The iron triangle of Canadian defence investment

Canada faces capability, sovereignty, and financial trade-offs

Anyone who’s studied defence procurement has heard about the ‘iron triangle’. Said triangle refers to the trade-offs buyers face when acquiring military capabilities. Each angle of the triangle has one aspect of a project that can be maximized: cost, scope/quality, and time. The more you want to keep costs down, the more you’ll struggle with scope/quality and/or time. Similarly, if you want to maximize quality, you’ll trade off time and/cost. You get the drift.

The iron triangle is becoming increasingly dated. Today, time has an outsized effect on the two other considerations. The more time it takes to buy a capability, the more it’ll cost. The longer you wait, the higher the risk that you may not have the latest technology when the capability is finally delivered. For these reasons and more, the iron triangle is being displaced by a new reality: schedule is king.

Trade-off triangles are still useful, though. Canadian defence investments face a similar triangle. The trade-offs involved in this case are: Alliances and Operational Advantage, Sovereignty and Industry, and Money.

If you’ve spent any time looking at the defence discourse since Mark Carney became Prime Minister, you may have noticed that the government has been careful not to talk up the opportunity costs surrounding its core policy positions.

Moving away from American capabilities, for instance, will likely affect our allied interoperability with the United States military and our ability to maintain an operational advantage against peer competitors, such as China and Russia. The reason for this is simple: no other ally spends as much on advanced military technology, and NATO interoperability often leverages systems underpinned by the United States. Building more sovereign capabilities and domestic industrial capacity will involve a lot of money and likely result in less advanced capabilities.

Take a sovereign cloud. Creating one will be expensive and leave us with less capability than cloud services offered by say Amazon Web Services (AWS). In the defence space, a truly sovereign cloud would also diminish our interoperability with the United States, United Kingdom, and Australia who are relying on the big American cloud service providers. This isn’t meant as an insult to Canadian know how or ingenuity; companies like AWS simply spend far more and are much further ahead in this field. Nor am I suggesting that a sovereign cloud is bad policy. Controlling our own data is, all else being equal, a good idea. But let’s not be childish. There are trade-offs involved and we should be mature enough to acknowledge them.

When you’re dealing with an iron triangle, you can give more weight to two factors, to the exclusion of the third. This applies to the Canadian defence investment triangle, too.

Canada spent upwards of 75% of its defence capital budget on American capability because it gave the Canadian Armed Forces advanced, interoperable capabilities at relatively low cost. Yet that has meant that we don’t have as much sovereign capacity as we might like or need right now. One exception is shipbuilding. Canada decided to emphasize both advanced technology and sovereign capacity in building the River-class destroyer. As critics are quick to point out, though, this approach has been very expensive.

Looking ahead, Canada could choose to emphasize both sovereign capacity and low cost. This would likely leave the CAF with less capability and interoperability in key areas. Conversely, we could try to balance all three angles and land squarely in the middle of the triangle. This would work best for missions that are focused on the defence of Canada, rather than fighting alongside the United States and other allies overseas. Canadian start-ups and established firms are keen to make this happen, as are some European partners.

A few more observations are in order. The Carney government is suggesting that defence equipment should be built using more Canadian steel and aluminum. That’s meant to help an industry being battered by tariffs. Baking that requirement into defence contracts will increase costs, though, at least initially. Defence investments are also being presented as a means of strengthening our economy. Growing Canada’s defence industrial base may promote economic growth and innovation. Sustaining that industrial base, however, may require buying capabilities we don’t need, potentially paying firms to stay open even when they have no orders, or helping these firms sell far more defence materiel to unsavoury regimes. Those are the realities that a smaller country must accept to keep a defence industrial base afloat --just ask the French.

To conclude, we should modify Thomas Sowell’s saying about opportunity costs: there are solutions, but they all come with trade-offs.