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November 2013 Commentary

Building Ships in Canada?

by J. L. Granatstein

Can Canada really have a shipbuilding industry? With the Conservative government's National Shipbuilding Procurement Strategy a fact of life, that may seem a strange question to ask, but ask it we must. The government aims to build Arctic patrol ships, supply vessels, and eventually the Single Class Surface Combatant ships, the replacements for the RCN's frigates and destroyers, as well as an icebreaker and a number of smaller ships for the Canadian Coast Guard. The cost, including the frigate replacement, is estimated in present-day dollars at some $80 billion, a cost that everyone understands will escalate. The Shipbuilding Strategy also involves creating shipyards in Vancouver and Halifax, in effect reestablishing a defunct industry. Up to 15,000 jobs are expected to be created.

So, yes, we can have a shipbuilding industry, but it is not one that can be competitive with those of other nations. First, establishing an industry from the ground up is terribly expensive. Infrastructure must be created, managers need to learn their jobs, and skilled workers must be trained. These are costs that must be factored into the overall bill. Moreover, as one wise friend put it, "Capital, like water, flows in the most efficient path. This is why Canada doesn't have a garment industry of any consequence anymore." It's not that Canada couldn't make clothing--or ships--for every man, woman, and child in the nation, "but that other states can do so more efficiently and at less cost."

This is surely true of  shipbuilding. In Britain, an island nation with a glorious naval and merchant tradition, even the shipbuilding industry has come to realize this. Richard Sadler, the CEO of Lloyd's Register, observed a year ago that "the days that you would expect to see a [major] shipbuilding industry in the UK have probably gone, to be honest." BAE has just announced the closing of its last British shipyard, adding force to these words.

Sadler also cited the MARS project, which will see the Royal Navy's four new tankers built by Daewoo in South Korea. "That's a good example of where we have decided not to construct these ships in the UK but they are designed by us, constructed in Korea, [fitted out in the UK] and then operated in the UK. That plays to our strengths," he said, "and that is probably the model of the future."

Sadler is correct, of course, and his words apply in this country in spades. Canada's future advantage, much like Britain's, lies in designing ships and their systems, engineering, automation, and fitting out vessels. Every one of these industries would be much easier to establish than building hulls in brand new shipyards from scratch. Moreover, such industries have a better chance to be competitive in world markets than shipbuilding.

Of course, Canada can create its own naval construction industry, just as we are now trying to do. But the government should be up front about this. The infrastructure and labour costs are going to be high, and every ship built in Halifax or Vancouver will need to be priced accordingly or heavily subsidized. Not just warships or Coast Guard vessels; every ship of any type, now and forever, must be overpriced almost by definition. It may be worth these present and future costs to create some thousands of skilled jobs. Perhaps, but that is a political and macroeconomic calculation, not a best value for taxpayers one.

But a future government, faced with public expectations for the expensive programs it will have promised the voters to get elected, faced with deficits and debt, may very well decide that the costs of a big, expensive shipbuilding program are too much to bear. After all, no Canadian government of the 20th Century was willing to pump in cash to keep existing shipyards going. Will it be different this time when the Navy and Coast Guard contracts are completed? Nor is it good enough to say the work will have begun. Contracts can be cancelled and cancellation fees paid--witness Jean Chretien's killing the Navy's helicopters within days of taking office in 1993. 

Canada needs a strong Navy as power shifts to the Pacific and a capable Coast Guard as the Arctic opens to shipping. But public support for the Canadian Forces historically ebbs and flows, and one sure way to kill that support is to make Canadians pay more than they should for good, capable ships. Trying to create a high-tech shipbuilding industry where none exists may not be the best way of getting the fleets we need.

J.L. Granatstein is a Senior Fellow of the Canadian Defence and Foreign affairs Institute.

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