice in Europe and the USA) and even, for those employed by British Airways, the suggestion that they should work for a month without pay. An immediate family member of the author was recently faced with the stark choice of a 10% pay cut or redundancy by a US-based employer.

In an earlier GFC an enforced 10% cut in pay initiated a Royal Navy mutiny. Feeling the pressure of the Great Depression and determined to maintain the Gold Standard, a new National Government in the UK in 1931 agreed to cuts in public spending. The ‘new rate’ of pay, introduced for new entrants to the RN in 1925 was thereby reduced by 10% but those who had joined before that date had their pay reduced to the new ‘new’ rate, the net effect for them being a cut of 25%. It is ironic that in an age when the flow of information was relatively slow and the naval authorities were well able to stay ahead of media reporting cycles, that the sailors first became aware of their pay cut by reading the newspapers.

“For two days, the ships of the Atlantic Fleet were in a state of open mutiny… large numbers of men were massed on the forecastles of Hood, Rodney and Dorsetshire. Men on the forecastle of Hood had refused to allow any work to be done to commence on unmooring, and it became evident that neither Hood nor Rodney could go to sea.”[22]

The British Cabinet met almost immediately and within days Britain had left the Gold Standard. Twenty three other nations followed. The events of 13 to 21 September 1931 provide an illuminating, and fortunately bloodless, example of the interdependent nature of the elements of national power in a Western society subject to a GFC. The February 2009 uprising by border guards in Bangladesh, while not a naval mutiny, highlighted the fragility of morale in some third world militaries when conditions of service and pay are undermined.

“The border guards said their pay rates have failed to keep pace with the army’s even as rampant inflation has seen the cost of food in the poverty-stricken Islamic country rise by more than 30 per cent in the past three months.”[23]

Ironically, one of the benefits of an economic downturn is the concomitant increase in the number of people wanting to join the Navy. Retention also benefits from the ‘recession-proof’ perception of Armed Forces employment,[24] or ‘economic conscription’,[25] as some prefer to term this effect. Naturally, morale will be affected by the other economic factors besides pay over which defence organisations have some control.

Conditions of service and allowances such as sponsored housing schemes may, in the longer term, be affected because of budget considerations but in the short term this is unlikely to be the case, if only because of bureaucratic reaction times. Morale may be more immediately injured by short term savings measures. Delaying investment in equipment which service personnel identify as essential affects morale as well as capability. Keeping vessels alongside to save fuel affects training. Promotion cycles become vulnerable as fewer senior officers choose to leave the Service in an uncertain economic climate. This limited employment opportunity was recently noted by the Chief of the Royal Australian Air Force when  commenting on the Air Force Reserve.[26]

“In any given situation, military success may depend as much on morale as on material advantages.”[27]

Economic Insecurity 

“It is upon the Navy under the Good Providence of God that the wealth, safety and strength of the Kingdom do chiefly depend.”[28]

Rather more than navies, commercial maritime interests have always been acutely aware of the inherent economic vulnerability of operating within a maritime environment. The CEO of Shipping Australia Ltd recently noted that,

“Australia is more directly involved than one would initially think in such (piracy) activities that are far removed from our shores… The Stella Maris loaded lead and zinc in Townsville for Europe… was hijacked by Somali pirates. …A number of cruise vessels carrying Australian passengers have been attacked by Somali pirates”.[29]

Contrast this with the Defence White paper which posits that Australia’s most basic strategic interest remains the defence of Australia against direct armed attack.

The stringencies of the GFC are brought into sharp focus for governments dependent on maritime trade. The global influence of a relatively small number of unsophisticated third world pirates on insurance markets, the fuel cost of diverting ships, the effects on naval operating costs, deployment and maintenance cycles and media reporting of counter-piracy operations is, to say the least, disproportionate. The link between economic adversity and maritime crime is well documented while the vulnerability of key maritime trade choke points such as the Suez Canal, the Straits of Hormuz and Malacca to terrorist attack has exercised naval strategists in recent years. However, the rapid changes of economic pressures such as oil prices, will continue to affect naval budgets and operations in a much more direct and immediate manner. How quickly funding for planned defence expenditure comes under pressure will depend on the severity of the GFC.

Defence expenditure in a country such as Iraq, dependent as it is on oil sales for 90% of its gross domestic product, may be hit much harder by the rapid decline in world oil prices than that of a nation whose prosperity flows from a broader economic base. Negative economic forecasts and new economic realities will force governments to re-assess strategic priorities, reconsider long and short term plans and subtly change the relationship between exercising diplomatic and military influence, the former being in principle much cheaper and more appreciated by the political elite than the latter. It is possible that should the GFC deepen, we may yet see dramatic naval upheavals downstream. Among these could be the end of the United States Navy’s hegemony, a resurgence of Russia’s blue water fleet, the development of the long promised Chinese fixed wing carrier force and a deepening decline in the navies of the European Union. However, none of these will happen independently. All impacts of the GFC on navies in the future will continue to be influenced by the pervasive and complex influences of the national and international elements of power.             

Conclusion 

2009 may prove to be a turning point in this GFC but for the Royal Australian Navy, looking toward the year 2030, the economic climate will probably remain the single most important factor in whether the government’s emphasis on undersea, anti-submarine and surface maritime warfare in the defence of Australia will be achievable. Whether or not the crisis worsens, politicians must be made cognisant of reality, that there are fundamental links between the maintenance of defence capabilities, the delivery of strategy and the Principles of War. If worse is yet to come in this GFC, then naval personnel will do well to keep Lord Nelson’s words in mind:

“I could not tread these perilous paths in safety, if I did not keep a saving sense of humour.”

 

Bibliography 

Books 

Marx, Karl. Early Texts by D McLellan. Basil Blackwell, Oxford, 1972

Australian Maritime Doctrine (RAN Doctrine 1 – 2000)

2009 Government of Australia Defence White Paper ‘Defending Australia in the Asia Pacific Century: Force 2030’.

Heinl R.D. Jr. Dictionary of Naval and military Quotations (Annapolis, NIP 1966)

Carl von Clausewitz. ‘The most important principles of the art of war to complete my course of instruction for his Royal Highness the Crown Prince.’ 1812

United States Census Bureau, US Statistical Abstract 2008  

Newspapers/Magazines/Journals

Llew Russell AM CEO Shipping Australia Ltd. Chartered Institute of Logistics and Transport, Australian Review 2009, “Piracy undermining World Trade Growth Potential”.

Air Marshal Binskin, Air Force News Vol 51, No 12, Jul 9 2009.

Vice Admiral Crane RAN, Chief of Navy Speech to Australian Strategic Policy Institute (ASPI)

Lt. Gen. Harry D. Raduege Jr USAF. ‘Net-Centric Warfare Is Changing the Battlefield Environment’.
‘Crosstalk’, The Journal of Defense Software Engineering, January 2004.

Prof Hew Strachan, Oxford University. Survival Magazine, Volume http://www.informaworld.com/smpp/title~db=all~content=t713659919~tab=issueslist~branches=51 – v5151, Issue 4 August 2009.

Newsletter of the Sea Power Centre Australia. The Dubai Princess and the Pirates – Semaphore Issue 10, August 2009.

Admiral Sir Jonathan Band Royal Navy. ‘Ministers accused of ‘sea blindness’ by most senior Royal Navy figure’. UK Daily Telegraph 14 August 2009. 

Websites 

http://www.timesonline.co.uk/tol/comment/columnists/william_rees_mogg/article5408194.

http://www.theaustralian.news.com.au/story/0,25197,25113356-2703,00.html

http://www.telegraph.co.uk/news/newstopics/politics/defence/4838937/Recession-boost-for-Armed-Forces-recruiting.html

http://www.wsws.org/articles/2009/jan2009/aumi-j26.shtml (World Socialist Web Site)

Chief of Naval Operations, Admiral Roughead. Speech – 30 June 2009. http://www.navy.mil/navydata/people/cno/Roughead/Speech/6.30.09%20Ogilvy%20Breakfast%

Internet. http://en.wikipedia.org/wiki/Colonial_navies_of_Australia

USA Today Newspaper. Internet. http://www.usatoday.com/news/world/2008-09-19-Russia-defense_N.htm

UK Daily Telegraph newspaper 19 May 2007. Internet:

http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/05/18/westonia18.xml 

Bibliography
Books
Marx, Karl. Early Texts by D McLellan. Basil Blackwell, Oxford, 1972
Australian Maritime Doctrine (RAN Doctrine 1 – 2000)
2009 Government of Australia Defence White Paper ‘Defending Australia in the Asia Pacific Century: Force 2030’.
Heinl R.D. Jr. Dictionary of Naval and military Quotations (Annapolis, NIP 1966)
Carl von Clausewitz. ‘The most important principles of the art of war to complete my course of instruction for his Royal Highness the Crown Prince.’ 1812
United States Census Bureau, US Statistical Abstract 2008
Newspapers/Magazines/Journals
Llew Russell AM CEO Shipping Australia Ltd. Chartered Institute of Logistics and Transport, Australian Review 2009, “Piracy undermining World Trade Growth Potential”.
Air Marshal Binskin, Air Force News Vol 51, No 12, Jul 9 2009.
Vice Admiral Crane RAN, Chief of Navy Speech to Australian Strategic Policy Institute (ASPI)
Lt. Gen. Harry D. Raduege Jr USAF. ‘Net-Centric Warfare Is Changing the Battlefield Environment’.
‘Crosstalk’, The Journal of Defense Software Engineering, January 2004.
Prof Hew Strachan, Oxford University. Survival Magazine, Volume http://www.informaworld.com/smpp/title~db=all~content=t713659919~tab=issueslist~branches=51 – v5151, Issue 4 August 2009.
Newsletter of the Sea Power Centre Australia. The Dubai Princess and the Pirates – Semaphore Issue 10, August 2009.
Admiral Sir Jonathan Band Royal Navy. ‘Ministers accused of ‘sea blindness’ by most senior Royal Navy figure’. UK Daily Telegraph 14 August 2009.
Websites
http://www.timesonline.co.uk/tol/comment/columnists/william_rees_mogg/article5408194.
http://www.theaustralian.news.com.au/story/0,25197,25113356-2703,00.html
http://www.telegraph.co.uk/news/newstopics/politics/defence/4838937/Recession-boost-for-Armed-Forces-recruiting.html
http://www.wsws.org/articles/2009/jan2009/aumi-j26.shtml (World Socialist Web Site)
Chief of Naval Operations, Admiral Roughead. Speech – 30 June 2009. http://www.navy.mil/navydata/people/cno/Roughead/Speech/6.30.09%20Ogilvy%20Breakfast%
Internet. http://en.wikipedia.org/wiki/Colonial_navies_of_Australia
USA Today Newspaper. Internet. http://www.usatoday.com/news/world/2008-09-19-Russia-defense_N.htm
UK Daily Telegraph newspaper 19 May 2007. Internet:
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/05/18/westonia18.xml