British naval procurement developments may presage U.S. actions. Because the British military is so much smaller than that of the United States, the problems associated with, for example, limited production runs become prominent in Britain well before they appear in the United States. A close study of British conditions, therefore gives us more time to react to developments that may prove inevitable.
The Royal Navy has been shrinking for a long time, mainly because the unit cost of modern ships has escalated. About 1980, for example, procurement of new Type 22 frigates was cut on the grounds that, though they were advertised as replacements for the earlier and much simpler Leanders, they cost three times as much. (The threat they faced was becoming a lot more sophisticated, too). The British have also long experienced the kind of manpower crisis the U.S. Navy now faces. Beginning about 1957, their future fleet plans were shaped not by the amount they hoped to spend each year, but by the number of sailors available to the fleet.
Like the U.S. Navy, the Royal Navy bet in the late 1990s that commercial designers could produce much more affordable vessels than could the in-house team that had designed the great bulk of past warships. In the United States, the Naval Sea Systems Command Preliminary Design organization was effectively reduced to monitoring contract performance, although that has changed some in recent years. In Britain, the Directorate of Ships designed its last major warship, the Type 23 frigate, in the early 1980s. The new carrier is a joint product of the British BAE company and the nominally French (actually transnational) Thales (formerly Thomson-CSF). BAE designed the new Type 45 air defense destroyer and the new Astute-class submarine. In the past, the directorate would have produced a preliminary design, and the builders would have developed it to the point at which a ship could have been built.
As the British home warship market has shrunk, it has become much more difficult to maintain the design and construction teams required to produce large warships. The Royal Navy cannot justify building a carrier-like ship every five to seven years to maintain steady production. Similarly, there is no justification for building nuclear submarines at such a rate that one would always be under construction. What happens to the design and construction teams between major projects? There is, it turns out, a vast difference between in-house and commercial design. The in-house team is maintained whether or not it has a project in hand. That is the strength and the weakness of a government organization. The strength is that corporate knowledge survives. The weakness is that, without the pressure of competition, the product may be far more conservative than it ought to be.
There have been two reactions. One is a proposal to amalgamate all interested parties into a new entity, ShipsCo., which would build the major units. A second is a more radical proposal to accept that at least some future British warships may be built abroad, something previously unthinkable.
Neither idea is satisfactory. Forming ShipsCo. is like reverting to a government monopoly on design (and, in this case, construction). Because ShipsCo. must answer to stockholders, it cannot afford to maintain any expertise unless it gets a constant stream of orders from the Royal Navy. That is the central problem in relying on the civilian sector to replace in-house efforts. The prime mover in the civilian economy is the threat of death if the company in question fails to deliver what enough customers want. A corollary is that if the company cannot make enough money dealing with the military, it must drop out of the business areas the military needs.
Perhaps much more to the point, in-house designers learn about the special requirements of their navy. A great deal of design history shows that, no matter how carefully contracts are drawn, they rarely reflect what the navy actually needs. The features private designers feel will be especially attractive are often those that officers think they need, but do not reflect reality.
In the British case, if ShipsCo. fails, why should it be expected that the foreign sources of ships will have an even better idea of what the Royal Navy needs? Perhaps the question is how important the Royal Navy is to British defense and to the British position in the world. The purchase of the two carriers and of the new large amphibious ships and destroyers suggests that the current government appreciates that it takes a powerful navy to project British power to the unstable parts of the world.
Naturally, this view is not universal, but if it does reflect current British thinking, then one might argue that destroying the ability to build ships to British requirements would be counter-productive. Doesn't that suggest that ShipsCo. should be in some way an in-house organization? How can the possibility of radical innovation be balanced against the risk of losing all ship-design and construction capacity? It is not as though the Royal Navy is more or less identical to several European navies, and thus can easily combine with them to buy common products (such as the multinational Eurofighter). The closest equivalent is France, and the French have not been wildly successful in their shipbuilding programs. Nor have the British found French designs compatible with their needs, as seen in the Horizon anti-aircraft frigate project. It can also be argued that the French industry has survived largely because it is quasi-nationalized.
All of this has a lot to do with the United States. The reason the U.S. Navy is desperately trying to grow to around 300 ships, after having reached nearly 600 about 15 years ago, is that in the aftermath of the Cold War annual shipbuilding programs collapsed. The United States went, for example, from building perhaps five submarines each year to building about one a year. Many were surprised at how expensive that single submarine was, and enormous effort and ingenuity went into designing a new submarine that would cost much less. The new Virginia-class was less capable in some ways than its predecessor, Seawolf, but better technology and ingenuity made up for many potential shortfalls. It turned out, however, that unit cost was about the same.
Why?
The reason was the same one that plagues the British: overhead. If commercial submarine building (and design) is worth preserving, then each submarine must pay not only for what goes into it, but also for the yard and the design staff. Even if no submarine at all is built one year, keeping that vital capacity alive is quite expensive. If that money is withdrawn, stockholders in the companies that own the yards would be quite justified in demanding that they be closed.
Similar logic applies to design competitions. At one time, when the technology of ships and their machinery was changing rapidly, it could be assumed that competitions would be frequent. A company that lost one would be justified in holding its design team together for the next, or the one after that. However, when technology stabilizes, there is no longer any need for frequent designs. What happens to the loser in that sort of competition? How long can it afford to maintain the sort of basic design team required for the next big competition when that may not happen for 30 years? Even if the loser gets to build some of the ships, how does it justify maintaining an expensive design team? In that case, what is the real difference between the winning team and the sort of in-house team on which the U.S. Navy relied in the past?
To complicate matters further, from an operational point of view, the issue is not how many ships are built each year, but the size of the Fleet. A relatively small annual building program is tolerable if ships last long enough. The small program, however, limits what each of several shipyards can earn each year. The U.S. experience has been that multiple shipyards have to be kept in business because any yard that finds itself in a monopoly position can drive up prices. As long as it takes a specialized shipyard to build a ship, there seems to be no way out of paying large overheads short of retreating to the old system of government shipyards, which was dropped in the 1960s. Maybe it ought to be revived now.
There is another way out. Even with a small program, modernization implies considerable investment in the systems on board the ships. The major U.S. warship builders are now parts of larger companies that make much of their money from weapons and other systems. However, that leaves the question of the profitability of their shipyard components. In difficult times the companies may feel compelled to sell off the yards. In the past, merging the system and platform ends of warship design has been difficult, whether inside or outside the government. The current littoral combat ship, with its modular payloads, is an attempt to get around this problem, as well as the problem of modernization.
Industrial capacity is needed because, every so often, there is a war. Ships, airplanes, and missiles are all expended, and unless they can be replaced quickly enough, we lose. The question is how to maintain enough capacity to meet such an emergency. At present Japan seems to have chosen a novel answer. The Japanese Maritime Self-Defense Force (in effect, the navy) assigns a lifetime to each type of ship, and discards ships when they reach it. That practice ensures continued steady production, sufficient to keep yards in business. The Japanese also seem willing to pay heavily to make sure domestic producers stay in the defense business. This is a very expensive proposition, and the Japanese now face falling defense budgets as a consequence of larger economic woes. At the same time, they face new requirements tied to the North Korean strategic missile program. Both factors will probably make their solution to a widespread problem unaffordable.
Over the past decades, many defense companies have vanished because losing any one major competition has increasingly been fatal. Anyone interested in airplanes, for example, cannot but be struck by the disappearance of so many of the companies that made the 1950s seem so golden in retrospect. If we are necking down to only a very few companies-in some fields, perhaps only one-ought we to rethink our past decisions to eliminate in-house design and production in some form?