Sovereign Capabilities: Self Sufficiency is a new priority

Blog | 11 Mar 2025

Sovereign Capabilities: Self Sufficiency is a new priority

Andrew Tessler

Head of Economic Impact Consulting, at Oxford Economics Australia

Self Sufficiency is a new priority

It’s a cliché to say we live in troubled times. Mid-way through the third decade of the 21^st century. Let’s take stock of how the last 25 years have panned out:

A major terrorist attack in the world’s most powerful country led to a two-decade War on Terror with major repercussions not only in the Middle East but across the world.
A financial crisis in Western countries produced not only a sharp recession but longer-term political shifts, based on increasing resentment between the perceived “haves and have nots”.
A major pandemic swept across the world for the first time in a century, presenting global challenges, particularly for those countries used to individual liberties and freedoms.
Climate change continued its relentless march.
Resentment at the historical dominance, and perceived double standards, of the West along with nationalist policies in major powers have led to multiple challenges to the post-war world order.

The picture isn’t all doom and gloom. Vast numbers of people have been lifted out of poverty in the past 25 years. Global literacy and numeracy standards have increased and despite concerns, on the whole, the development of a global online ecosystem (and to date AI) have all led to improved living standards.

Traditional “neoclassical” or free market economics (and globalisation) relies on a default assumption of free trade. The theory runs something like this: Say Person A (me) is good at producing bicycles and you are good at producing laptops. I could try to produce laptops, but the results won’t necessarily be great – they won’t be as good as Person B’s laptops for sure. Or we could focus on the things we are good at and trade between us. Each of us would be better off.

Now there has always been a lot of debate about free trade but most economists subscribe to it to some extent and the impacts can give a big boost to national economies. That’s why free trade agreements have been such a big deal – or at least have been in the past.

However, some of the above developments have challenged the idea of free trade. The financial crisis sharpened suspicions about globalisation and economic policies in general, particularly among those who felt they had lost jobs or incomes to foreign competitors. There is a line to be drawn here between this and the potential re-ignition of global trade wars.

The pandemic meant that regions of the world felt completely isolated from each other in a way that hadn’t been true in decades. A related concern was countries “looking after their own first”, most strongly exemplified by the shortages of equipment and vaccines at various stages of the pandemic.

The disruption to global trade and the rise of nativist rhetoric in various parts of the world, means that assumptions of free trade may not always hold. In such matters, the question of “sovereign capability” – a term long recognised by the military – becomes relevant. Essentially this involves having a domestic capability to produce what are seen as essential goods and services.

For countries such as Australia this has meant something of a rethink. While there are practical limits to how sovereign Australia can be – its small scale, long supply lines and the limits to manufacturing here – will always imply some reliance on imports, it’s also clear that more can and needs to be done in building domestic capability. While in purist terms this may not always be the most economically efficient solution, if the premise of free trade is removed then it may become a necessary one and therefore demands to be dealt with.

While there is no one definition of what essential goods and services are, food production, medical supplies and defence, are increasingly seen as key.

It is no accident that Australia’s advantages in food production and self-sufficiency were mentioned during the pandemic, although climate change presents long term challenges. In terms of medical supplies, the pandemic exposed Australia’s vulnerabilities here. These were acknowledged in the recent Commonwealth Government (2024) COVID-19 Response Inquiry Report. Although that report recognised that Australia will always have some reliance on foreign imported medical supplies, the recent construction of facilities such as the Moderna Technology Centre-Melbourne (MTC-M) is one step towards building a sovereign capability in vaccine supplies.

And in defence Australia continues to develop a number of advanced platforms accompanied by extensive local construction initiatives.

In short given the evolving global situation, a focus on sovereign capability at least in some key sectors, looks here to stay for the foreseeable future. Both the private and government sectors will need to adapt to this new reality.