Cover: The Economic Consequences of Investing in Shipbuilding

The Economic Consequences of Investing in Shipbuilding

Case Studies in the United States and Sweden

Published Apr 15, 2015

by Edward G. Keating, Irina Elena Danescu, Dan Jenkins, James Black, Robert Murphy, Deborah Peetz, Sarah H. Bana

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Research Questions

  1. What would individuals who would be employed in shipbuilding in Australia be doing if that work were not in Australia?
  2. To what extent would shipbuilding in Australia generate favorable spin-offs and spillovers?
The Economic Consequences of Investing in Shipbuilding: Case Studies in the United States and Sweden assesses the economic consequences of shipbuilding — that is, the economic impacts that a shipbuilder has on its local community and region. This report is part of a larger project to inform Australian policymakers of the economics and feasibility of various strategies for the Australian shipbuilding industrial bases that produce or repair naval surface vessels. The authors utilize a case study methodology to examine Newport News Shipbuilding in Newport News, Virginia, and Austal USA shipbuilding in Mobile, Alabama. They complement and contrast analysis of these shipbuilders by examining the impact of the Saab Aeronautics Gripen program on Linkoping, Sweden. Both shipbuilders have had favorable effects on their local economies. Neither shipbuilder shows evidence of sizable adverse displacement effects; the shipbuilders appear not to have deprived other local firms of labor. On the other hand, neither shipbuilder has given rise to the Silicon Valley–type ecosystem of favorable spillovers and spin-offs that appears to have emanated from the Gripen program. The research therefore stakes out a middle-ground position in the Australian policy debate. The authors accept neither a "shipbuilding has no impact" argument nor a "shipbuilding will have large-scale beneficial effects" argument. The indigenous production of ships in Australia cannot be expected to have both low opportunity costs and displacements and high levels of favorable spillovers. Instead, these two objectives seem to trade off against one another.

Key Findings

There Are Slack Economies in the Regions Surrounding Newport News Shipbuilding and Austal USA

  • There is considerable rigidity in workers' abilities to find commensurate employment.
  • Workers employed in shipbuilding appear to be quite geographically immobile (though willing to incur sizable driving commutes).
  • The two shipbuilders are able to attract many job applicants, suggesting that these workers do not have alternative employment options as desirable as working at the shipbuilders.
  • The shipbuilders have not displaced high-value activities for many of their workers.

The U.S. Shipbuilders Did Not Generate Many Favorable Spin-Offs and Spillovers, but the Gripen Program Did

  • Newport News Shipbuilding has generated relatively few spillovers, and the region has been critiqued for a dearth of entrepreneurial activity.
  • No cluster of suppliers has yet emerged around Austal USA.
  • The Gripen analogy appears to be overly optimistic as to the magnitude and nature of spin-offs and spillovers that might be expected from naval shipbuilding in Australia.
  • The indigenous production of ships in Australia cannot be expected to have both low opportunity costs and displacements and high levels of favorable spillovers. Instead, these two objectives seem to trade off against one another.

This research was conducted within the Acquisition and Technology Policy Center of the RAND National Security Research Division (NSRD).

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