THE THREAT OF FOREIGN COMPETITION TO U.S. HIGH TECHNOLOGY INDUSTRIES: NATIONAL SECURITY CONSIDERATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00153R000300070005-7
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 69
• Document Creation Date: December 20, 2016
• Document Release Date: January 23, 2008
• Sequence Number: 5
• Publication Date: April 1, 1982
• Content Type: REPORT

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THE THREAT OF FOREIGN COMPETITION TO U.S. HIGH TECHNOLOGY INDUSTRIES:
NATIONAL SECURITY CONSIDERATIONS
STAT
Consultant
Science, Technology and National
Security Policy
A Study Prepared under Contract with the U.S. Department of Commerce
Contract No. TA-82-SAC-00891
April, 1982
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Table of Contents
Preface ......................................................p. ii
Executive Summary .............. ..............................p. iii
I. Introduction ........................................p. I-1
II. Industrial Power and National Security ..............p. II-1
III. The U.S. Defense Industrial Base and Foreign
Competition .........................................p. III-1
IV. Direct Impact of Foreign Competition on the U.S.
Defense Industrial Base: Recent Developments and
Future Threat .......................................p. IV-1
1. Electronics .....................................p. IV-1
2. Computers .......................................p. IV-4
3. Machine Tools ...................................P. IV-10
4. Conclusions .....................................P. IV-14
V. DOD Rationalization/Standardization/Inter-
operability (RSI) Policies and Foreign
Competition .........................................p. V-1
VI. Technological Impact, Foreign Competition,
and Implications for U.S. National Security:
Western Europe vs. Japan .......................... p. VI-1
VII. Conclusions and Policy-Relevant Issues ............ p. VII-1
i
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Preface
This study was prepared as a part of the team effort of the
Working Group Staff of the Cabinet Council on Commerce and Trade
Study on 'An Assessment of U.S. Competitiveness in High-Technology
Industries.' In accordance with the operating procedures of the
CCCT study, each member of the Working Group Staff was responsible
for the area assigned to him. This draft, therefore, does not
incorporate the information and findings of the independent
submissions by the other members of the Working Group Staff.
The views presented in this draft study are those of the author
and do not necessarily represent the views of the Cabinet Council on
Commerce and Trade or the U.S. Department of Commerce.
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Executive Summary
This study examines the extent of the threat which foreign
economic and technological competition presents to national security
of the United States, now and in coming years. The term "national
security" is used here in a dual sense: (a) national defense; and
(b) viability and power of the nation in the longer run, embracing
military and nonmilitary elements. The sources of the competitive
threat analyzed here are Western Europe and Japan.
The central core of the U.S. defense industrial base enjoys a
substantial degree of protection under the existing legislation and
is thus largely immune to foreign competition. However, there are a
number of defense-relevant industries which are not so protected and
they have been seriously affected by foreign competition.
In electronics, U.S. surge capability for conventional war has
been curtailed. As a result of an indirect competitive pressure,
current U.S. defense production has become extensively dependent on
imports of electronic components from the Far East. The Japanese
technological and commercial dynamism in semiconductors (e.g., 64K
RAMS and 256K RAMs) has the potential for a further erosion of the
U.S. defense industrial base. The pressure of foreign competition
combined with the failure of the U.S. machine tool industry to
capitalize on the potential of the expanding world market were
important factors in the nation's current inability to meet the
requirements of wartime surge production in machine tools, if such
were to arise. Foreign competition in both electronics and machine
tools is eroding U.S. viability as an industrial power and the
nation's ability to compete in other areas, thus undermining
America's longer-range security.
The United States is still dominant in the world computer
market, but competitive pressure is arising from both Western Europe
and Japan. The Japanese challenge is particularly serious. The
Japanese project for fifth-generation (voice-controlled) computers,
to be completed in early 1990s,is intended both to capture world
leadership in the computer field and to arm the Japanese people with
highly advanced computers, thus enhancing their ability to compete
in other economic and technological fields. Although the Japanese
computer strategy has its areas of vulnerability, Nippon's rapid
progress in R&D related to fifth-generation computers buttresses its
credibility. The success of Japan's challenge in computers would
have far-reaching implications for U.S. capability for defense and
the nation's world role as a superpower.
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NATO RSI (Rationalization/Standardization/Interoperability)
policies, initiated by the DOD, exempted NATO nations from nearly
all protective measures applicable to the U.S. defense industrial
base and allowed foreign companies from these nations to compete for
U.S. defense contracts. In the interest of the alliance as a whole,
NATO RSI also encourages co-development and co-production of weapons
with U.S. European allies. No adequate comprehensive studies on the
impact of RSI have been conducted; therefore, present conclusions,
based on limited research, are tentative.
it appears that, to a degree, foreign competition under NATO RSI
does help to envigorate certain sectors of the U.S. defense
industrial base by introducing a new challenge to American
companies. Direct foreign competition does not seem to be
significantly jeopardizing the U.S. defense industrial base,
although most industry representatives appear to prefer a degree of
protection. There is a DOD policy which requires that, if a foreign
company wins a DOD procurement contract, a corresponding domestic
capability to fill in in the event of interruption of foreign
supplies must exist. This policy, apparently, is being carried out
by individual commands,
true effectiveness could nottbeaascertaineditored
by the e DOD
and
The United States benefits from technology transferred from its
NATO allies under RSI. Also, RSI reduces costs of R&D and
procurement for the United States and the alliance as a whole.
Moreover, the memoranda of understanding (MOUs) generated under NATO
RSI tend to open the door to increased arms sales from the United
States to U.S. NATO allies. However, on balance, the transfer of
technology under RSI from the United States to its NATO allies is
more extensive than vice versa. In the longer run, NATO RSI thus
tends to strengthen foreign industrial competition abroad in the
manufacture of armaments and in the civilian sector.
The United States is also involved in military co-production
programs with Japan. There is evidence that the technology
transferred to Japan under these programs is used by the Japanese in
civilian manufacturing, thus potentially strengthening commercial
competition to U.S. products in the world market.
Between Western Europe and Japan, the latter is by far the more
formidable challenger to U.S. technological and economic
leadership. Of the three key factors crucial to the rise in power -
quality of manpower, organization and purposiveness, and technology
- Japan leads the world in the first two, and is rapidly gaining in
the third. There are distinct indications that the challenge of
Japan is political, not economic. Its objective is status and
power, and Japan uses technological and economic means to attain this
objective.
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If present trends continue (which is not necessarily
inevitable), the Japanese will take over leadership from the United
States in a number of key areas of power-relevant technology (other
than military nuclear). As a result, by the year 2000, a
significant change in the world balance of power will take place.
The following likely or possible national security consequences were
envisioned:
1. The U.S. industrial base will be eroded to a considerable
degree,. which would impose constraints on America's ability to
support her military power.
2. The United States will be increasingly dependent on Japan
for components and other products relevant to emergency
mobilization. Such dependence will be detrimental to both U.S. war
fighting capability and deterrence posture.
3. With the loss of leadership in high technology, the United
States will lose direct control over the transfer of most advanced
technologies to the Soviet Union, since then such technologies will
be generated in Japan. As a technological and economic superpower,
Japan will be considerably more independent from U.S. influence with
regard to technology transfer to the Soviet Union. When transferred
to the USSR, Japanese technology could augment Soviet military
power. The United States would thus be squeezed between the
economic pressure of Tokyo and enhanced military pressure of Moscow.
4. Given the relative decline of the U.S. world position,
America's diplomacy, freedom of action, and decision-making on the
world arena would be increasingly constrained by the presence
(political, economic, or military) of the other superpowers - the
Soviet Union and/or Japan. American foreign policy will have to
undergo a major re-orientation to adjust to the new realities of
world power.
The largely zero-sum-game policy which the Japanese are pursuing
in the economic and technological sphere can be harmful to Japan and
to the international system at large. It may lead to friction and
conflict with Japan, with unpredictable consequences. It could be
seriously damaging to the fabric of free trade, on the very
existence of which the success of the Japanese policy depends. The
Japanese erosion of America's power and security is, in the long
run, detrimental to Japan's own security.
America's response to the Japanese challenge requires an
enlightened broad-gauged policy which would safeguard the interest
of the United States, of world order, and of Japan herself. It
should not be confined to an economic response. In its political
dimension, its focus might be on diffusing the Japanese thrust into
the self-centered economic and technological aggrandizement.
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A number of selected policy-relevant issues raised by the threat
of foreign competition-were briefly considered. Reduction in the
cost of capital is essential to enable the United States to meet
foreign competition; a concerted policy to this end, including
measures to stimulate personal savings, is needed. There is a
distinct need for improving, and perhaps re-defining,
government-business relationship. The tendency by the government to
micromanage business proved to be counterpoductive; a degree of
macroguidance, however, might be appropriate. Anti-trust
legislation handicaps U.S. business in international competition,
and a judicious revision, especially in R&D, appears to be
advisable. The issue of technology transfer deserves a new look,
wherein technology's societal value is appropriately recognized.
The U.S. lag in manpower capable of bolstering the nation's
competitive viability requires a concerted remedial action,
especially in the light of an unusual strength of Japan in this area
(with about a half of U.S. population, Japan graduates more
engineers than the United States; in the 13-23 age brackets, Japan
has 1.8 million people with an IQ of over 130 while the United
States has only 850,000).
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I. Introduction
In recent years, there has been a growing concern in the United
States about the threat of foreign commercial competition, emanating
principally from Western Europe and Japan. The focus of the public
attention has been primarily on its economic implications for the
United States. Among these, the impact of foreign competition on
employment and on the large deficits in the U.S. balance of trade
has virtually become the subject of a national debate.
This study is addressed to the impact of foreign competition on
U.S. national security, an area which received relatively little
attention. In particular, it focuses on the present and future
effect of foreign competition on U.S. high technology industries and
its implications for national security. These industries are
relevant to national security in a dual sense, (1) that of near-term
consideration of national defense, and (2) the broader sense of the
viability and power of the nation in the longer run, which embraces
both military and nonmilitary components. 'National security' is
thus viewed here primarily in its political, and not just its
military, meaning.
Recent history indicates that leadership in what were high
technology industries at the time was critical in the rise of
nations to power, in their vitality in peacetime, and survival in
wars. Crucial, little opposed, and sometimes not clearly perceived,
changes in the world distribution of power and security of nations
took place in peacetime as a result of the ability of some nations
to capitalize on advanced technology in the development of their
industrial base. The outcome of wars often merely reflected the
change which had taken place beforehand.
Several question thus arise. Is the competitive vigor of U.S.
allies eroding America's security-relevant high-technology
industries, thus undermining the nation's viability as a superpower
and its capability for defense? If so, which industries have been
affected, how seriously, and what is the outlook for the future?
Does competition from U.S. NATO allies under Rationalization/Stan-,
dardization/Interoperability (RSI) policies envigorate or weaken the
U.S. defense industrial base? Can a distinction be made between the
various countries or regions as to the extent of the foreign
competitive challenge?
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Available evidence suggests that the threat to America's
security is serious.- Its impact is likely to be more severe in the
longer run, but even now America's viability is being materially
eroded. In the defense sector, competitive pressure has made the
United States dependent on overseas supplies of electronic
components essential for military production, and the nation's surge
capability has been impaired in several critical areas.
In part, the economic and technological competition affecting
America's security is coming from Western Europe. Japan, however,
clearly emerges as by far the most formidable challenger to U.S.
technological and economic leadership. Of the three key factors
crucial to the rise in international power - quality of manpower,
organization and purposiveness, and technology - Japan leads the
world in the first two, and is rapidly gaining in the third. There
are distinct indications that, contrary to the prevailing opinion,
the challenge of Japan is not commercial. It appears to be
political, whose objective is status and power; technological and
economic preeminence is merely a means of that objective.
How, then, can the United States meet the international economic
and technological competition to safeguard the nation's security? A
spectrum of differential policies, tailored to specific regions,
appears to be in order. A purely economic response is not likely to
be sufficient; the spectrum must embrace political, economic, and
technological initiatives.
An initial discussion of potential policies appears in the last
two chapters of this study. Chapter VI deals with certain relevant
aspects of foreign policy, with a principal focus on Japan. Chapter
VII explores various policy-relevant issues which emerged in this
study, including some possible approaches to coping with those
issues.
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II. Industrial Power and National Security
When placed in the context of history, the critical importance
of industrial power to security of nations is a relatively
recent phenomenon. Although certain industries had been important
in the rise to power of individual nations in earlier periods of
history (e.g., shipbuilding in the case of Great Britain in the 17th
and 18th centuries), industrial power did not begin to emerge as the
backbone of military power until the last quarter of the 19th
century. The rise of nationalism in Europe, the second industrial
revolution, a widespread introduction of conscription accompanied by
the emergence of the concept of the nation in arms," and
developments in military technology (especially smokeless power,
rapid-fire artillery, and improvements in the machine gun) all
contributed to the demise of a century (1815-1914) of relatively
short wars based on the striking power in-being. A shift thus took
place to protracted wars of power potential, based on industrial
might capable of continuously replenishing the battlefield until
victorious or exhausted. The prime examples, of course, are World
War I and World War II. 1/
The emergence of nuclear weapons at the end of World War II was
a radical departure from the past in that they made it possible to
destroy the very essence of power -- power potential itself -- in a
matter of days, and not years. The pendulum thus swung back to the
striking power in-being and, potentially, short wars. However, the
destructiveness of nuclear weapons and the elaborate system of
mutual deterrence created by the superpowers by the late 1950s led
to the realization that a protracted conventional war, leaning on
power potential, remained a distinct possibility.2/
Where, then, do we stand now with regard to the relevance of
industrial power to military power? What kind of industrial base do
we need to support our military establishment? This would depend on
the kind of war we would expect to fight.
If we assume an all-out nuclear war as being most likely, we
still need a sophisticated industrial base and preeminence in
military technology to maintain the essential nuclear striking power
to serve the interests of deterrence and to fight the war, if
deterrence fails. However, if we focus primarily on a nuclear
conflict, the industrial base required would be highly specialized
and it would need no expansion with the outbreak of the conflict.
Be definition, the war would be decided by the striking power
in-being.3/
If, however, we assume that the strategic nuclear deterrence is
effective, then we return to the possibility of an all-out war of
power potential which would bring into play a much broader
industrial base over a protracted period of time. Given this
scenario, an appropriately wider spectrum of the nation's industrial
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Germany's breakthrough to the heights of chemical success came
with the establishment-of a powerful synthetic dyestuffs industry,
based on coal tar, a by-product of the manufacture of coke. The
milestones in this development was the discovery of synthetic
aligarin (1870) and indigo (1897). The first replaced madder and
dealt a mortal blow to the French enterprises in Provence which were
cultivating it. The second destroyed hundreds of thousands of acres
of indigo plantations in India within about sixteen years. Germany
made the rest of the world almost completely dependent on German
synthetic dies or their coal-tar intermediates.
The German government facilitated and promoted the expansion of
the chemical industry in a number of ways. Patent laws were used in
a manner giving advantage to the German manufacturers. Subsidies
were granted to the individual chemical industries and an effective
tariff policy was developed which gave the German chemical industry
protection at home and allowed a differential price structure in the
competitive fight for the world markets. Cartels and syndicates
were supported, and in some cases their formation was made virtually
compulsory. In the support by the German government, the earlier
economic considerations were augmented by military motives as the
relevance of the industry to war became to be increasingly
appreciated.4/ By the outbreak of World War I, Germany had become
the leading chemical producer in the world -- a picture very
different from 1870, when Great Britain dominated industrial
chemistry and France (the second largest producer) was not even a
close rival.
The chemical industry was critical to German power in war.
Since most of the components of high explosives were derivatives of
coal tar, the synthetic dyestuffs industry became the backbone of
the German manufacturing of high explosives. Because all explosives
(propellants and high explosives) are essentially nitrates, nitrogen
in one combination or another was also an indispensable ingredient.
The Haber-Ostwald process, introduced in 1913, enable Germany to fix
adequate quantitites of nitrogen from the air at a fairly low cost,
thus neutralizing, for the purpose of ammunitions production, the
effect of the interruption of imports of nitrates from Chile by the
British naval blockade. It has been estimated that, if not for the
synthetic production of nitrogen, Germany could not have waged the
war longer than three months. The pre-war dependence on American
cotton for production of gunpower was solved during the war by
developing nitrocelulose from wood. Numerous other substitutes were
produced to counter the effect of the naval blockade.
The chemical industry was even more effective in serving
Germany's war needs during World War II. To give but one, yet
telling, illustration: in 1943, the peak year of German wartime
petroleum production, over 99 percent of German aviation fuel was
produced synthetically.5/
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The development of telecommunications by Great Britain in the
inter-war period (1918-1939) differed in two important respects from
the case of the German chemical industry. Unlike the Germans who
had to work their way to the top from a relatively inferior
position, Great Britan moved into the era of modern (wireless)
telecommunications from a platform of a very solid achievement in
submarine telegraph cables: by the outbreak of World War I. the
British had already developed the most extensive system of submarine
cables in the world which connected the various parts of their
empire.6/ Also, the British government was not quite as
single-minded and purposesful in promoting telecommunications as the
German government was in promoting the chemical industry. And yet,
on the whole, quite impressive results were achieved.
The existence of a world-wide empire was an important factor in
fostering an awareness of the importance of telecommunications
within the British government, in the telecommunication industry
(which was quite vi;brous and progressive), and in the public at
large. Thus, whenever the British government -- which was
principally responsible for the development of telecommunications in
the United Kingdom - exhibited an occasional tardiness in acting, an
initiative or prodding from the other two sectors tended to rectify
the situation.
In 1924, the British government undertook the development of an
Imperial system of wireless telegraphy, to augment the overloaded
service of the cable network. In 1929, both were amalganated into a
new company, Imperial International Communications, Ltd., which
provided cheap and efficient telegraph service throughout the
Empire. The credit for improving and vastly expanding the initially
inefficient telephone-network belongs to the Post Office which, by
1922, had made the decision to reconstruct the telephone system of
London. This gave impetus to upgrading the entire telephone network
of the United Kingdom and eventually led to another initiative by
the Post Office: to build, in cooperation with the Dominions and
Crown Colonies, a radio-telephone network all over the Empire. By
1930, a complete network, with more than 100,000 circuit miles, had
been in operation, thus helping to cement the sprawling Empire.
The British Broadcasting Corporation was established in 1923
and, in the late 1920s, it began to urge the reluctant government to
establish an Empire-wide service to cement the loyalty of the
British subjects. Finally, the Empire service was established in
1932, on the personal initiative of the BBC's Director-General and
financed by its own funds.7/ It proved to be a success, in terms of
its receptivity by the listening public and in terms of its
political effect. It helped to shield the Empire from the
increasingly aggressive propaganda broadcasts of the Axis Powers in
the second half of the 1930s and provided an effective instrument of
psychological warfare when foreign language broadcasts were
inaugurated in 1938.
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On the eve of World War II Great Britain had the best developed
global telecommunications system of all the Great Powers. It was
not only adquate to meet the needs of the far-flung Empire, but it
served many foreign countries as well. London was the
communications center of the world and the United Kingdom derived
commerical and political advantages from this fact. Largely because
of the requirement that all telecommunications equipment must be
domestically manufactured, the United Kingdom had a strong
communications industry which was also a significant exporter.
However, there were some shortfalls in the development of British
telecommunications. Although they reached out to remote Dominions
and Crown Colonies, the inland penetration of the networks was, in
many cases, sparse. As a result, the contribution of
telecommunications to the integration of the Empire and to its
economic development was less than optimal.
The British telecommunications system was of vital significance
to the United Kingdom in World War II. It proved to be a major
factor in winning the war. In one respect the British revealed a
distinct weakness: the telecommunications industry of the island
nation was not capable of producing adequate quantities of
equipment to meet the vastly increased wartime demand, and extensive
imports from the United State became necessary. The war also
provided another telling illustration of the quantitative importance
of industrial power. Under the pressure of wartime requirements,
the United States built a vast global telecommunications network
which, by the end of the war, had exceeded that of Great Britain by
a wide margin.8/
The foregoing discussion suggests that, although the concerns of
the military planner responsible for industrial preparednes for war
and those of the government official responsible for the viability
of the nation's industrial base in support of national security are
overlapping, they also differ in certain important respects. The
military planner is primarily concerned with the adequacy of
resources to fight the most likely wars in the near to mid-term
future. His task is to strike an optimal balance between industrial
prepardness and war reserves within the context of fiscal
constraints existing at the time. The government official must be
mindful of the nation's capability to win near- to mid-range wars,
but his responsibility is broader. Its dimensions extend into the
longer-range future and into the aspects of national security which
are not purely military, but embrace technological trends as they
change the nature of international power and its global distri-
bution. In assessing the adequacy of the industrial base for
national security, he must be mindful of actual or potential changes
in the relative importance between military and economic elements of
power in a given period of history. Finally, in designing policy
options in response to perceived threats to national security, he
must give due consideration to a broad spectrum of response on the
technological, the economic, and the political level, domestically
and internationally.
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The analysis in the following chapters pays attention to the
concerns of the military planner, but its focus is on the
competitive viability of the U.S. industrial base in support of
America's national security in the broader sense.
11-6
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1. It is noteworthy that the criticality of industrial power to
warfare was not realized by nearly all contemporary observers
until after the outbreak of World War I. All pre-World War I
military plans of the Great Powers were based on the assumption
of a relatively short war, fought with the striking power
in-being, not power potential. As late as 1906-07, in a war
between two Great Powers - Russia and Japan - the Japanese
fought and won the war with all their large (over 3,500 tons)
naval ships purchased abroad (England and Germany), because they
did not have the capability of building them. Mainly a conflict
of striking power in-being in an era when power potential had
already emerged as critical in warfare, the Russo-Japanese war
was somewhat anachronistic and could be largely explained by the
fact that it was fought by the industrially least developed
Great Powers. See Victor Basiuk, The Differential Impact of
Technological Change on the Great Powers, 1870-1914" (Ph.D.
Dissertation, Columbia University, 1956), pp. 218-326. A
principal mistake of Hitler was his assumption that the
strategic and tactical mobility made possible by the tank and
the aircraft signified a re-ascendancy of the striking power
in-being over power potential and thus a return to short wars.
2. Henry A. Kissinger, Nuclear Weapons and Foreign Policy (New
York: Council on Foreign Relations, 1957) and Robert E. Osgood,
Limited War; The Challenge to American Strategy (Chicago:
University of Chicago Press, 1957) were the two principal works
which provided an early comprehensive analysis of limited war in
a nuclear context and were influential in the shift of strategy
towards the subnuclear-umbrella level.
3. This should be qualified by the consideration of limited
strategic war, which is conceivable. Some industrial
mobilization may accompany the outbreak of a limited strategic
war, but it is extremely unlikely that such a war would be
sufficiently protracted to require reliance on power potential.
It would either be terminated within a short period of time,
escalate to an all out nuclear war, or be transformed into a
convential ("limited") war.
4. Prior to World War I the importance of the chemical industry to
warfare was not adequately understood, principally because of
the blitzkrieg mentality prevalent at the time. However, to the
extent that the role of industrial chemistry in support of the
war effort was understood before 1914, it was best understood in
Germany.
The present discussion of the German chemical industry is
largely based on Victor Basiuk, Technological Change and the
Balance of Powers, 1870- (book in progress), Chapt. III.
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5. Computed from U.S. Strategic Bombing Survey, Oil Division, Final
Report, 2nd ed. (Washington, D.C.: U.S. Government Printing
Office, 1947), p. 19.
6. Although advanced for its time and invaluable to the viability
of the British Empire, the submarine cable network proved to be
inadequate to meet military, administrative, and economic needs
of the country in World War I and it was too slow and expensive
to satisfy the needs of the immediate post-war years. See S.G.
Sturmey, The Economic Development of Radio (London: Duckworth
and Co., Ltd., 1958), pp. 103-04.
7. Asa Briggs, The Golden Age of Wireless (London: Oxford
University Press, 1965), pp. 374-75, 379. It is noteworthy
that, in those early years, the United States was viewed by BBC
as a potential rival for the loyalty of the English-speaking
subjects, which had to be offset by an Empire broadcasting
service.
8. The contribution of telecommunications to Great Britain's power
and security are more extensively discussed in Basiuk,
Technological Change and the Balance of Power, 1870-, op. cit.,
Chapter XI.
9. This is not necessarily to say that military planners do not
think in these broader terms. Indeed, some of them do. But to
the extent that they do, they exceed the framework of the
conventional military planning.
11-8
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III. The U.S. Defense Industrial Base and Foreign Competition
In recent years, foreign economic competition has dealt a severe
blow to a number of sectors of the U.S. economy. The U.S. defense
industrial base, however, was considerably less affected by
competitive forces from abroad. The single most important reason
for this lies in the relationship between the U.S. military
establishment and its industrial base.
As a result of the existing legislation and DOD fiscal policies,
the defense industrial base enjoys a substantial degree of
protection. The Department of Defense funds nearly all military
R&D. Some of military and military-related R&D is also funded by
other government agencies,.like the Department of Energy (nuclear
energy), NASA, NSF (e.g., physics), and the Department of Human
Services (health). This funding ensures that the military
technology base is largely shielded from foreign competition.
In the Defense industrial base proper, the actual or potential
leverages for protection are multiple. DOD owns a significant
portion of defense industrial equipment and a number of production
facilities, including most of the plant space and equipment in the
munitions and strategic missile industries and about one-third of
the aircraft industry.
Two principal legislations - the Defense Production Act of 1950,
as amended, and the Defense Industrial Reserve Act of 1948, as
amended and augmented by appropriate administrative orders -- both
require and enable the Department of Defense to maintain a viable
industrial base. 1/ A noteworthy DOD instrument for increasing
productivity and responsiveness of the defense industrial base is
the Manufacturing Technology Program ($209 million in FY 82), mostly
carried out in the private sector. 2/
A law not originally intended to protect the defense industrial
base in particular, yet historically important in strengthening its
viability, is the Buy American Act. It provides that only materials
and articles substantially of U.S. origin (i.e., over 50 percent)
shall be acquired for public use. While exceptions could be and
have been made, the act favored U.S. production of materiel for the
Department of Defense, thus stimulating the growth of the U.S.
defense industrial base and helping to ensure the availability of
surge capability in time of war. 3/
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While the above discussion points out the existence of
instrumentalities for the protection and growth of the U.S. defense
industrial base, it is not intended to suggest that everything is
well in that quarter. In fact, in recent years the U.S. defense
industrial base deteriorated rather substantially. A number of
factors accounted for this development. The single most important
factor was the decline in demand for military hardware after
Vietnam. Another important factor - which compounded the impact of
the first - was the policies and regulations of the U.S. Government
which were not conducive to the maintenance of the viability of the
base. Competition from abroad was thus not the principal factor,
but it did play a role in eroding the defense industrial base and,
if present trends continue, it would be seriously damaging to U.S.
national security in the long run.
The threat of foreign competition to U.S. national security
becomes considerably more menacing if we view the concept of
national security in the context of the analysis of the preceding
chapter of this study. In the longer run, a nation's security does
not depend on what is thought to be the defense industrial base' at
a given point in time, but on the viability of its economy as a
whole and, in particular, on the ability to capitalize on new,
power-relevant technologies and translate them into tangible assets
of influence and power. As we shall see later, foreign competition
is eroding U.S. national security in this broader sense which, among
other things, might deny us a future defense industrial base
commensurate with the nation's needs.
This study will not deal with the problems of the deterioration
of the U.S. defense industrial base as a result of the post-Vietnam
reduction in defense procurement and the po]icies and regulations
which aggravated those problems. This subject has been adequately
covered in published literature.4/ Moreover, the decline in the
U.S. defense industrial base attracted attention in the Congress5/
and in the Department of Defense, and a serious effort is underway
to remedy the situation.6/
The analysis of the following chapters will focus on two levels
at which foreign competition produced its impact on the U.S. defense
industrial base:
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1. Direct impact of foreign competition. Several
defense-related industries have been affected by foreign
competition in varied degrees or are threatened in the
future. These include electronics, machine tools,
specialty steels, motor vehicles, aerospace industry and
computers.
2. The impact of foreign competition through NATO
Rationalization/Standardization/Interoperability (RSI)
policies of the Department of Defense. In the interest of
strengthening the North Atlantic Alliance as a whole, RSI
policies removed certain barriers to competition from NATO
countries. Accordingly, the implication of these policies
for U.S. competitive viability and surge capability will be
examined.
Although the current DOD efforts to revitalize the U.S. defense
industrial base will not be addressed here, it must be kept in mind
that they are relevant to the subject matter of this study. Even
allowing for the measure of protection which exists with regard to
the U.S. defense industrial base, foreign competition tends to creep
into the vacuum created by neglect. Moreover, the ability of U.S.
defense industries to compete rises in importance in the light of
NATO RSI. Lastly, a strong and vital core of the defense industrial
base has a spill-over effect into those defense-related
high-technology industries which may not enjoy any special
protection, and yet are critical to national security. Accordingly,
the outcome of the DOD efforts to strengthen the defense industrial
base will be important in the nation's ability to meet foreign
competition and thus protect its security.
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1. These two acts can be found in 50 U.S. Code, Appendix, Sec. 2061
and 50 U.S. Code, Sec. 451, respectively.
2. The Manufacturing Technology Program (MTP) offers projects for
bidding by companies, which projects are intended to provide
"seed money' leading to a "factory floor" application of
productivity enhancing technologies. See Lloyd L. Lehn,
'Manufacturing Technology Program," Office of the Deputy Under
Secretary of Defense (Acquisition Management), 2 November 1981,
passim.
3. For the text of the Buy American Act, see U.S. Code, Title 10,
Part 41.
4. See, e.g., Jacques S. Gansler, The Defense Industry (Cambridge,
Mass: The MIT Press, 1980); Fred Charles Ikl , "Preparing fors
Industrial Mobilization: The First Step Toward Full Strength,"
in W. Scott Thompson (ed.), National Security in the 1980's:
From Weakness to Strength (San Francisco: Institute for
Contemporary Studies, 1980), pp. 55-68.
5. See U.S. House of Representatives, Committee on Armed Services,
Defense Industrial Base Panel, The Ailing Defense Industrial
Base: Unready for Crisis; Report (Washington, D.C.: U.S.
Government Printing Office, December 31, 1980).
6. In response to an initiative by Dr. Fred C. Ikle, Under
Secretary of Defense for Policy, an Industrial Task Force headed
by Mr. Sol Love was established in the Department of Defense in
August, 1981. Its purpose is to investigate those aspects of
the industrial base that affect its ability to effectively
respond to the requirements placed on it in time of crisis and
to make policy recommendations as appropriate. The Industrial
Task Force is intended to complement the permanent functional
machinery of DOD, and not to compete with it. The Office of the
Deputy Under Secretary of Defense for Research and Engineering
(Acquisition Management) is a permanent component of the Defense
Department involved with the strengthening of the industrial
base to meet defense requirements.
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IV. Direct Impact of Foreign Competition on the U.S. Defense
Industrial Base: Recent Developments and Future Threat
Several industries which are components of the U.S. defense
industrial base have been directly affected by foreign competition.
Motor vehicles, consumer electronics, specialty steels and machine
tools suffered substantial inroads of foreign products into the U.S.
market. The aerospace industry and computers are still going
strong, yet seriously threatened.
This chapter will examine three industries - electronics,
computers and machine tools - as case studies, each of them
representing a particular type of industry as related to competitive
pressure from abroad. The electronics industry is a modern high
technology industry which has already suffered a considerable direct
damage. The U.S. computer industry is a related high technology
sector which still enjoys a domineering position in the world
market, but there are some serious menacing clouds on the horizon.
The machine tool industry is an old, mature industry which is in the
process of being-revitalized by modern technology but which has not
been able to compete effectively with its foreign counterparts.
Since each represents a particular type, it their aggregate
these case studies might suggest a useful spectrum of policy
implications. In each case, an effort will be made to delineate the
industry's importance to national security and the extent to which
it has been, or likely to be, affected by foreign competition.
Electronics
Trends in electronics reveal somewhat divergent data on the
relative importance of the electronics industry to national
security. The military and aerospace market was predominant in the
electronics industry in the late 1950s and early 1960s. As late as
1965, military and aerospace programs were consuming over one-third
of semiconductors produced in the United States.l/ Recent figures
indicate that the military market has declined from 7 to 10 percent
of the total electronics market2/ and to less than 7 percent in
semiconductors.3/ At the same time, U.S. weapons systems have been
becoming increasingly dependent on integrated circuits for
detection, guidance and control. The penetration of weapon systems
by semiconductors is continuing at a rapid pace, requiring an
extremely sophisticated technology. Although, in recent years,
commercial interests picked up leadership in most advanced areas of
semiconductor technology (e.g., 64K RAMs and 256K RAMs), the
Department of Defense continues to support highly advanced
integrated circuit technologies where commercial application is as
yet limited or non-existent (e.g., the Very High Speed Integrated
Circuit, or VHSIC, program).4/
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The considerably smaller share of the defense market in the
total electronics market does not necessarily mean that the nation
can afford to lose a large percentage of its electronics industry
short of imposing constraints on defense interests. The defense
establishment depends on a viable electronics industry, especially
on its semiconductor sector. The rapid technological change in the
semiconductor industry and, in particular, such developments as the
advent of the large-scale and very large-scale integration
technology make the industry dependent on large economies of scale
and high-volume markets. Sales in these markets are essential to
generate the requisite high investment rate for R&D, plant, and
equipment to sustain the viability of the industry. 5/ Moreover,
surge capability requires a large industrial base in semiconductors
so as to provide the necessary reserve of highly skilled manpower
for military needs. This is especially important in view of the
large imports of. electronic components from overseas to meet present
needs of defense production, the imports which may be denied under
wartime conditions.
The importance of the semiconductor industry to national
security becomes even more pronounced when viewed in a context
broader than that of national defense. Preeminence in semiconductor
technology is critical to U.S. competitiveness in such industrial
sectors as computers and telecommunications. Semiconductors provide
the basic building blocks for CAD/CAM (Computer Aided
Design/Computer Aided Manufacturing) technology. This technology
promises to revolutionize industrial productivity through
integration and automation of productive processes,6/ thus enhancing
economic competitiveness of nations which capitalize on it. Timely
and effective application of semiconductor technology provides a
rejuvenation and a boost to competitiveness in some "traditional"
products -.such as automobiles - by improving their energy
consumption, materials utilization, and overall utility.
Semiconductor technology furnishes the foundation for advanced
electronics equipment manufacturing, a market which is expected to
reach $500 billion in annual sales by the late 1980s.7/ This would
place the electronics industry among the world's largest-industries
- alongside with steel, petroleum, and automobiles - and perhaps
establish it as the leading high technology industry in sales.
In sum, the electronics industry falls within the category of
high technology industries which have been historically instrumental
in changing world distribution of power and fundamentally affecting
security of nations (see Chapter II of this study). In varied
degrees, the United States can benefit from advanced electronics
technology short of being the world leader in this field. However,
as a superpower and the leading nation of the Free World responsible
for its security, the United States can abrogate its preeminence in
this pivotal technology only at the expense of its longer-range
security interests and its leadership role.8/
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The above situation would present a serious problem in the event
of an armed conflict with the USSR, since the Far Eastern supplies
of components could be easily cut off. Comprehensive studies of the
implications of this contingency for defense production are not
available, but there is some partial evidence of the magnitude of
the problem. According to a testimony of the representative of one
major Department of Defense contractor (Texas Instruments), it would
take his company a minimum of 18 months to gear up U.S. production
to reach 50 percent of the company's current production capacity in
the Far Eastern facilities engaged in defense work. 16/
Computers
U.S. leadership in computers is critical to America's national
security. The U.S. defense system heavily depends on computers for
its functioning. Such key areas of defense as intelligence,
logistics, command, control, and communications could not
effectively perform under conditions of modern warfare unless
equipped with highly advanced computers. In addition to their
support role for defense, computers are also imbedded in the weapons
systems themselves and largely account for the high performance of
these systems.
Since the computers required for defense are of the
state-of-the-art variety, the loss of U.S. leadership in computers
to a foreign competitor - even if friendly - would present some
rather unpalatable options to the U.S. military establishment. It
must buy the best computers, and if the best computers are overseas,
they will have to be imported. This would impose potentially
serious constraints on the U.S. military, such as the interruption
of supplies or possible political pressure associated with
dependence. An alternative course of action for the U.S. defense
establishment would be to support the R&D and production of the
computers it needs in the face of the overall relative decline of
the nation's computer industry. This would be a very costly
undertaking, likely to produce budgetary complications.
The loss of U.S. leadership in computers would have even more
serious and far-reaching consequences for U.S. national security
when viewed in its broader dimensions. In different periods of
history, different technologies rose and produced a profound impact
on the well-being and power of nations which capitalized on them.
Perhaps never before a single technology occupied such a pivotal and
domineering position in societies as information technology occupies
now or promises to occupy in the future. Computers comprise the
central core of this technology. If another nation take over
leadership from the United States in computers, the over-all
economic health of the nation will decline and its position as a
superpower will be significantly eroded.
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As reflected in current statistics on production and trade, the
U.S. position in computers appears to be very strong. In 1980, the
United States produced $24.4 billion worth of computers, as compared
with the combined output of $18.7 billion by its five principal
competitors - Japan, France, West Germany, the United Kingdom, and
Italy. In the same year, the United States had a favorable balance
of trade in computers of $6.4 billion, while all of its rivals had a
deficit ranging from $216 million for Japan to $427 million for
Italy. The situation seemed to be improving for 1981. U.S.
computer production increased to $29 billion (estimate) and trade
surplus grew by $700 million, to $7.1 billion. 17/
The above picture would have been reasonably re-assuring, if not
for signs of serious competition emerging from overseas. As far as
competition from Western Europe is concerned, France's ambition to
attain pre-eminence in information processing is noteworthy. As a
part of its strategy in this field, the French government
established, in January 1982, a World Center for Microcomputer
Science and Human Resources. The center succeeded in attracting a
number of the world's top computer scientists and its board includes
at least nine French cabinet ministers. It is intended to design
personal computer systems for education and training in
industrialized countries and the Third World. The center places
heavy emphasis on computer education in the Third World; pilot
projects are scheduled for a number of developing nations.18/
A considerably more formidable challenge to U.S. preeminence in
computers is coming from Japan. -Exports by Japanese computer manu-
facturers are growing 20 to 25 percent annually, and by 1990, MITI
has set as a national goal to win 30 percent of the world market and
18 percent of the U.S. market in computers.19/ In addition to
emphasis on indigenous R&D, the Japanese computer strategy in the
1980s consists of three principal components:
1. Compatibility with IBM. Thus, if a foreign client chooses
to replace an IBM computer by a Japanese product, his software and
peripherals could still be utilized. In addition to its obvious
advantages, this so-called "plug-compatible strategy' is especially
advantageous to the Japanese because of their weakness in software.
2. Cooperation with foreign companies (especially American) and
utilization of their facilities for a more effective penetration of
foreign markets. Thus, for example, Fujitsu, Japan's leading
computer manufacturer, formed a joint venture with TRW. In this
venture, known as the TRW-Fujitsu Co., the Japanese company provides
the hardware, while TRW furnishes a sales force, service personnel,
and software developers. 20/
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3. Sacrifice of short-term profits for the sake of- market
penetration and market control. In this regard, the Japanese have
been particularly effective in competing with IBM. The latter is
reluctant to sell below the list price, while Japanese companies
have been known to discount from 50 to 60 percent below the IBM list
price for plug-compatible mainframe computers. 21/
An even greater threat to the U.S. preeminence in computers
comes from Japan's longer-range planning. In the Fall of 1981, the
Japanese government unveiled a Fifth-Generation Computer Project, to
begin in April, 1982, and to take at least ten years. 22/ This
project is an outcome of a two-year study conducted by the Japan
Information Processing Center (JIPDEC), which assembled Japan's top
talent on this subject from industry, the government, and academia.
The study appeared in the form of a JIPDEC report, a comprehensive
and sophisticated document. 23/
As revealed by this report, the Fifth-Generation Computer
Project basically attempts to achieve these objectives:
1. To attain world preeminence in computer technology and
computer sales.
2. To arm the Japanese people with highly advanced,
voice-controlled fifth-generation computers and thus significantly
enhance its productivity and help attain world leadership in other
technological and economic areas.
3. To help solve some of the Japanese societal problems and
thus strengthen Japan's viability as a nation.
The rationale of the Japanese drive for fifth-generation
computers is ingenious in its basic simplicity and will be briefly
summarized here. Present computers are complex to use, they require
a language, a program, and a programmer. All this consumes
resources and creates a barrier between the computer and the
potential user, thus limiting the use of computers. The solution
lies in a technological leap into the fifth generation of computers,
which would be voice-controlled and would respond in a human voice.
The vocabulatory of the computers is expected to reach 10,000 words
by 1990. Thus, practically every Japanese would be able to use a
complex computer, which would greatly enhance his or her
productivity.
Moreover, since the fifth generation will possess a human-like
capability for learning, association, and inference (artifical
intelligence), the productive capability of the Japanese would be
increased by significantly expanding frontiers of their intelligence
and knowledge. In a resources-poor Japan, the single most important
resource is Japan's highly educated and dilligent manpower;
therefore, information and knowledge associated with computers must
be cultivated as a new resource comparable to food and energy.24/
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The JIPDEC report further notes that while computers so far have
significantly helped to increase productivity in the secondary
sector (manufacturing) through computer-controlled manufacturing
processes and assembly lines, productivity in the primary sectors
(agricultural and fisheries) and the tertiary sector (services) has
improved very little. Fifth-generation computers are expected to
remedy this situation, thus increasing efficiency and reducing cost
in the economy. In particular, it is expected that the productivity
of the agriculture and fishery industries could be sufficiently
improved to make Japan fully self-sufficient in food. Fifth
generation computers would also help Japan save energy and resources
and cope with the problems of its aging population.25/
Apparently motivated by high costs of the project, 26/ the
Japanese invite international cooperation. However, the Japanese
plan emphasizes that "it is difficult to make this an international
project. Instead, it is desirable to execute it as a national
project with Japan having the liberty to decide its course.' 27/
There are political undertones in the Japanese plan. It states that
Japan will "fulfill (her) duty as an economic power" by understaking
the project and that the project "will also provide our country with
barganing power.'-28/ 2t/ is also expected to "elevate Japan's
position in the world." - Moreover, with the completion of the
Fifth-Generation Computer Project, Japan "can establish a foothold
in the world by performing its role in the international division of
labor, furthering qualitative improvements in economics, applying
new technologies to other fields and cultivating new frontier
industries. e - In terms of its potential impact on world power,
such a role "in the international division of labor" is important
indeed, although it is stated here in a subdued, low-key tone.
What is the outlook for Japan's aspiration for world leadership
in computers? In the short to medium run, the Japanese position is
distinctly vulnerable. IBM has the capability of undermining the
viability of the Japanese plug-compatible strategy. This could be
done by switching to a new computer architecture, by changing IBM's
basic operating system, or by lowering its price umbrella. Japan's
present reliance on U.S. companies to help penetrate the American
market is also a weak component in the Japanese strategy. But
countermeasures against Japan in both of these area would involve
short-term financial sacrifices to U.S. companies (including IBM)
and U.S. business has not been known in recent years for its
far-sighted long-range strategy. If the Japanese drive is not
effectively countered in the short- to mid-range term, it would be
considerably more difficult to compete with the Japanese in the
fifth-generation race.
At present, IBM tends to play down the Japanese challenge in
fifth-generation computers by taking the position that the Japanese
will not achieve their objective, although they are likely to have
some useful fallout from the project's R&D. Other U.S. computer
companies, pointing at Japan's track record in other fields, are
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less optimistic. However, the U.S. computer industry, including
IBM, is not exactly complacent. Some twenty computer and
semiconductor companies., including IBM, Intel, and Hewlett Packard,
have formed a research cooperative. It will funnel R&D money (a
total of $50 million by 1985) to select universities for basic
research in information processing technology which all companies
will then share. 31/
A more ambitious undertaking was initiated in February 1982 by
Control Data Corporation. At a meeting of some sixteen U.S.
semiconductor and computer companies - which, however, did not
include IBM - CDC proposed to create the Microelectronics and
Computer Technology Enterprises (MCE), a joint research corporation
to be formed by the member companies. Given U.S. antitrust
legislation, this approach is more daring and has not been tested in
the Justice Department, but there are signs that it may not be
opposed. 32/
Both of these research organizations - the IBM-inspired research
cooperative and MCE - are primarily directed against Japanese
competition. However, the projected establishment of MCE also has
somewhat different undertones. R&D in computers and semiconductors
requires huge resources, and, unlike IBM, the companies grouped
around MCE are relatively under-resourced. They are thus pooling
resources in order to avoid duplication of effort and to be able to
compete, with the Japanese or IBM. 33/
While U.S. companies are taking steps to strengthen their R&D
against Japanese competition, Japanese manufacturers are making
progress in R&D and hardware distinctly relevant to fifth-generation
computers even before the full operation of the Fifth-Generation
Computer Project. Processing speed is important for
fifth-generation computers, and the Japanese place a great deal of
emphasis on speed and are leading in it. Fujitsu is expected to
come out with a supercomputer, a machine capable of extremely high
speed, late in 1982. According to Western observers of the Japanese
IV-8
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computer scene, its performance is expected to exceed that of any
U.S. supercomputers currently on the market. Parallelism in
operations, developed in supercomputers, could be distinctly useful
for artificial intelligence and fifth-generation computers. IBM has
been working for a number of years on the Josephson junction, a tiny
switch capable of working phenomenally faster than today's
high-speed microchips, but in April, 1982, Nippon Electric Co.
announced that it developed a Josephson junction faster than IBM's
Josephson's device. 34/
Perhaps more important commercially was the development by
Fujitsu, in the fall of 1981, of a high electron mobility transistor
(HEMT). Josephson junctions require temperatures close to absolute
zero (-273oC) for their operation and helium is usually used for the
refrigeration. HEMTs are based on gallium arsenide rather than
silicon and the temperature required is that of liquid nitrogen
(-196oC). The cost is thus significantly reduced because nitrogen
is less costly than helium and because less refrigeration is
required. HEMTs are not as efficient as Josephson devices, but the
difference is relatively small. 35/
The above discussion is not intended to suggest that the
Japanese are about to overtake the United States in computer
technology, but it does suggest the magnitude of their momentum.
Does this momentum mean that the efforts of the U.S. computer
industry to counter the Japanese drive are too little and too late
and that, but the 1990s, the Japanese will succeed the United States
as the leading computer manufacturers in the world? Such a
development is not inevitable, but if present trends are to be taken
seriously, the outlook for the United States is not particularly
good.
A great deal depends on the effectiveness of IBM in countering
the Japanese challenge, but IBM is not revealing its strategy or the
status of its R&D to make an independent assessment of the situation
possible. .Outside observers who deal with IBM note that the company
is very big now and is not as dynamic and foreward-looking as it
used to be. When a question is presented to key IBM executives as
to why they do not seem to have a comprehensive assessment of the
impact of computers on society and a strategy based on such an
assessment - something the Japanese have done in a very
sophisticated manner - the response is that such an assessment is
more appropriate for the U.S. government, rather than a company, to
initiate. Perhaps IBM is right.
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Quite apart from the quality of IBM's strategy and that of other
U.S. computer manufacturers, the industry has to cope with certain
external handicaps which impede its competitiveness with the
Japanese. Shortages of skilled manpower, high cost of capital, and
anti-trust restrictions are some of the more important ones. Thus,
it appears to be a near-certainty that, in the 1990s, the United
States will, at best, share world leadership in computers with
Japan. The actual outcome could be significantly worse than that.
Machine Tools
The U.S. machine tool industry is not a high technology industry
in the sense that the others discussed here are. It is an old,
mature industry. In comparison with such giants as electronics or
computers, it is quite small, with sales of only $5,093 million and
a work force of 104,500 employees (1981).36/ It is a cyclical
industry with a predominantly conservative mentality. The
industry's R&D expenditures, at 2.3 - 2.5 percent of sales, 37/
are below the manufacturing sector's average of 3 percent and far
below the usually lofty R&D of high technology industries ( e.g., 9
percent in the semiconductor industry). However, because of recent
technological developments, the industry does have a significant
potential for growth.
The advent of semiconductors and computers and, with them, of
numerical control (NC) and computer numercial control (CNC)
technologies has substantially broadened the horizons for the
industry. Moreover, the machine tool industry is the principal
potential vehicle for computer assisted manufacturing (CAM)
technology. As noted in Chapter IV of this report, this technology,
in conjunction with computer assisted design (CAD), carries the
promise of revolutionizing manufacturing by greatly increasing its
productivity. Thus, the machine tool industry, if effectively
rejuvenated by modern technology and if its advanced products
penetrate broadly the manufacturing sector, could significantly
strengthen America's competitiveness in the world markets. The
industry could thus be an important factor in enhancing the nation's
vitality in the international arena and buttressing its national
security in the broader meaning of the term.
The machine tool industry is also important to national security
in the more immediate and narrower sense. Expansion of production
in practically any industry--unless the industry merely capitalizes
on its underutilized capacity--requires additional machinery and an
efficient machine tool industry to produce it in a timely fashion.
The machine tool industry is therefore essential to enable the
nation to expand its production in war. The importance of machine
tools for defense mobilization has been recognized by the U.S.
Government and is expressed in two principal instruments: (1) a
large reserve of machine tools, maintained by the Department of
Defense; (2) the Machine Tool Trigger Order Program, administered by
the Department of Commerce, which is intended to provide for
automatically triggered orders for machine tools in the event of
mobilization.
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In recent years, the U.S. machine tool industry has lost
substantial ground to foreign competition. While the world market
for machine tools has been continuously expanding, the share of U.S.
machine tool industry in it declined from 35 percent in 1967 to less
than 19 percent in 1980.38/ Imports of machine tools have been
increasingly penetrating the U.S. domestic market. Between 1972 and
1980, the share of imports increased from 9.4 percent to 23.2
percent.39 In 1978, U.S balance of trade in machine tools became
unfavorable for the first time in U.S. history; by 1980, the deficit
grew to $513 million.40/
Although Western European countries made significant inroads
into the U.S. market, by far the most significant intruder was
Japan. Her exports of machine tools to the United States jumped
from $62.6 million in 1975 to $492 million in 1980.41/
Alarmed by the Japanese competition, the National Machine Tool
Builders Association (NMTBA) sent, in 1981, a mission to Japan. It
consisted of industry executives accompanied by members of the NMTBA
staff, and its purpose was to study the reasons for Japan's
effectiveness. Somewhat to its own surprise, the mission concluded
that the standard explanation of Japan's economic performance--such
as wartime destruction, subsequent modernization, copying Western
technology, government subsidies and low wages--may have been of
some importance in the past, but they are not significant factors in
Japan's current competitiveness in machine tools.
The mission emphasized the importance of management-labor
relations in Japan which resulted in a highly motivated,
well-trained and productive workforce. The study noted that the
average level of manufacturing technology was roughly equal to
American, but equipment utilization and quality control were much
more effective; the output was estimated at approximately twice that
of a comparable U.S. operation. Other factors of significance in
Japanese competitiveness stressed by the NMTBA Japanese mission were
the Japanese manufacturers' world view of the market; their
long-range goals for market share and willingness to sacrifice
short-term profits; supportive government-business relationship; and
the encouragement of capital investment by the government in the
machine tool industry.42/
The recommendations of the Japanese study mission are noteworthy
in that they differ significantly from the conventional position of
the NMTBA staff. The latter usually emphasizes the constraints on
the machine tool industry--e.g., low capital formation in U.S.
manufacturing, U.S. Government restrictions on East-West Trade - as
being the basic causes of the the industry's problems. The Japanese
study mission mentioned some constraints, but it addressed its
recommendations primarily to the need for changes in the industry
itself. Its recommendations are thus of interest as a case of top
industry executives reexamining the status of the industry in the
light of their exposure to Japanese experience.
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The study mission recommended that, to meet the Japanese
challenge, "the American machine tool industry must be aggressive."
U.S. companies should study the manufacturing and marketing
techniques of their competitors; they should adopt them and also
devise additional competitive tactics to capitalize on each
company's unique strengths.' The study stressed that "meeting the
Japanese competition will require increased risk-taking by American
machine-tool builders, coupled with foregoing short-term returns in
favor of long-term objectives and actions.' The industry should
"aggressively invest in the latest, most efficient means of
production that incorporate the newest manufacturing technology...in
order to improve productivity and reduce costs." Similarly, it
should "make heavy, aggressive investments in research and
development." The Japanese study mission called on the industry's
managers to raise their horizons beyond America and view the entire
world as their market place.43/
The recommendations of the Japanese study mission identified a
number of important shortfalls of the industry. However, in order
to have a realistic picture of its status, one must take account of
the contraints under which it operated and to which it succumbed.
The machine tool industry has been significantly conditioned by
its past: it evolved from the family-owned shops which supported
America's early industrialization. Thus, the industry at present
consists of some 1,300 establishments, only nine of which have more
than 1,000 employees, while two-thirds have fewer than 20.44/ The
small size of many firms has been a factor inhibiting the conduct of
R&D,'especially in view of the anti-trust legislation which
precluded the pooling of resources. Although not uniformly, the
industry did succeed in being in the forefront of technological
advance, in part because technologies were transferred from other
industries (e.g., the introduction of NC was made possible by the
digital computer), in part because of the U.S. Air Force,"~s~ubsidized
certain technologies for application in aerospace, and in part
because of the R&D conducted by some major machine tool companies.45/
The cyclical nature of the industry conditioned its conservative
outlook and operations. Companies produce in response to firm
orders, tailored to the needs of the customer. Long backlogs (from
six months to two years) are prevalent, since expansion of capacity
entails risk. No off-the-shelf machine tools are produced, which
makes the industry vulnerable to the more agile foreign competition--
such as Japanese--with its ready-made products. An aggressive
pursuit of expanding foreign markets could have helped the industry
to minimize the cyclical impact of the domestic economy, but machine
tool manufacturers did relatively little to expand abroad. A
strategic thrust within the industry is in part handicapped by the
fact that its larger companies are often found within a conglomerate
structure which may or may not consider machine tools a significant
components of-its strategic planning policies.46/
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The sluggish capital investment by U.S. manufacturers in the past
15 years impeded introduction of new machine tools into industry.
As a result, two-thirds of the machine tools installed in U.S.
plants are over ten years old. The United States thus leads all
major industrial countries in the Free World with the highest
percentage of old machine tools in its industry, while Japan is the
leader in terms of having the largest percentage of modern machine
tools in use.47/ Less than four percent of machine tools installed
in the United States are advanced, efficient tools equipped with
numerical control.48/ The condition of the installed machine tools
in the United States thus constrains U.S. economic productivity and
seriously handicaps surge capability in the event of war.
The machine tool industry itself has very limited surge
capability. It is small. With the exception of a few larger firms,
the industry has not maintained a modern production base and its own
productive equipment is old. The industry's present backlog of
orders is six and a half months.49 The normal utilization rate of
the industry is atleast 85 percent, which leaves little room for
expansion.5" Moreover, a majority of the workforce of the
industry consists of highly skilled machinists. They are in short
supply now and the workforce is aging (the average age is 47).
Manpower is thus likely to impose a severe constraint on-expansion
of the industry in war.51/
Although the U.S. Government has, on paper, a formidable
structure to meet the nation's need for machine tools in war, the
reality is different.
The DOD maintains its inventory of machine tools under three
main groupings. The first group consists of machine tools for use
in government-owned production facilities, arsenals, and depots.
The second group consists of machine tools identified for inclusion
into Plant Equipment Packages (PEP). These are both active and idle
assets retained by each service to support production or repair of
specific items in the event of mobilization. The third group
consists of a general reserve.
The conditions of readiness and quality of equipment differ
among these various groups, with the first group being in the best
condition. But, on the whole, the condition of all government owned
machine tools is poor. Their total number is approximately 97,000
and their average age is about 25 years. Much of equipment in the
PEP category (about 20,000 items) has been in storage for many years
and is probably inoperable. In the general reserve (13,400 items),
only 22 percent were identified as serviceable as of
December, 1980. Although there is a policy in the DOD for
systematic modernization of its industrial resources, inadequate
funding and manpower in recent years precluded its effective
implementation.52/
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The Machine Tool Trigger Order Program, administered by the
Department of Commerce under the Defense Production Act of 1950,
also is not a particularly effective instrument for reducing lead
times for mobilization, which is its intended purpose. The program
has not yet provided standby contracts to actually "trigger" their
production. According to a recent study, it needs a better DOD-DOC
coordination to link defense requirements with the Trigger Order
Program, to be eventually translated into a system of standby
contracts. While progress in this direction is, apparently, being
made, it is slow.53/
In summary, the machine tool industry exemplifies a traditional
industrial sector which has the potential for being significantly
rejuvenated.and envigorated by modern technology, thus strengthening
the nation's economic competitiveness and its security in the short
and the long run. The industry, however, failed to exhibit the
required dynamism, did not capitalize an potential opportunities in
the expanding world market, and succumbed to the multiple obstacles
within it and in the economy at large, which development is
detrimental to U.S. national security. The U.S. Government has not
been effective in compensating for this shortfall by its own
measures.
Conclusions
The above analysis of the three industries with regard to
foreign competition suggests both some common elements applicable to
all three as well as significant differences. Perhaps the single
most important common element is the nature of the threat. In all
instances, by far the greatest threat comes from Japan.
In the case of two industries - electronics and machine tools -
the competitive threat of Japan is unequivocally reflected in the
balance of trade figures; not so in computers. What is noteworthy,
however, is the amazing speed of the deterioration of the American
position after the Japanese had achieved their momentum. In the
case of electronics, it took the Japanese only three years to widen
the gap in the balance of trade from marginally unfavorable to that
of nearly a quarter of a billion dollars (1980). In the case of
machine-tools, the balance of trade had become unfavorable earlier
(1974), but it was only within a period of three recent years
(1977-80) that it zoomed to alarming proportions from $83 million to
$443 million.54/
It thus appears that, for policy purposes, the balance of trade
provides us with poor guidance to measure and counter the Japanese
challenge. Considering the lead time required to remedy the
situation in a particular sector, its alarming signal comes usually
quite late. The study of the Japanese organization and planning
would offer us a much better measure of the competitive threat and
how to counter it.
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In this light, the two documents discussed in this chapter - the
Japanese plan for the fifth-generation computers by JIPDEC and the
study of the Japanese machine tool industry by the NMTBA mission -
are particularly revealing. Although one document is Japanese and
the other American, and although they deal with different
industries, the documents suggest the magnitude of the response
required if the United States is to be effective in meeting the
Japanese challenge. Among other things, they suggest the need for a
U.S. re-evaluation of the basic premises of international commercial
competition, the policy requirements stemming therefrom, and the
.price for failure.
If we view national security in purely military terms, the
impact of_foreign commercial competnon has not been very seriously
damaging so far. The computer sector has not yet been affected at
all. In electronics, surge capability in war has been curtailed
through losses to foreign countries in consumer electronics and
semiconductors. Perhaps the most serious problem is the dependence
for defense production on electronic components from the Far East,
but foreign competition is only partially responsible for that
development. The constraints on war production imposed by the sad
situation in machine tools is serious, but the failure of the
machine tool industry to effectively meet foreign competition is
also only partially responsible for this situation. Governmental
policies with regard to preparedness in machine tools left a great
deal to be desired.
However, the threat of foreign competition to U.S. national
security in the three sectors discussed is much more serious when we
look into the future and when national security is viewed in the
broader sense, beyond its purely military dimensions. In this
context, the computer sector probably deserves top priority for a
forward-looking policy concern.
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1. See U.S. Department of Commerce, International Trade
Administration, A Report on the U.S. Semiconductor Industry,
(Washington, D.C.: U.S. Government Printing Office, September
1979), p. 46. Thirty-six percent of semiconductors were used by
the U.S. Government, primarily in military and space programs.
In addition, 24 perrcent of semiconductors were used in
computers, some of which were employed in defense. For the
early, military-dominated phase of the semiconductor industry
(1958-64), see Michael Borrus and James Millstein, "Trade and
Development in the Integrated Circuit Industry," in American
Industry in International Competition, a project conducted by L.
Tyson and J. Zysman (Institute for Governmental Studies,
University of California, Berkeley, September, 1980), pp. 15-18.
2. Defense Science Board 1980 Summer Study on Industrial
Responsiveness (Office of the Under Secretary of Defense for
Research and Engineering, Washington, D.C. January 1981), p.
ll.(Hereafter cited as DSB, Industrial Responsiveness, 1980.)
3. Industrial College of the Armed Forces, Defense Industry
Analysis Summaries, May 1981, p. 12-4.
4. See ibid, pp. 12-4 to 12-6; U.S. Department of Defense, The FY
1982 Department of Defense Program for Research, Development and
Acquisition: Statement by The Hon. William J. Perry, Under
Secretary of Defense for Research and Engineering, to the 97th
Congress, First Session, 20 Jan. 1981, pp. V-7 to V-9.
5. The International Microelectronic Challenge (Cupertino, Calif.:
The Semiconductor Industry Association, May 1981), pp. 8-9, 24.
The combined investment rate for plant, equipment and R&D in the
semiconductor industry is between 22 and 27 percent, about twice
the national average.
6. See Gene Bylinsky, "A New Industrial Revolution Is on the Way"
Fortune, Oct. 5, 1981, pp. 106-114.
7. The International Microelectronic Challege, off. cit. p. 11. It
is noteworthy that the share of semiconductors in t?ie world
electronics market is projected to increase from 5.5% in 1968 to
10%, or $50 billion, in 1988.
8. A similar argument has been developed in Michael Borrus, James
Millstein, and John Zysman, "International Competition in
Advanced Industrial Sectors: Trade and Development in
Semiconductor Industry" (Institute for International Studies,
University of California, Berkeley, January 1982); see pp. 135,
144 and passim.
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17. Source of figures: Science and Electronics Division, Office of
Producer Goods, Bureau of Industrial Economics, U.S. Department.
of Commerce.
18. Michael Schrage, "France Plans Computer World Center," The
Washington Post, January 27, 1982. p. Dll. It is noteworthy
that the center's chairman of the board is Jean-Jacque
Servan-Schreiber, the author of The American Challenge and a
former cabinet minister. He reports directly to the French
President Mitterand.
19. "A Worldwide Strategy for the Computer Market," Business Week,
December 14, 1981, p. 65.
20. Kathleen K. Wiegner, "It's the Response That Counts," Forbes,
November 23, 1981, pp. 124-125.
21. "A Worldwid Strategy for the Computer Market, Business Week, op.
cit., pp. 65-66.
22. "A Fifth Generation: Computers That Think," Business Week,
December 14, 1981, p. 94.
23. Japan Information Processing Center, Preliminary Report on Study
and Research on Fifth-Generation Computers, 1979-80 (Tokyo, Fall
1981); cited hereafter as JIPDEC, Report.
24. JIPDEC, Report, pp. 16-18, 22-24, 26-27, and passim.
25. Ibid., pp. 17 and 26.
26. The Japanese government approved a total of $285 million for the
Fifth-Generation Computer Project and related projects ($85
million for a supercomputer and $80 million for an optical
computer), effective April 1, 1982. "Will Japan Leapfrog
America on Superfast Computers?" The Economist, March 6, 1982,
p. 95. Some independent estimates place the cost of R&D for
fifth- generation computers at $1 billion or more.
27. JIPDEC, Report, p. 89.
28. Ibid., p. 24.
29. Ibid., p. 86
30. Ibid. p. 28
31. Kathleen K. Wiegner, "Preemptive Strike," Forbes, April 12,
1982, p. 116.
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32. Thomas W. Lippman, "Computer Companies Join Forces," The
Washington Post, may 30, 1982, p. Fl; "America's Reposte," The
Economist, March 6, 1982, pp. 95-96. The companies
participating in exploratory meetings on MCE included Rockwell,
Xerox, United Technologies, Sperry, Burroughs, NCR, and
Motorola. Projected funding of MCE is $20 million for the first
year, eventually reaching $100 million per year.
33. Lippman in The Washington Post, op. cit.
34. "NEC Develops Josephson IC, " Electronic News, April 19, 1982,
p. 61. Nippon Electric Co. claims a switching speed of 10.8
picoseconds (trillionths of a second) for its Josephson logic
circuit.
35. The speed of HEMTS is 17 picoseconds, as compared with,
reportedly, 13 picoseconds for IBM Josephson junctions. Will
Japan Leapfrog America on Superfast Computers?" The Economist,
op. cit., p. 95.
36. Source: National Machine Tool Builders' Association.
37. The machine tool industry does not officially compute R&D
expenditures. The figure of 2.3 percent is the average of the
top ten machine tool corporations in 1978. U.S. Department of
Commerce, Office of Producer Goods, Bureau of Industrial
Economics, Office of the Chief Economist, The Metal Cutting
Industry" (May 15, 1980), p. 25. The figure of 2.5 percent is
the median of those major companies which reported their R&D
expenditures to the National Machine Tool Builders' Association
for 1980.
38. "Defense Machine Tools and Industrial Machinery," in Industrial
College of the Armed Forces, Defense Industry Analysis Summaries
(Washington, D.C., May 1981), p. 4-21. In the same period,
world machine tool output grew from $5 billion to $26.5
billion. National Machine Tool Builders' Association, 1981-82
Economic Handbook of the Machine Tool Industry (McLean, Va.,
1981), p. 163. (Hereafter cited as NMTBA, 1981-82 Economic
Handbook.)
39. Ibid., p. 126.
40. Source: National Machine Tool Builders' Association, Statistical
Office.
41. NMTBA, 1981-82 Economic Handbook, p. 128. In 1980, the two
principal West European exporters to the United States were West
Germany ($236 mil.) and the United Kingdom ($117 mil.). Ibid.
42. See National Machine Tool Builders' Association, The Japanese
Study Mission, Meeting the Japanese Challenge (McLean, Va.,
September 14, 1981), pp. 5, 21-23 and passim. The study further
noted that the Japanese are making strides with operatorless
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43. Ibid., pp. 6-7.
44. NMTBA, 1981-82 Economic Handbook, p. 60. The figures are as of
the 1977 Census of Manufacturers.
45. See Lawrence Livermore National Laboratory, Technology of
Machine Tools, prepared for U.S. Air Force Materials Laboratory,
Wright-Patterson Air Force Base, Oct., 1980; Vol. I (Executive
Summary), pp. 4-6. This study concluded that "the major changes
in machine tool technology have been brought about more by
influences and pressures from outside the industry than by
machine tool builders' selfinitiative' (ibid., p.4).
46. See U.S. Department of Commerce, "The Metal Cutting Industry,"
op. cit., pp. 28-30.
47. NMTBA, 1981-82 Economic Handbook, p. 257. The percentage of
machine tools under ten years old in use in the United States is
31 percent and in Japan 61 percent.
48. John B. Deam, "Machine Tools and Their Importance to Our
Industrial Responsiveness," a talk given at the 13th Annual
Manufacturing Technology Conference, San Diego, California.,
Nov. 30 - Dec. 3, 1981, p. 9.
49. Source: National Machine Tool Builders' Association, Feb. 1982.
50. "Defense Machine Tools and Industrial Machinery" in ICAF, Defense
Industry Analysis Summaries, op. cit., p. 4-12.
51. Testimony of Charles P. Downer, Industrial Preparedness
Representative, NMTBA, in U.S. House of Representatives,
Committee on Banking, Finance and Urban Affairs, Subcommittee on
Economic Stabilization, Revitalization and the U.S. Economy;
Hearings (Washington, D.C.: U.S. Government Printing Office,
1981), p. 48.
52. For details, see ibid. pp. 53-54 and "Defense Machine Tools and
Industrial Machinery"
in
ICAF,
Defense
Summaries, op. cit.,
pp.
4-14
to 4-16.
Industry Analysis
53. See ibid., pp. 4-18 to 4-19.
54. Source: National Machine Tool Builders' Association.
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V. DOD Rationalization/Standardization/Interoperability (RSI)
Policies and Foreign Competition
The origin of Department of Defense NATO RSI policies goes back
to the so-called "Calver-Nunn Amendment" to the DOD Appropriation
Authorization Act of 1976, but it was not until 1978 that they
became sufficiently developed and began to be vigorously pursued.
Among other things, NATO RSI undertook to remove barriers to foreign
competition from NATO nations with regard to the U.S. defense
industrial base and to invite such competition. The rationale of
this unprecedented development will be briefly explained.
The declared objective of NATO RSI policies with regard to the
production of weapons is to reduce their cost by avoiding
duplication of resources and by promoting "a technically advanced,
industrially productive and economically viable defense industry on
both sides of the Atlantic."1/ There are basically three means to
achieve this objective (1) General Memoranda of Understanding (MOUs)
dealing with reciprocal purchasing; (2) co-production (or "dual
production," as the term was used earlier) in NATO countries, and
(3) the concept of the Family of Weapons.
The purpose of the general MOUs is to stimulate competition
within NATO defense industry (U.S. and European) by waiving various
"buy national" restrictions on a reciprocal basis. At present, the
United States has general MOUs with eleven NATO allies. 2/ The
existence of these MOUs means that the provisions of the Buy
American Act do not apply to the parties to the MOUs and they are
free to compete with American companies for DOD procurement
contracts. In fact, the current policies not only allow such
foreign competition for U.S. defense contracts, but they solicit and
facilitate it. For example, international arms collaboration
seminars are conducted for industry and government executives which
attempt to familiarize the participants with procurement practices
in various NATO countries.3/ The U.S. Defense Acquisition
Regulations (DAR) specifically provide that no unusual technical and
security requirements may be imposed solely to exclude participating
country sources from competition.4/
However, in the interest of national security, current
regulations impose certain restrictions on the extent of foreign
competition. Thus, the DAR (1-2207) provides a list of items
excluded from foreign competition so as to safeguard U.S. defense
mobilization base requirements. These restrictions, however, can be
waived. If it has been determined that U.S. domestic manufacturers
are producing sufficient quantities of a listed item to sustain the
mobilization base, then bids from an MOU country may be solicited
and awards made.5/
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A relevent question to ask is: What is the extent of penetration
of the U.S. defense industrial base by foreign companies, supplying
components from overseas? Did it effect a significant displacement
of U.S. production? Again, no comprehensive, in-depth studies on
this subject were conducted and information is fragmentary and
"soft,' largely based on estimates of personnel interviewed.
According to some estimates, over 15 percent of the F-16 aircraft
manufactured in the United States consisted of European-built
components. For other systems, estimates were considerably
smaller. Some episodic examples were cited of the reduction of the
number of companies (e.g., microwave tube producers, from 12-15 in
the past to 5-6 at present),*ostensibly because of foreign
competition. However, no independent assessment of the reasons for
their decline was made in this study.
Spot checks with industry ar.0 industrial associations sources on
the effect of opening up competion for defense procurement did not
reveal a strong consensus of opinion. Virtually no one subscribed
to the view that the general MOUs are significantly jeopardizing the
U.S. defense industrial base, although it has been noted that, along
with benefits, there are some undesirable repercussions of RSI
policies on the defense industrial base, especially in the area of
offsets (more about offsets later). Most industry representatives
appear to prefer the protection of the Buy American Act. A
surcharge of 6 to 10 percent on foreign contracts is viewed by many
as needed to compensate U.S. companies for certain special costs
they must bear (e.g., environmental restrictions, affirmative
action). Others, however, held the view that now that the new
system is here they can live with it. They felt that, in the
defense area, the U.S. Government subsidizes R&D and provides other
forms of assistance and this helps to offset the protectionist
tendencies on the part of foreign governments with regard to their
companies. And American firms do have an opportunity to bid abroad
under the MOUs and they often win.
The issue of technology transfer under RSI appears to present
more of a problem to U.S. national security that the opening up of
the defense industrial base to foreign competition. One of the key
objectives of RSI is to strengthen and integrate the defense
technological and industrial base of NATO nations on both sides of
the Atlantic. Technology transfer is an important instrumentality
in this process.
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To be sure, technology transfer is not a one-way street; the
United States also benefits from technology transferred from its
NATO allies under RSI programs. However, the United States is
considerably more advanced in military and militarily-related
technology than Western European nations and, on balance, they have
been the greater beneficiaries of technology transfer under RSI. In
fact, Western Europeans, being behind the United States in military
technology and defense-related production capability, have been
making a deliberate effort to strengthen their position in this
regard in order to rectify the present imbalance in arms trade so
heavily unfavorable to them. U.S.-promoted RSI policies tended to
facilitate this process.
Co-development and co-production programs have been important
vehicles for technology transfer to U.S. NATO allies. Another
highly important instrument of technology transfer from-the United
States to Western Europe has been the so-called "offsets."
Actually, offsets are not a product of RSI; as a part of foreign
military sales .(FMS), they long preceded it. Initially offsets were
related to the balance of payments in connection with arms sales;
they committed the seller (usually, a U.S. arms manufacturer) to
"offset" the imbalance in arms trade by applying a certain
percentage of the purchase price (say, 30 percent ) to (usually
specified) purchases from the buyer nation. In recent years,
however, offsets have in many cases lost their relationship to the
consideration of the balance of payments and have simply become
certain favorable conditions, other than the price, which the buyer
extracted in connection with a purchase.ll/ In some cases, the size
of the offset (e.g., a commitment to buy certain goods) exceeded the
price of the arms purchase.
As RSI became a policy, the practice of offsets has become
intricately intertwined with the various activities conducted under
it. Technology transfer, in.various forms, plays a major part in
offsets. Offsets - in the form of production licenses - may
accompany an RSI-inspired co-production MOU. Or a co-production
agreement by the manufacturer may-become an offset in a major arms
sales.12/
The effect of the technology transfer to NATO countries appears
to be the following:
1. In the longer run, the competitiveness of European
companies will be strengthened, thus helping them to obtain
a larger share of defense contracts in the United States
and thus, possibly, diminish the U.S. defense industrial
base.
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2. With the strengthening of the European defense industry,
U.S. ability to sell arms to Western Europe is likely to
decline, thus resulting in a reduction of U.S. production
and surge capability in weapons.
3. Transfer of U.S. technology to European manufacturers
strengthens their competitiveness for defense-related
production and sales to third nations. This in turn has
repercussions on the vitality of the U.S. defense
industrial base. 13/
4. Spillover of technology transferred via military programs
into the commercial sector of Western European nations
strengthens the competitiveness of their industries and
thus could be detrimental to U.S. industrial viability.
As noted earlier, the economic well-being of West European
nations heavily depends on foreign trade which, in turn, has been an
important factor in their propensity to transfer technology to the
USSR. In the absence of an in-depth study on this subject, it is
difficult to say how much, if any, technology transferred to NATO
nations finds its way to the Soviet Union. However, some
individuals interviewed noted that commercial licensing of
technology transfer for sensitive programs has considerable room for
improvement. There are thus reasons to believe that at least a
portion of U.S. technology transferred to Western Europe finds its
way to the USSR. Accordingly, a more thorough examination of this
subject and a strengthening of appropriate mechanisms in this area
would be appropriate.
To conclude: while RSI policies bring certain distinct benefits
to the United States, little analytic work has been done to assess
fully their various ramifications. Such analysis, which would help
to optimize RSI in the interest of U.S. national security, is
needed. In fact, steps in this direction - some of which are
reflected in the above paragraphs - are under consideration in the
Department of Defense at present. In particular, the point is being
raised that, in the application of RSI, technology was viewed
perhaps too much as an instrumentality subordinate to other - mainly
political - objectives of RSI. The current approach appears to
place greater emphasis on technology as a value in its own right and
attempts to readjust priorities of the various components of the
policy accordingly.14/
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1. The Honorable William J. Perry, Under Secretary of Defense for
Research and Engineering, The Department of Defense Written
Statement on NATO-Improved-Armaments Cooperation, presented to
the Research and Development Subcommittee of the Committee on
Armed Services of the U.S. Senate, 96th Congress, First Session,
4 April 1979, p. 5.
2. Except for the agreements with France and Turkey which are not
published, MOUs appear in the Defense Acquisition Regulations
(DAR). The other nine NATO countries are: the U.K., FRG, Italy,
Norway, th Netherlands, Portugal, Belgium, Denmark and Canada.
3. U.S. Department of Defense, Rationalization/Standardization
Within NATO; a Report to the United States Congress by Harold
Brown, Secretary of Defense, 19 January 1981, p. 82.
4. David B. Dempsey, "Foreign Procurement under Memoranda of
Understanding and the Trade Agreements Act," Public Contract Law
Journal, March 1982, pp. 231-232.
5. Ibid.
6. Under Secretary Perry, op. cit., pp. 6-7.
7. Secretary Brown, og. cit., p. 83.
8. Source: ODUSDR&E (Acquisition Mgt.). No longitudinal data,
however, are available to compare the impact of RSI over time.
9. Source: ODUSDR&E (Acquisition Mgt.). The list in DAR 1-2207 is
not the only source of items exempt from foreign competition
under the MOUs. There are some "excluded" items listed in DAR
6-1405; there is also the protection rendered to certain
industries (e.g., shipbuilding) provided by Congressional
legislation.
10. It should be noted that the Trade Agreements Act of 1979 also
liberalized foreign competition with regard to the DOD
procurement market to the signatories of the Act which included
- in addition to most NATO countries - Japan, Sweden, Austria,
Switzerland, Ireland, Finland, Hong Kong and Singapore. The
provisions of this Act are distinctly not as liberal as those of
the MOUs. They removed the application of the Buy
American/Balance of Payment restrictions to some 60 specifically
listed items, some of which could be a part of defense
procurement. The act specifically excluded a number of
defense-related items, such as weapons, ammunition, aircraft,
aircraft components, ships, engines, and communications. See
Agreements Reached in the Tokyo Round of the Miltilateral Trade
Negotiations; 96th congress, 1st Session, House Document No.
96-153, Part I, pp. 162-165.
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11. Thus, at present, a distinction is made between direct and
indirect offsets. The former pertain to compensatory
manufacturing activity provided to the purchasing country and
involving the individual defense system itself. Indirect
offsets apply to compensatory activity from the purchasing
government's industrial facilities unrelated to the item being
purchased.
12. Since May 1978, it has been the policy of the Department of
Defense to discourage direct DOD commitments or involvement in
offset agreements. By and large, agreements on such offsets are
left to industry. Although the Department of Defense does not
encourage commercial offsets, it does rely on the companies
involved to fulfill their commitments on offsets to the
purchasing country.
For a more extensive treatment of offsets, see Col. Ronald L.
Carlberg, USAF, Director for International Acquisition, Office
of the Under Secretary of Defense (Research and Engineering),
"Statement" before the Subcommittee on Economic Stabilization of
the House Committee on Banking, Finance, and Urban Affairs,
First Session, 97th Congress, Sept. 24, 1981, and Electronics
Industries Association (EIA), 'Statement on the Subject of
'Offsets" for inclusion in the record of the Hearings of the
Subcommittee on Economic Stabilization of the House Committee on
Banking, Finance and Urban Affairs, Sept. 24, 1981.
13. According to one industrial association executive, SRI-induced
co-production drives industry to offsets and technology
transfer. In turn, this leads to West Europeans winning in
competition for third country markets and, in the longer run,
deterioration of the U.S. defense industrial base. Similar
conclusions were reached by a study on NATO arms collaboration
conducted for OSD (ISA). According to this study, European
governments and defense industries are pushing for involvement
of European firms in co-development and co-production
arrangements. 'The benefits accruing to the European economy
through these arrangements include national income generation,
increased local employment, foreign exchange savings, technology
transfers and the establishment or strengthening of competitive
threats to U.S. industry in worldwide markets.' Jack Baranson,
"Problems and Consequences of Technology Sharing Under NATO Arms
Collaboration," Report prepared by Developing World
l0-Industry
and Technology, Inc., Washington, D.C., 1980, pp.
14. E.g., see Draft Report of the DOD Task Group to Review
International Co-Production-Industrial Participation Agreements,
12 Feb. 1982.
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Vi. Technological Impact, Foreign Competition, and Implications
for U.S. National Security: Western Europe vs. Japan
In order to provide a fuller understanding of the national
security implications of foreign competition to U.S. high technology
industries, the analysis of the preceding sections must be placed in
the context of a broader phenomenon, viz., the impact of technology
on international power. In particular, in the last hundred years or
so, technology changed the relationship between the location of
natural resources and power.
Historically, technology has played a major role in creating new
resources or helping to exploit traditional ones; in doing so, it
was affecting distribution of international power. In the 19th
century and the early decades of the 20th, this power-developing
role of technology was closely tied to the location of resources.
In particular, major industrial centers were built around coal-iron
ore complexes such as those in the Durham-Cleveland (Britain), the
Great Lakes-Pennsylvania (U.S.), the Ruhr (Germany), and the Krivoi
Rog-Donbas (USSR) regions. The development of railroads was closely
tied to the availability of resources - either mineral or
agricultural - on the land that the railroads crossed. Electricity
made water power a significant source of energy, but hydroelectric
stations and the economic activity stimulated by them were narrowly
confined to rivers and their vicinity.
A more recent trend has been the decline in the importance of
the location of raw materials and sources of energy as a determining
factor in economic development and in the rise of new power
centers. No single invention was responsible for this decline, but
the most significant technologies initially responsible were
chemistry and transportation. We have seen in Chapter II of this
study how effective chemistry was in freeing Germany from her
dependence on imported raw materials and building up her power in
general, although, in its early beginnings, the German chemical
industry heavily depended on coal tar, a by-product of the German
coal-iron ore complex. Technological advances in transportation,
resulting in the reduction of costs, greatly increased the mobility
of raw materials. Perhaps the most striking example of this is the
post-World War II development of Japan's steel industry which, by
1964, had become the third largest in the world (after the United
States and the Soviet Union). A great majority of raw materials for
the Japanese steel industry are imported over an average distance of
5,500 miles. 1/
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In short, what may be called "the deterministic effect of
resource location" has lost a great deal of its old importance. The
horizons for organized human will, backed by advanced technology,
have broadened immensely. In the present era, the principal
elements of power are (1) highly skilled population; (2)
availability of highly advanced technology; and (3) an effective
societal organization, foresight, purposiveness, and drive in
capitalizing on technology's potential. 2/ Historically, the United
States rose to power largely on the strength of its resources. At
present, the importance of resources has declined and, to add insult
to injury, America's resource base is no longer as rich as it used
to be. The third and probably the single most important element in
the strength and vitality of contemporary world power centers - an
effective societal organization for capitalizing on technology's
potential - opens new and broad horizons for America's future. But
this is precisely an area where U.S. competitors have been more
effective than the United States.
The threat of foreign competition to the United States comes
basically from two regions: Western Europe and Japan. The impact
of competition from Western Europe has been considerably smaller
than from Japan. Moreover, the nature of that competition appears
to be more typically economic, with some undertones of old
mercantilistic policies. Western Europe as a whole does not have a
common policy to capitalize on opportunities offered by advanced
technology. Although there are efforts under the aegis of the
European Community to integrate policies of its members with regard
to economic and technological matters, the relative success of such
efforts is quite modest. Within the framework of the European
Community and its common market, individual governments have
competing and often conflictual policies.3/
Western Europe thus falls considerably short of meeting our
third - and critical - criterion for comprising a power center whose
competitive dynamism seriously affects U.S. national security. 4/
However, one should not overlook the fact that individual European
companies can - and do - present their U.S. counterparts with a
stiff challenge in certain sectors (e.g., electronics, machine
tools, aircrafts, automobiles).
Japan represents a case significantly different from that of
Western Europe. It appears that, more than any other major region
in the world, Japan has the essential attributes for capitalizing on
technology to promote her power.5/
As early as 1960, Japan had the highest literacy in the world,
99.8 percent. 6/ In 1980, with a population about half that of the
United States, Japan graduated more engineers than did the United
States.7/ In Japan, engineers are extensively imployed in
managerial positions in both government and industry. About half of
both the senior civil service and industrial directors hold degrees
in engineering or related subjects.8/
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Moreover, Japan has a much larger base of highly capable
manpower to lean upon than does the United States. According to a
recently released study, the mean IQ of the Japanese has risen
spectacularly in this century. In the-younger generation, people-
who are now 13 through 23, ten percent have IQs above 130, while in
the United States only two percent of population of the same age
have corresponding IQs.9/ To put this into absolute figures: there
are now 1.8 million Japanese in the above age brackets with an IQ
over 130, but only 850,000 Americans.10/
While in the case of other nations, "availability of highly
advanced technology' and "an effective societal organization to
capitalize on the technology's potential" are usually two separate
and not necessarily commensurate attributes, 11/ a strong point of
Japan is that she succeeded in combining the two in a continuous and
mutually supporting process, with synergistic effect. Japan
provided ample evidence of her ability to transfer technology from
the West, to improve upon it, and to make it commercially extremely
successful. In one respect Japan's capability has not been fully
proven: to do highly original research and to be a true leader in
the most sophisticated high technologies. However, the Japanese did
display capability for doing original research in a number of areas
and came out with innovations which were distinct "firsts" or are
now doing research at least equal to, if not exceeding that, of the
West.12/
MITI stated that Japanese brainpower may well be the nation's
only resource and it called for an all-out drive in the 1980s to
develop creative technologies. 13/ While the present extent of
Japan's original work in scientific and technical R & D does not yet
allow definitive predictions for the future, there is no strong
evidence to suggest that Japan cannot become an effective originator
of the most advanced technology.14/
A great deal has been written in recent years about the
effectiveness of "Japan, Inc." in capitalizing on technology in
order to promote her economic growth and competitiveness in the
world market. There is no need to repeat here what has already
become generally known. The discussion below will focus on certain
aspects of the Japanese phenomenon which have not received adequate
attention or are particularly relevant to the subject matter of this
study.
The term "Japan, Inc., " is grossly misleading. It connotes
that (1) the kind of organization and unity which Japan displays is
analogous to a corporation, and (2) the underlying motives of
Japanese behavior are fundamentally economic. Both are inaccurate.
Japan is not a corporation. It is an unusually cohesive - not
always internally, but certainly with regard to the outside world -
nation, imbued by a unique kind of nationalism which, like any
strong nationalism, finds its roots in human psychology and
emotions. 15/ The challenge of Japan is thus not economic; it is
political. Its primary objectives are status and power and it uses
technological and economic means to achieve them.
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It appears that the initial focus of Japan after World War II on
economic growth was primarily economically motivated. Defeated and
humiliated in the war and devoid of natural resources, Japan faced
the problem of economic survival. As, however, she became unusually
successful in the assimilation of imported nonmilitary technology
and, especially, in its application to economic pursuits, economic
self-aggradizement became a national. objective. Its initial
component - the desire to increase the economic well-being of the
Japanese people - was not entirely lost, but a new one has come to
the fore: to satisfy a combination of the nationalistic and
psychological craving for status and power. Their success
notwithstanding, the Japanese still have remnants of an inferiority
complex vis-a-vis Westerners, and to be the greatest economic power
in the world has become an important means of quenching this
complex, a desire that motivates factory workers and high government
officials alike.16/
In the late 196bs and early 1970s, when Japan's economic growth
was about ten percent annually, the Japanese prospect of becoming an
economic superpower was widely discussed in the Japanese and Western
press and on various other platforms. With the advent of the energy
crisis in 1973-74 17/ and the decline in the Japanese growth to 5-6
percent annually, the outlook for Japan to become and economic
superpower was postponed further into the future. 18/ The recent
call by MITI for a drive to generate original technologies and
ambitious Japanese plans with regard to the fifth-generation
computers suggest that Japan's strategy has shifted its emphasis
towards preeminence in technology and not just economic growth
itself. Superiority in high technology, combined with a healthy rate
of growth, would bring Japan much closer to a superpower status than
a mere achievement of a very large GNP short of technological
preeminence. If Japan is successful in her objective of
technological preeminence, the lead time for achieving the desired
status and power 19/ could well be considerably shorter than that of
becoming an economic superpower comparable to the United States at
the present rate of Japan's growth. 20/
If the Japanese drive is primarily nationalistic and political
then in what particular form is its character manifested? It is
manifested in the centrality of Nippon in Japanese decision-making,
motivations, and the technologico-economic strategy.
As Peter Drucker pointed out, 21/ in Japanese decision-making
the national interest comes first. If a particularistic interest
wants to be listened to and have a measure of success, it must
justify its claims in terms of its contribution to Japan, and not
its own concerns. In the consensual process which governs Japanese
decision-making, the consideration which ultimately prevails is the
national interest of Japan. In the highly collectivistic Japanese
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society, loyalty - and the motivation which stems from it - is a
continuum which starts in the family, extends to the company, and
culminates in the nation. 22/ Thus, the company anthem, which is
usually sung at the beginning of each working day by all employees
and the management and which psychologically spurs them to produce,
is only one manifestation of nationalism operating through multiple
channels and accounting for the strength of the Japanese drive.
Lastly, the Japanese industrial policy, orchestrated principally
by MITI, is national in scope. It is long-range; it continuously
modifies the composition of the Japanese industrial structure by
placing emphasis on those sectors which are the most advantageous to
Japan in a given period of time, and it gradually reduces or phases
out those which are not. If necessary, the policy rationalizes and
overhauls entire industries, as it did in the case of the formerly
backward and fragmented machine tool industry. 23/
The threat which the Japanese competitive challenge presents to
U.S. national security is as follows:
1. Japan, over time, could significantly erode the U.S.
economic base upon which, in the last analysis, U.S. military power
depends. Moreover, if Japan is successful in capturing leadership
in certain key areas of high technology.- such as semiconductors,
computers, composites, and biotechnology - the United States could
become increasingly dependent on Japan for components and other
products relevant to emergency mobilization.
2. In addition to U.S. military power, the present U.S.
superiority in high technology is a critical factor in safeguarding
U.S. security with regard to the Soviet Union. To obtain the most
advanced technology, the Soviets have no place to go except the
United States. If the Japanese seize leadership in key areas of
high technology, the United States would lose direct conrol over the
critical margin of technological superiority with regard to the
USSR. As an economic and technological superpower, Japan would be
freer from U.S. influence in technology transfer to the Soviet
Union. Japanese technology, transferred to the USSR, could augment
Soviet military power. The United States would thus be squeezed
between the economic pressure of Tokyo and enhanced military
pressure of Moscow.
3. Last but not least, the rise of Japan as an economic and
technological superpower would reduce America's power since power is
always relative and not only military. U.S. freedom of action and
decision-making would be increasingly constrained by Japanese
presence and influence in many areas on the globe. Security
interests will inevitably be affected, even if Japan remains a
basically friendly - yet competitive - power.
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What are the implications of the above analysis for U.S. policy
with regard to the two regions from which the competitive threat to
the United States emanates, Western Europe and Japan?
The competition from Western Europe is essentially economic and
much less intense than that from Japan. It can be met essentially
by economic means. Under RSI, avenues for cooperation with European
NATO allies in defense R&D and production have been opened which
offer the United States certain advantages. Perhaps this
cooperation could be expanded into certain areas which might help
the United States - and Western Europe - to meet the Japanese
challenge. At the same time, the competitive position of U.S.
companies with regard to their European counterparts needs to be
stregthened. Among other things, it might be useful to take a
closer look at technology transfer to Western Europe and perhaps
slow it down.
As noted earlier, the Japanese challenge is essentially
political and it is very doubtful that it could be adequately met by
purely economic means. The United States cannot energize its
employees into a single-minded pursuit of productivity by such means
as the singing of a company anthem. Nor is it likely that U.S.
companies will systematically accept the national interest of the
United States as overriding the consideration of profit.
Conventional economic means are not likely to be adequate in a
situation where non-tariff barriers to trade existing in a highly
cohesive, nationalistic country are often difficult to identify, let
alone to counter.
What seems to be needed to meet the Japanese challenge is a
spectrum of mutually supporting economic, technological, and
political measures. Economic and technological measures will be
discussed at greater length in the following chapter; at this point,
just a few general comments will be made.
An internal domestic climate which would strengthen the
competitiveness of American companies needs to be developed. To the
extent possible, the internal Japanese market should be penetrated;
this would help to minimize the practice by Japanese manufacturers
of differential prices at home and aborad. In the area of
technology, there does not seem to be an alternative to ensuring
U.S. preeminence in certain key areas. A serious consideration
should be given to a policy in civilian technology somewhat similar
to the one the United States has in military technology with regard
to the Soviet Union: to maintain a consistent technological margin
of safety with regard to Japan.
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The political. measures need not consist of pressure, although a
firm stance on certain points will be essential. A promising
approach might be to attempt to diffuse the Japanese economic thrust
by a coherent strategy designed to persuade Nippon to channel its
energies and resources into areas where they do not clash with
fundamental American interests. One such area might be the Japanese
social infrastructure. In her thrust outward, Japan neglected basic
amenities for here people - roads, city transit, sewers - and there
is a pent-up pressure in Japan to cope with these problems which
would require major resources.
Another area - less concrete, yet highly important - is the
involvement of the Japanese in world political affairs aimed at
building and upholding a stable international system. The Japanese,
while fiercely competitive in the economic sphere, have been largely
timorous politically in post-World War II decades. If skillfully
encouraged by the United States and given generous recognition (on
the forum of the U.N. and elsewhere), a constructive involvement and
influence of the Japanese in world affairs might meet their
aspiration for status. Such involvement would require considerably
larger allocation of resources to foreign aid and armed forces than
Japan's contribution in recent years. While the United States has
been trying to induce the Japanese to allocate more resources to
these two areas in recent years, the effort was not very skillful
and often obvious in its immediate self-interest. A broader, less
narrowly self-interested endeavor is needed.24/
The above policy on the part of the United States would not
necessarily be detrimental to the long-range Japanese national
interest; in fact, it would serve that interest much better than the
policy Japan is pursuing at present. As a result of technological
impact and free trade, the Free World is being integrated into a
form of an inchoate-world system characterized by inter-
dependence.25/ In this system, the political process is
increasingly, albeit slowly, acquiring overtones of a non-zero sum
game in which one nation's gain does not necessarily result in other
nations' loss; all may gain. Japan, on the other hand, undertook a
vigorous and well-carried out pursuit of economic and technological
policies principally as a zero-sum game - a process in which one's
gain is inevitably somebody else's loss.
Japan's economic and technological policy is thus similar to
that of the Soviet Union in the military sphere and could be
seriously damaging to Nippon. It could lead to a determined
retaliation by other nations. It could disrupt the fabric of the
present international economic system, on the very existence of
which Japan's economic strategy depends.
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Insofar as the Japanese economic and technological strategy
erodes American power, it undermines Japan's own national security.
Tokyo's economic and technological success notwithstanding, Japan as
a nation is vulnerable - militarily, economically, and
psychologically. International instability whose roots could be
traced to the Japaneses single-minded pursuit of economic power may
backfire at Japan, possibly leading to sudden shifts in policy,
internal upheavals, and extremism.
It thus behooves the United States to meet the Japanese
challenge with a firm, yet responsible policy which would be mindful
not only of the American, but also of the Japanese long-range
interest. There is no guarantee that such a policy will succeed;
and yet, it is worth trying. Its alternative appears to be a direct
clash of interests which could be quite costly.
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NOTES
1. "Steel Is Where You Make It - In Japan," Resources (January
1967), P. 18.
2. This subject is discussed more extensively in Victor Basiuk,
Technology, World Politics and American Policy (New York:
Columbia University Press, 1977), pp. 17-19.
3. See ibid., pp. 92-103 and recent issues of Europe (magazine of
the European Community), passim.
4. A jeopardy to U.S. national security from Western Europe, if
any, could be greater from the lack of unified dynamism than
from a direct competitive challenge. A fragmented Western
Europe provides an opportunity for the Soviet Union for
capitalizing on European resources through Finlandization or
some other form of influence or control of West European nations.
5. The single most important limitation of Japan with regard to
military power is her small territorial base which makes Japan
particularly vulnerable to strategic nuclear weapons. However,
if nuclear deterrence remains effective, it is entirely
conceivable that Japan could eventually translate her formidable
economic capability into an impressive military power with a
nuclear deterrence capability of her own.
6. Source: UNESCO Yearbook, 1980. As of March 1979, the United
States had a total of 4.6 million people classified as
"illiterate," of which 1.3 million had no school eduation at
all, and 3.3 million completed less than five years of school.
This number of "illiterates" comprised 2.7 percent of U.S.
population over 14 in 1979. Computed from U.S. Department of
Commerce, Bureau of the Census, Population Division, Educational
Attainment in the United States, March 1979 and 1978, Series
p. 20, No. 356 (Washington, D.C.: U.S. Government Printing
Office, 1980), p. 8.
7. The figures for all engineering graduates (from BS through
doctorates) were 81,300 for Japan and 78,420 far the United
States. Sources: The Embassy of Japan and the National Society
of Professional Engineers, respectively. Estimated population,
1980: Japan, 116.8 million; U.S., 226.5 million.
8. National Science Board, Science Indicators 1980 (Washington,
D.C.: National Science Foundation, 1981), p. 7.
9. Richard Lynn, "IQ in Japan and the United States Shows a Growing
Disparity," Nature, May 20, 1982, pp. 222-223. The survey of
Japanese youngsters, ages 6 through 16, was conducted in 1975.
In this younger generation, the mean IQ is 111, as compared with
100 in the United States.
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10. These figures were computed by the author for the ages tested in
the above surveys on the basis of the population data provided
in Japan Statistical Year Book, 1981, p. 28, and U.S. Bureau of
the Census, Current Population Reports, Series P-25, No. 721,
"Estimates of the Population in the United States by Age, Sex
and Race, 1972-1977' (Washington, D.C.: U.S. Government Printing
Office, 1978), p. 11. The computations were made on the basis
of the population born in Japan and the United States in the
Years 1959 through 1969 and alive in 1975.
11. E.g., in the case of the Soviet Union, there is a large gap
between the two. While many advanced technologies are
available, they are not effectively absorbed in, and used by,
the Soviet economic system. In the United States there is also
an asymmetry, although to a much.lesser degree, between
availability of technology and its optimal utilization.
12. To give some examples of Japan's accomplishments in
technological development or areas of.particular strength in
on-going R&D: application of electronics to photographic
equipment; digital sound and its application to stereophonic
equipment; 64K RAM and the present work on 256K RAM; C-MOS
semiconductor technology; fiber optics; and PAN-base carbon
fibers.
13. "Electronic Research: A Quest for Global Leadership," Business
Week, December 14, 1981, p. 88. See also the discussion of the
Japanese planning for leadership in developing the fifth
generation of computers in Chapter IV of this study.
14. Two reasons have been pointed out as important in the proclivity
of the Japanese towards imitation and adaptation, as
distinquished from original research: (a) there is a tendency
towards uniformity and conformism in Japanese society which
tends to discourage creativity and innovation; (b) Japanese
management is pragmatic and market-oriented, which discourages
interest in the systematic.basic research. Ibid., p. 89. On
the other hand, the Japanese proved themselves unusually
competent in setting up longer-range goals and mobilizing
resources to achieve those goals. Only 15 years ago the
Japanese were reluctant to allocate resources to R&D. In the
1970s, MITI shifted its goals to "knowledge-intensive"
industries and began to support R&D. At present,.major Japanese
semiconductor companies allocate 10 percent of sales to
research, more than their U.S. counterparts. Thus, Japanese
purposiveness and long-range goal orientation may well overcome
obstacles to innovation observed in Japanese society.
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15. For a perceptive analysis of Japan as a highly homogeneous and
unique society, see Chie Nakane, Human Relations in Japan
(Tokyo: Ministry of Foreign Affairs, 1972). Nakane was the first
woman to become a professor at the University of Tokyo. This
book was translated into English by the Ministry of Foreign
Affairs in the belief that it will contribute to the
understanding of the Japanese national character.
To comprehend more fully the Japanese behavior as a
manifestation of nationalism, Nakane's book must be placed in
the context of such leading comprehensive studies of nationalism
as Hans Kohn, Nationalism; Its Meaning and History (New York:
Van Nostrand, 1955) and Alfred Cobban, National Self-
Determination (New York: Crowell, 1969).
16. Basiuk, Technology, World Politics and American Policy, pp. 117,
128 and passim.
17. Herman Kahn's book, The Emerging Japanese Superstate; Challenge
and Response (Englewood Cliffs, N.J.: Prentice Hall, 1970),
which was simultaneously published in Japanese and widely read
in Japan, contributed to this discussion. In Tokyo, taxi
drivers were observed eagerly debating the time when Japan will
become an economic superpower.
18. In 1979, Japan's GNP was $929.1 billion, as compared with
$2,368.8 billion for the United States. Thus, at a growth rate
of 5-6 percent, Japan has a considerable distance to go to catch
up. Sources for the figures: For Japan, U.S. Department of
State (E/A); for the U.S., Statistical Abstract of the United
States, 1980.
19. This is not to suggest that Japan's objective is militry power;
at this point of her history, Japan consciously minimizes the
allocation of resources to defense so as not to weaken her
economic and technological thrust.
20. If we assume that Japan's average growth will be 6 percent
annually and that of the United States 3 percent (an assumption
which is somewhat optimistic in Japan's favor), then in the year
2000 Japan's GNP will be $3,158.5 billion and that of the U.S.,
$4,406.7 billion (in 1979 dollars). Japan distinctly would be
an economic superpower, exceeding U.S. 1979 GNP by some $790
billion, but still $1,248 billion short of U.S. GNP of the year
2000 (computed by the author from the figures in note 18, above).
21. Peter F. Drucker, 'Behind Japan's Success," Harvard Business
Review, Jan.-Feb. 1981, pp. 86-87.
22. Nakane, op.. cit., passim.
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23. For details on the Japanese industrial policy, see Ira C.
Magaziner and Thomas M. Hout, Japanese Industrial Policy
(Berkeley, California: Institute of International Studies,
University of California, 1981), pp. 38-41, 46-50, 89-93, and
passim.
24. For a more extensive discussion of this subject, see Basiuk,
Technology, World Politics and American Policy, pp. 250-252.
25. Cf. Robert 0. Keohane and Joseph S. Nye, Power and
Interdependence; World Politics in Transition (Boston: Little,
Brown and Co., 1977), passim; Victor Basiuk, Technology and the
Structure of the International System," in Joseph S. Szyliowicz
(ed.), Technology and International Affairs (New York: Praeger
Publishers, 1980), pp. 226-227, 233-235.
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VII. Conclusions and Policy-Relevant Issues
A central conclusion of this report is that commercial and
technological competition from non-communist nations presents a
serious national security problem to the United States. The
relative position of the Unites States as a highly advanced
industrial power has declined, the U.S. economic base is being
eroded, and the competitive pressure is moving into increasingly
sophisticated areas of technology. The single most important source
of this competition by far is Japan.
The challenge of Japan to the United States is political, its
main objective is status and power, but the means employed are
economic and technological, not military. If Japan is successful,
the world balance of power will significantly change in favor of
Japan and, perhaps, the Soviet Union, by the year 2000.
This development is not inevitable. It may not materialize for
one - or both - of the following reasons:
1. The United States may counter the present trends by an
aggregate of policies by the Federal government and industry
which will stop or reverse them.
2. As a result of inter-generational change combined with the
pluralizing impact of technology, Japan may eventually lose
the momentum of her drive for power.l/
The following pages will present a summary of policy-relevant
issues which kept re-emerging in the process of research on this
study.
Availability of low-cost capital. The lack of low-cost capital
- and the advantages which U.S. competitors have had in this area -
has been continuously surfacing in many forms as an important factor
contributing to the relative decline in U.S. competitive strength.
High cost of capital was a significant factor in the reluctance of
U.S. industry to modernize in recent years, which left the United
States with the highest percentage of old machine tools in its
industry, as compared with major Western industrial nations.
Technological innovation in general is impeded by the lack of
low-cost capital: companies cannot obtain enough money to support
worthwhile R&D and/or to finance the manufacturing of new products.
Non-availability of capital contributes to the decline in U.S.
technological leadership in a different sense, as suggested by the
following illustration. An important - although not the sole -
reason for Boeings's agreement with Japanese firms for the
risk-sharing production of the 767 twinjet was the expectation that
the Japanese will help finance the purchase of the aircraft by U.S.
airlines. The agreement resulted in substantial transfer of
aircraft manufacturing technology to Japan.2/
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The U.S. Government is at present making a concerted effort to
reduce inflation and thus help make capital available to industry at
lower cost. A relevant consideration which arises in this --
connection is the low rate of personal savings in the United
States. In the 1975-79 time frame, personal savings in the United
States as percentage of GDP were 4.9 percent (the lowest of all
major Western industrial nations), while in Germany they were 11.8
percent and in Japan, 19 percent. 3/
The question thus arises whether the United States, similarly
to Great Britain in recent history, is not consuming too much, thus
undermining its future industrial viability. Measures to stimulate
personal savings have been recently introduced by the U.S.
Government, but additional measures might deserve consideration.
For example, in Japan an individual savings account enjoys tax-free
interest on the first $13,000 of deposits, while in the United
States only the interest on the first $1,000 is free of tax
("all-savers" certificates). Disincentives on the use of credit
cards might be considered. The need to increase personal savings is
especially important in the light of the difficulty in reducing the
government deficit. The government borrowing competes with private
capital investment for funds within a limited savings base, thus
driving interest rates up and impeding industrial modernization.
Technological pre-eminence. Given the relative decline of the
U.S. position as the foremost technological power in recent years,
the question has been raised by some whether technological
pre-eminence is an objective worth pursuing. As we have seen from
historical illustrations presented earlier in this report (Chapter
II), pre-eminence in key power-relevant sectors of technology is
critical to the viability of the.United States as a superpower and
to its national security. Great Britain was fortunate to have a
friendly, ideologically compatible, and culturally related power to
fall back on when her own capability to protect her national
security declined; the United States does not enjoy such a luxury.
It is perhaps paradoxical that the nation which is currently eroding
U.S. national security - Japan - is not in the position to protect
the United States and, moreover, largely depends on the United
States for its own survival.
Technological pre-eminence is also important to the United
States in a more immediate commercial sense which is relevant to the
nation's longer-range viability. William F. Finan4/ pointed out
that U.S. technological supremacy was an important factor in
overcoming barriers to trade. As the U.S. dominance based on
technological supremacy became eroded, this advantage has
disappeared which calls for a more intensive focus on removing
non-tariff barriers to trade. While the removal of the non-tariff
barriers thus becomes important and deserves a concerted effort, the
task is quite difficult because of their complexity, great number,
and elusive nature (often rooted in nationalism and culture, as in
Japan). The question thus arises whether we should not try to
restore, to the extent possible, our technological supremacy so as
to get technology to help us to overcome non-tariff barriers to
trade.
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Government-industry relations. A unique strength of Japan in
the economic and technological sphere lies in an unusually close -
relationship between the government and industry. The Japanese
practice needs not and should not be emulated in the United States,
but an improved relationship between government and industry is
essential to sustain the nation's longer-range viability and
security.
The recent relationship between the government and industry has
been counterproductive to the competitive viability of the United
States. Through its multiple regulations of industry, the U.S.
Government tended to get involved in what almost amounted to
micromanagement of business and industrial activity, which impeded
their effectiveness. Overregulation in the defense industrial
sector imposed a significant burden on small companies which could
not readily absorb its cost. Many preferred to move out of defense
work or not to take it up because of the regulations.5/ In general,
industry has tended to view the government with suspicion and
preferred that it stay away from business unless the latter is in
trouble (e.g., Chrysler).
In addition to a change of attitude on both sides, what appears
to be needed is that the government abandon its tendency to
micromanage and provide macroguidance instread. This could
significantly cut down government bureaucracy, but would require
upgrading its quality. In particular, because of high complexity of
modern economies and the critical role of information in
contemporary societies, there is a need to assist industry by
providing a well-coordinated and coherent source of information and
high-grade analysis with regard to technologies, their economic and
social impact, markets, world-wide investment opportunities, etc. 6/
Projections into the future somewhat similar to MITI's 'visions' -
which would analyze and project the consequences of alternative
developments - could be particularly useful to industry in the
formulation of its own strategies. Such projections should be
developed in close cooperation with industry and appropriate
academic circles. A separate U.S. Government agency for the purpose
of providing such a coordinated source of information and analysis
might be appropriate.
Long-range vs. short-range strategy and outlook. One of the
key strengths of the Japanese strategy is its long-range nature.
Orchestrated principally by MITI, Japan is planning some twenty and
more years into the future. MITI anticipates the rise and decline
of various technologies and industries and provides support to them
- or withdraws support - in accordance with their phase of
development and their promise. Thus, at present MITI provides a
concerted support to biotechnology as an important industry of the
future,7/ and the Japanese are buying entire U.S. companies to
acquire the technology. In the Japanese business practice, market
domination is more important than profits, and short-range profit
advantages are often sacrificed for that reason. The outlook of
Japanese manager is principally long-term. The availability of
financing in Japan is heavily slanted in favor of the longer-range
outlook rather than short-term returns.
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Just the opposite is true in the United States. American firms
are expected to disclose their earnings every quarter, and
unfavorable short-term results affect the value of the company's
stocks, ability to borrow money or to finance expansion through the
issue of additional shares, and personal careers of the company's
key executives. The outlook of U.S. management is thus
predominantly short-range8/ which hurts America's competitive
viability in the long run. There is therefore a need for
appropriate regulations - especially with regard to financial
matters - which would shift the incidence of payoffs towards
longer-range strategies and in favor of investment into the future.
A coherent and effective industrial policy. The issue of
industrial policy is not whether the United States should have one.
As Julian Gresser pointed out,9/ the United States already has an
industrial policy. But this policy is compartmented, ad hoc, and
its components are often internally inconsistent. The Department of
Defense, for example, has a policy with regard to the defense
industrial base; it is currently being re-examined and improved.
U.S. national security interest would be enhanced if that policy
were a part of a coherent broader industrial policy; the two would
be mutually reinforcing. Thus, the real issue is whether the United
States should have a coherent industrial policy which could
effectively help to meet foreign competition or have the present
policy with its limited effectiveness.
There have been a number of proposals on the subject of
industrial policy.10/ They need to be examined in the context of
their objective validity and political feasibility for their
implementation. It is a major task in its own right and it cannot
be undertaken as a part of this study. Several policy issues and
recommendations discussed here are distinctly relevant to industrial
policy and could be included into a coherent industrial policy
framework, if such were developed.
Anti-trust legislation. Time and again throughout the research
on this study instances emerged where U.S. companies were
handicapped by anti-trust legislation, while their competitors were
not so handicapped or not to the same degree. A relaxation of
anti-trust legislation appears to be in order. As a minimum,
cooperation in R&D between U.S. firms should be allowed and perhaps
encouraged. Cooperation in other areas of activity (e.g.,
marketing), insofar as it is directly related to exports, should
receive favorable consideration.
Technology Transfer. Historically, transfer of technology has
been an important factor in changing the distribution of power among
nations and regions. Given the devastation of World War II and the
subsequent U.S. efforts to restore the balance of power in Western
Europe and the Far East, technology transfer from the United States
contributed to the rise of continental Western Europe and Japan as
power centers in recent decades. In the U.S.-Western European
relationship, however, technology transfer has never been a
VII-4
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completely one-way street, and in recent years technology has been
increasingly flowing in both directions. Even in the case of Japan
there is a potential - albeit not very extensive at this point - for
beneficial technology transfer to the United States, especially in
such areas as consumer electronics, quality control, certain aspects
of productivity, and management techniques.
The issue of technology transfer thus cannot be reduced to such
simplistic terms as restrictions of technology transfer from the
United States. What is needed is recognition of the true value of
technology in each instance and, if technology is transferred from
the United States, the resulting "power loss" (in whatever form)
must be compensated by a corresponding "power gain" (albeit in a
different form).
Given such an approach, a flow of technology - to, say,
Western Europe - need not be compensated by a corresponding
transfer of technology to the United States. But there must be a
convincing corresponding gain to the United States, in national
security or some other terms. Such an approach would require a
closer attention to offsets to make sure that technology is
transferred at its full value, measured in terms of the U.S.
national interest. Among other things, this would mean that if a
given transfer of technology is likely to result in the technology's
use by European companies in competition with American firms in
third States, then this contingency should be given due weight in
determining the original "cost" of the transfer.
This criterion for technology transfer would apply to both
Western Europe and Japan. However, as discussed in the preceeding
section of this study, the Japanese competitive thrust presents a
serious problem to U.S. national security and a particularly close
attention to technology transfer to Japan would be warranted. There
is evidence to the effect that technology transferred to Japan under
military coproduction programs has been used by the Japanese for the
manufacturing of civil airplanes. This, in particular, has been
noted in connection with the licensing of production to Japan of the
F-15 and the P-3C aircraft.ll/ Obviously, there will always be
trade-offs in U.S.-Japanese relations involving national security.
In choosing between the trade-offs involved, due recognition must be
given to the fact that the strengthening of Japan's commercial
capability is a matter of concern to U.S. national security.
It is important to recognize that Japanese quality control,
management practices and other techniques relevant to productivity
could be very useful to the United States, if appropriately adapted
to U.S. environment. 12/ In this context, joint ventures with the
Japanese in the United States will be useful and perhaps should be
encouraged. Similarly, the feasibility of joint ventures in Japan
in military production - as distinquished from coproduction schemes
- might be worthwhile to explore. They would provide the United
States with better monitoring of, and perhaps better control over,
the use of the transferred technology.
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There is a need for developing a comprehensive technology
transfer policy with regard to Japan. It should not be confined to
restricting technology transfer from the United States; as
appropriate, it should facilitate and promote transfer of technology
from Japan to the United States. Its principal objective should be
double: (1) to equalize technology transfer between the United
States and Japan, and (2) along with other instruments of policy
(e.g., support of R&D) help to maintain a critical margin of
superiority in high technology with regard to Japan. Prior to the
development of such a policy, any transfer of technology between the
United States and Japan facilitated or sponsored by the U.S.
Government would have to be decided on a case-by-case basis. In
making such decisions, U.S. national security objectives of
encouraging Japan to allocate more resources to military power and
curtailing Japanese commercial competitiveness will have to be used
as principal guidelines. By necessity, complex trade-offs will be
involved.
An important obstacle to the development of a comprehensive
technology transfer policy in the best interest of the United States
has been the practice of including technology transfer within the
broad rubric of trade. Trade is mutually beneficial to those
nations participating in it; its flow is measured in monetary terms
and its regulatory mechanism is the balance of trade. Technology
transfer, however, does not have a mechanism capable of regulating
the transfer on the basis of technology's true societal value.
Monetary value of technology transferred does not necessarily
provide an adequate compensation in terms of the longer-range
national security interest in case of a consistently unbalanced and
one-sided outflow of technology. Thus, the outflow of technology
from the United States to Japan - with the Japanese obtaining
substantial quantities of technical information in the United States
or buying U.S. biotechnology companies - is a net long-range power
loss, unless balanced by a corresponding inflow of technology to the
United States or by another value-adjusting mechanism.
In sum, our adherence to the concept of free trade is fully
justified and beneficial to the United States and the world at large
if confined to commodities, but it could be damaging to the United
States if applied to technology transfer as an undifferentiated part
of free trade. An appropriate distinction between the two, in order
to ensure reciprocity and value balance in technology transfer and
thus to safeguard U.S. national security and the nation's
longer-range competitive viability, needs to be developed. 13/
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Determinism of early technological development. The research
on this study indicated that there seems to be a difference in
economic competitiveness between high technology industries proper
and the older, mature industries which have the potential to be
rejuvenated by high technology. U.S. high technology industries -
like semiconductors, aerospace, telecommunications - are pressed by
foreign competition, but they are still characterized by a great
deal of vitality and the inroads of foreign competition into their
respective sectors are not yet extensive.
However, such industries as auto, machine tools, and steel have
not been uniformily successful in incorporating modern technology
into their operations and products, have suffered seriously from
foreign competitive challenge and, in most cases, are not generating
a sufficient degree of vigor to counter the challenge. This
differential suggests that the United States is suffering from what
I called elsewhere "determinism of early technological development,"
historically observed in a number of nations. 14/
An early development of a particular technology or technologies
by a nation gives that nation significant advantages in commercial
competitiveness and in military power, insofar as the technology
involved is relevant to warfare. Entire industries were often built
on the basis of such innovations - automobile, aircraft, etc. While
thus advantageous, an early technological development tends to
impose constraints ("determinism") of its own which eventually may
exact a substantial price.
Early technological development may lock an industry in a
particular structure (e.g., small-scale, family operations) which
may not be suitable for later periods, as the technology develops
and large-scale operations become more advantageous. New
technological processes appear, but the early developer is
constrained by major prior capital investment, training, and habits
of personnel which may find change both psychologically difficult
and costly. Wars and the concommitant destruction may play an
important role in overcoming the potential impact of determinism of
early development, as was the case with Germany and Japan. However,
other industries and nations have been successful in countering
determinism of earlier technological development by less radical
means.
The above suggests that, insofar as some U.S. industries
succumbed to determinism of early development, appropriate
incentives and mechanisms need to be designed by the government to
help the affected industries to overcome the constraints. Some of
these incentives or mechanisms may cut across several industries
(e.g., availability of low-cost capital, which helps to modernize),
but in many instances such general measures by themselves will not
be adequate since determinism of early development tends to be
industry-specific. Thus, a sectoral approach, examining specific
cases of each relevant industry, will be necessary.
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Skilled manpower. It has been pointed out in different parts
of this study that the United States does not compare favorably with
its competitors in education and training in technical fields and
that shortages of skilled manpower impose a constraint on U.S.
industry in general and on its surge capability in the event of war
in particular. The United States is especially deficient in
engineering manpower, in spite of a steady expansion in engineering
undergraduate enrollments in recent years. Japan, with a population
of about half that of the United States, is producing more engineers
than the United States. The shortage of engineers in U.S. industry
is real, which disadvantageously affects industrial productivity.
While engineering graduates comprise only 8 percent of college
population, they receive 65 percent of the job offers.15/
The shortage has far-reaching repercussions. High salaries
offered by industry to engineering college graduates discourage them
from going to graduate school, thus disadvantageously affecting the
production of engineering doctorates, which declined by 41 percent
between 1970 and 1980. 16/ On the top of the shortage of engineers
with advanced degrees to replenish college and university faculties,
industry lures engineering professors with high salaries, and this
impedes the ability to produce more engineers. 17/ The problem is
also deep-rooted in that it extends into high school education.
There seems to be little interest in mathematics and science among
high school students, and math SAT scores declined steadily from the
early 1960s through 1980. 18/ Another dimension of this problem is
the gap between university research and industry. University
research programs are usually funded by the U.S. Government and tend
to focus on science. The new Ph.Ds. supported by these programs
become the new young faculty, and they know increasingly little of
the real interests of industry. 19/
The question of, and the requirements for, skilled manpower to
capitalize on technology to enhance the competitive viability and
security of the nation are complex. The present concerns focus on
the shortages of technical manpower. These concerns are valid and
require remedial action, but by themselves they are inadequate.
What has been neglected is highly skilled manpower, for industry and
government alike, to provide a "more penetrating assessment of the
impact of technology on society (U.S. and world-wide) and of how, in
the light of that impact, the United States can take best advantage
of technology to promote its vitality as a nation. The Japanese
presented an illustration of this approach in their planning for the
fifth-generation computers. While U.S. companies concentrate on
what they perceive as the "right" technologies and on marketing, the
Japanese extend their horizons to the impact of computers on
Japanese society and on how it could best be armed with computers to
enhance its productivity and dynamism.20/ Thus, as noted earlier,
among the objectives of the Japanese computer program are included
such items as a complete overhaul of productivity in the primary
(agriculture and fisheries) and the tertiary (services) sectors,
self sufficiency of Japan in foodstuffs, and the solution of the
problem of the aging population. Such as assessment, in turn,
helps the Japanese to determine more precisely the kind of computers
they must build and to have these computers broadly accepted.
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In short, there is a need to foster in the United States the
development of interdisciplinary manpower capable of high-caliber
work in the area of the impact of science and technology on society
and the formulation of business and government strategies in the
light of that impact. Unless such manpower is developed, U.S.
competitive viability will remain handicapped.21/
Surge capability. The U.S. defense industrial base has at
present very limited surge capability. The reasons for this state
of affairs are multiple, among which foreign competition plays a
relatively minor role. The Department of Defense has developed a
program to cope with this problem 22/ and it would serve no useful
purpose to go over that ground in this report. Two areas of known
or possible shortfalls in surge capability, however, will be
highlighted here inasmuch as they were affected by foreign
competition:
1. It has been noted in Chapter IV of this report that perhaps
as much as 90 percent of electronic components for U.S. defense
production are assembled in American-owned plants in the Far East.
A major war could disrupt current production, let alone severely
handicap surge capability. The Department of Defense is currently
reviewing this situation.
2. Inasmuch as there is no central monitoring of the measures
designed to compensate for foreign production under contract to the
Department of Defense in accordance with NATO RSI policies, it is
not clear whether or not the requirements of surge capability are
adequately met by the appropriate commands. It therefore would be
advisable to undertake a comprehensive study to review this area and
to establish a focal point in OSD to monitor the activity of the
appropriate commands so as to ensure that the requirements of surge
capability are met in all instances.
The above listing and discussion of policy-relevant issues is
not exhaustive; several others could be added. Even so, a total of
ten items have been identified as being of importance to the purpose
of this study. The following questions therefore arise: Are we
ending up with a smorgasborg to pick and choose from or a coherent
menu of measures, potentially capable of strengthening U.S.
competitive viability and upholding the nation's security? Is there
a focus in the above discussion of policy-relevant issues?
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Such a focus will become more readily discernible if we go back
to our discussion in Chapter VI of this report of the role of
technology in upholding power and viability of nations on which, in
the last analysis, national security depends. It was stated in that
chapter that, in the present era, the principal elements of power
and viability of nations are (1) highly skilled population; (2)
availability of advanced technology, and (3) an effective societal
organization, foresight, and drive in capitalizing_ on technology's
potential. Each of the above ten items can be placed within one, or
sometimes two, of these three categories.
The issue of highly skilled population - the first of three
categories - was discussed as a separate item. The category of
"availability of advanced technology" includes technology embodied
in concrete hardware, thus covering modernization. Another item
belonging to this category is technological preeminence. Determinism
of early technological development, availability of low-cost
capital, and surge capability also belong here, but they overlap
with the third category. The third category - an effective societal
organization and policy - includes government-industry relations;
long-range vs. short-range strategy and outlook; a coherent
industrial policy; anti-trust legislation; and technology transfer
(overlaps with the second category). All of these are thus
inter-related, mutually-supporting items, which seem to qualify to
be described as a menu, and not a smorgasborg.
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1. Technological advance tends to pluralize societies, leading to
proliferation of interests which exhibit a propensity for
internal competition for resources and often lead to stalemate,
at the expense of external drive. There are signs of this
development in Japan. Affluence brought by technological
advance also appears to produce an impact on the younger
generation of the Japanese: it seems to be less collectivistic,
not as purposeful, and leaning towards self-fulfillment. See
Basiuk, Technology, World Politics and American Policy, pp.2-3,
and 126-128; cf. Tracy Dahlby, "For Japan, '36 Revolt Has
Modern Refrain," The Washington Post, February 27, 1982, p. A
13. Dahlby cites Toru Yano, professor of political science at
Kyoto University, who suggested that younger Japanese "lack the
clear sense of national purpose that helped make the country's
postwar economic miracle possible." It remains to be seen
whether, and to what extent, these new influences will change
the traditional cultural characteristics of the Japanese
society.
2. Reportedly, the Japanese companies were to send a peak
workforce of 130 technicians to Seattle to familiarize
themselves with Boeing's technology and production methods.
Aviation Daily, September 26, 1978, p. 13.
3. Source: Federal Reserve Board. The U.K. was second lowest
after the U.S., with 6.8 percent. Japan was by far the
highest, but a discount factor has to be introduced into the
Japanese figure since pensions are low in Japan, thus inducing
individuals to save.
4. "Statement of Dr. William F. Finan" in U.S. Senate, Committee
on Banking, Housing and Urban Affairs, Subcommittee on
International Finance, Trade and Technology; Hearing
(Washington, D.C.: U.S. Government Printing Office, 1980),
Part III, pp. 54-57.
5. See Gansler, The Defense Industry) op. cit., p. 150 and passim.
6. The criticality of information for business activity is being
increasingly recognized. It was announced in November 1981,
that a private, highly computerized intelligence center
(International Reporting Information System, IRIS), to rival
the CIA in scope, is being set up in the suburbs of Washington,
D.C. It will be international in scope, with a body of
advisors headed by the former U.K. Prime Minister Edward
Heath. The information will be sold to various clients, mainly
business. Leonard Downie, Jr., "U.S. Publisher Plans to Start a
Global Intelligence Service," The Washington Post, November
18, 1981, p. Dl.
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7. See "A Government Boost For the Biotechnology Industry,"
Business Week, December 14, 1981, pp. 110-114.
8. Peter Behr, "Serving Only The Present," The Washington Post,
January 20, 1982, p. D8.
9. U.S. House of Representatives, Committee on Ways and Means,
Subcommittee on Trade, High Technology and Japanese Industrial
Policy: A Strategy for U.S. Policymakers (Washington, D.C.:
U.S. Government Printing Office, 1980), pp. 42-43.
10. See, e.g., ibid., pp. 43-52; John Zysman and Laura Tyson,
"Making Policy for American Industry in International
Competition," a paper prepared for the President's Commission
For a National Agenda For the Eighties, September 1980.
11. General Accounting Office, U.S. Military Coproduction Programs
Assist Japan in Developing Its Civil Aircraft Industry, Report
No. ID-82-23, March 18, 1982, (Washington, D.C. GAO), pp. 4,
15, and passim. The GAO team visiting Japan observed
production of F-15 and civil aircraft parts on the same
equipment and production lines. The team was told by Japanese
aircraft industry representatives that military and civil
aircraft are mixed throughout the production process. The
Japanese insist on licensing production from the U.S., rather
than purchasing military aircraft, in spite.of the much higher
cost of production.
12. See Steven C. Wheelwright, "Japan - Where Operations Are Really
Strategic,' Harvard Business Review, July-August 1981, pp.
67-74. Wheelwright points out that the high quality of
Japanese products and high productivity are not primarily a
result of cultural characteristics, government policies, and
structural relationships within industries, but of management
techniques which are transferable to the United States. He
cites cases of Japanese companies purchasing U.S. plants and
greatly improving their productivity and the quality of their
products (e.g., Motorola's TV assembly plant in Franklin Park,
Illinois, purchased by Matsushita). Cf. also Robert H. Hayes,
"Why Japanese Factories Work" in ibid., pp. 57-66.
13. This is not to suggest that transfer of technology should be
balanced in all instances. For policy reasons, deliberate and
extensive imbalances may be maintained as, for example, with
regard to the less-developed nations (LDCs), where a deliberate
transfer of technology is an aspect of foreign aid. A
deliberate imbalance may be maintained for security reasons as,
for example, transfer of military technology to U.S. NATO
allies.
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14. See Basiuk, Technology and the Balance of Power, 1870-op.cit.,
Chapt. I and passim.
15. "Statement of Dr.-Lewis M. Branscomb, Chairman, National
Science Board" in U.S. House of Representatives, Committee on
Science and Technology, Engineering Manpower Concerns; Hearings
(Washington, D.C.:U.S. Government Printing Office, 1981), p.
76. (Hereafter cited as Engineering Manpower Concerns.)
16. Ibid., p. 77. The figure is for U.S. citizens only.
17. Henry Petroski, "Who Will Teach the Engineers?" The Washington
Post, January 21, 1982, p. A19.
18. "Testimony of Senator Harrison Schmitt" in Engineering Manpower
Concerns, op. cit., p. 99. See also the testimony of Gen.
Robert T. Marsh, USAF, in ibid. pp. 38-39.
19. "Statement by C.D. Perkins, President, National Academy of
Engineering," in ibid., pp. 155-156.
20. Japan Information Processing Development Center (JIPDEC),
Preliminary Report on Study and Research on Fifth Generation
Computers, 1979-1980, op. cit., pp. 16-29.
21. Considering its mission, the Office of Science and Technology
Policy would be an appropriate organization to take initiative
in this area. Compare this discussion with that of the need to
provide a coherent source of information and analysis for
industry in the sub-section on "Government-Industry Relations,"
above.
22. See U.S. Department of Defense, Office of the Secretary of
Defense, Industrial Task Force, "Built-In Surge Program" (n.d.).
VII-13
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