The idea that nuclear submarines can be built in Adelaide under AUKUS has the characteristics of the “group think” that led to invasion of Iraq in 2003 — and the prolonged strange debate about business taxation’s Option 2 over twenty years ago. Alexander Downer, the former Australian Foreign Minister – like me from South Australia – in an October 2023 interview with “The Australian” newspaper’s Paul Kelly described the idea of building nuclear-powered submarines in Adelaide as a “bit of a fairytale”. Downer says that “some government in the future will make the obvious decision and not go ahead with the Adelaide build”.

So, how and why has this aspect of AUKUS survived so long?

One possibility is that the upper ranks of the Australian military and defence bureaucracy are so lacking in intelligence and knowledge that they cannot see the obvious problems. South Australian Premier Peter Malinauskas has said: “The AUKUS submarines will be the most complex machines that have ever been built in human history.” Adelaide does not possess the skilled labor, industrial and technological base to build anything more than a basic diesel submarine, and its geographical location is hardly conducive to effective supply chain management of a new design. Moreover, the AUKUS submarine design exists only in digital form.

The most likely explanation for the survival of the idea of building nuclear submarines in Adelaide is a type of severe “group think” which I witnessed in the taxation Option 2 (also known as TVM or the Tax Value Method) debate over twenty years ago.

Option 2 was extensively analysed and debated by the Business Coalition of Tax Reform (BCTR) for over three years beginning in 1998 — almost exclusively because it was initially pushed by John Ralph, an ex-CEO of CRA and business luminary, based on a Commonwealth Treasury report that did not include it as the preferable way to go; it was just a theoretical second option flight of fancy!

Option 2 took on a life of its own because the Business Council of Australia (BCA) – which is essentially an association of CEOs from the 100 biggest Australian companies – wanted to support Ralph and wanted to take the lead in business tax reform.

The odd thing was that nearly all the tax accountants inside these 100 companies were opposed to Option 2 because it was not considered practical and was not in use in any other significant country. But these tax accountants did not wish to publicly criticize something that their bosses supposedly supported – at least according the ambitious professional bureaucrats managing the BCA — and so basically adopted a stance of “more research is needed”.

When combined with the lack of knowledge of taxation amongst other business groups which were members of the BCTR, this led to a sort of passive group think.

The BCTR had a membership of about 40 business associations — such as Canberra based ACCI, the National Farmers Federation, and the Sydney based AI Group and many smaller ones – but the BCA convened and chaired the initial meetings. This gave it a sort of first mover advantage. While a series of “independent” businessmen were eventually appointed chairman of the BCTR meetings, they were ex-CEO members of the BCA.

One of chairmen them was particularly aggressive, and when a PwC tax expert raised some issue with Option 2 he was accused of “trying to divide business”. The PwC guy never again spoke at a meeting.

In about a dozen full-day meetings that I attended over a three-year period less than 10 of business associations actually put forward an opinion. The rest just sat there saying nothing — meeting after meeting! It was a very passive form of group think. The BCA was left to draft a series of press releases over a three-year period that promoted Option 2 — until in mid-2002 when even its proponents eventually conceded it was unworkable!

A similar thing seems to have happened with AUKUS. Someone who wished to see closer defence cooperation between Australia and the US had a moment of inspiration about building nuclear submarines in Adelaide. The idea appealed to prime minister Scott Morrison, a former marketing executive with no industrial or large project experience or knowledge. A high profile announcement gave first mover advantage to AUKUS in a PR sense. Because all other attempts by Australia to procure submarines had been botched, many people seem to have basically thrown up their hands, sighed, and where possible fall into line so that some of the billions of dollars would flow to them.

Oh! I forgot to mention that one of the reasons the Option 2 debate lasted so long was the consulting dollars, travel and feelings of importance that flowed to various individuals and groups as long as Option 2 needed “more research” and more meetings.

While there are people still saying that nuclear submarines will be built in Adelaide, none of these people are disinterested industrial experts. Indeed, just like the tax experts who opposed Option 2, there seems to be a fear of speaking out — and just like the PwC guy, someone will say you are “trying to divide freedom loving countries” if you question AUKUS.

Rex Patrick, a former South Australian Senator and submarine crewman, has written that “senior military officers, who were no doubt great war fighters in their junior years but with little project management experience, have been making high-risk purchase recommendations to Cabinet ministers with zero project management experience”. From the navy’s perspective, “the public is better served if debates about defence are devoid of any contributions from people who know about the subject”.

Patrick description of the AUKUS leadership team could, with a few title changes, have equally been used to describe the sort of people pushing Option 2: “The AUKUS leadership team is filled with seasoned military officers, public servants and academics – but little actual shipyard experience. Sure, they’re capable people, but they’re not a hardened project dream team. For many of them the project is a stepping stone to another more senior role.”

Just as the BCA got on the front foot and was able to guide and manipulate the Option 2 narrative for three years, the AUKUS debate is now supposedly about technological cooperation in a Pillar 2. As for nuclear submarines in Adelaide, now the so-called Pillar 1 of AUKUS, a form of passive groups think now predominates.