RAPID DIFFUSION OF TECHNOLOGY: SOME IMPLICATIONS FOR THE UNITED STATES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00283R000400040008-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 22, 2016
• Document Release Date: February 23, 2010
• Sequence Number: 8
• Publication Date: January 1, 1984
• Content Type: REPORT

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Directorate of
Intelligence
the United States
Secret
Rapid Diffusion of Technology:
Some Implications for
ON FILE DEPT OF COMMERCE RELEASE
INSTRUCTIONS APPLY
Secret
GI 84-10009
January 1984
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Directorate of Secret
Intelligence
the United States
Rapid Diffusion of Technology:
Some Implications for
Economic Analysis Branch, OGI,
Office of Global Issues. Comments and queries are
welcome and may be directed to the Chief,
This paper was prepared by
Secret
G1 84-10009
January 1984
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Secret
Rapid Diffusion of Technology:
Some Implications for
the United States
Key Judgments In the past few years the high-technology revolution has begun to have an
Information available increasing impact on the world economy. Thus far, most attention has been
as of 3 January 1984 focused on how rapid technological change will alter specific production
was used in this report.
processes and bilateral trade relations. While technological change per se
will have profound effects, the pace at which it is diffused around the world
will directly and indirectly affect national economies, military capabilities,
and government policies.
Although the United States, Japan, and, to a lesser extent, the key West
European countries will continue to dominate production and trade in the
most advanced high-technology goods, the rapid pace of technology
diffusion will generate numerous challenges:
? Technology diffusion will contribute to economic strains within key US
allies. While, in time, the new technologies will generate a net addition to
labor demand, the adjustment period could be fairly long in some
countries, in part because entirely new skills will be needed in the work
force.
? Political tensions will mount in and between European Community states
as governments try to cope with both technologically generated job losses
and intra-EC labor migration.
? West European governments could introduce new trade barriers in an
attempt to limit increases in unemployment and to support domestic
high-technology businesses. Further protectionistic measures not only
would strain US relations with Western Europe directly, but could
involve the United States in disputes between Western Europe and Japan
as well as other Pacific allies of the United States.
? Communist countries will have greater opportunities to obtain commer-
cial technologies with potential military applications as the newly
industrializing countries and other LDCs increase their high-technology
capabilities.
? If export markets in the developed world are restricted, competitive
pressures, coupled with neutral political stances, could encourage some of
the more advanced LDCs to become overt suppliers to the Communist
Bloc.
Secret
GI 84-10009
January 1984
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?. The spread of technology will make it easier for more countries to
produce sophisticated weapons and military components. As this trend
accelerates, arms proliferation risks will rise, while the leverage of the
United States and other leading arms producers will be reduced.
? The relative demand for some primary commodities probably will drift
downward, lowering export earnings and economic growth in some Third
World countries. As this happens, the risks of domestic instability and
opportunities for Soviet interference will rise.
? The LDCs will not be immune to the impact of new technologies on
traditional industries and employment. Since they cannot afford large
subsidies, the debt-troubled LDCs in particular may be forced to shut
down capacity. Any job losses will come at a time when the LDCs will be
coping with major additions to their labor forces.
? Finally, the United States could become more dependent on imports of
important high-technology products as foreign capabilities and competi- 25X1
tive pressures increase.
Almost certainly the process of technology diffusion will continue to be a
crucial trend, molding the shape of the world economy over the decade and
beyond. While we believe the issues raised in this paper will be key issues in
the years to come, new concerns which cannot be predicted at this point are
likely to emerge as time goes on. Despite how things unfold, rapid
technological change will raise the costs of managing the fallout affecting
US interests and also cut leadtimes for making effective responses.
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Key Judgments
The Pace of Technological Diffusion
Economic Underpinnings: Past and Future
3
Multinational Corporations, Joint Ventures, and Coproduction
3
Increasing Absorption Capability of the LDCs
4
Economic Impacts
5
Growing Competition in High-Technology Products
5
More Suppliers of High-Technology Arms
6
Reduced Earning Power of Primary Commodity LDCs
8
Increased Unemployment in Traditional Industries
10
Foreign Investment Policies
13
Education Policies
Increased Protectionism
Implications for the United States
Easier Communist Country Access
Dependence on Imports of High-Technology Goods
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Secret
Periodically, the Directorate of Intelligence publishes reports that attempt to
examine key international trends from a broad and longer term perspective. We
believe the ongoing global diffusion of high technology will become of increasing
concern, especially when it overlaps with other emerging economic, financial,
political, and demographic trends. At the same time, the great volume of detailed
information on specific instances of technological change and diffusion around the
world makes it difficult to identify key trends and impacts. This paper attempts to
address this problem by suggesting a conceptual framework for organizing some of
this information. As a result, the discussion is necessarily less concrete and more
speculative than studies done at the level of individual industries or even countries.
It is meant to stimulate thinking and research as much as to inform. Aside from a
review of press and trade journals, the report draws on a wide array of work
already done in the Directorate on technological change and its impacts.
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Secret
Rapid Diffusion of Technology:
Some Implications for
the United States
The Pace of Technological Diffusion
The world has entered an era in which international
technological diffusion is occurring at a faster pace,
involving many more countries, and transmitting
higher levels of technology than ever before. For
example:
? Japan has become the world's largest producer and
user of industrial robots by making widespread and
innovative applications of Western technology.
Japan's ability to piggyback on US accomplish-
ments also has helped the Japanese to narrow the
computer technology gap.
? Foreign aerospace firms are increasingly competing
in world markets for jet engines, avionics, and
airframe components through a strategy of joining
with more advanced partners-usually US-to ac-
quire technology and expand manufacturing
capabilities.
? Beginning with one black-and-white television as-
sembly plant in 1965, Singapore's electronics firms
have steadily upgraded their technological capabili-
ties. Singapore's industry made a quantum jump in
1981 when two firms made investment commit-
ments for plants to fabricate semiconductor wafers.
? In Israel, exports of locally developed science-based
products in recent years have grown twice as fast as
overall exports, according to data from the Ministry
of Industry and Commerce.
International trade data indicate that these examples
are not isolated. Export statistics suggest that total
trade in high-technology products rose slightly more
rapidly over the past decade than did overall manu-
factured trade.' In 1972, for example, total exports in
Technology as used in this paper refers to knowledge that provides
the ability to design, produce, and innovate. High technology is
such knowledge which also is relatively new, stems largely from
scientific breakthroughs, and is almost entirely produced in the
highly industrialized nations. Finally, high-technology goods refer
to products that embody this advanced knowledge, whether produc-
er goods (for example, business computers) or consumer goods (for
the trade categories containing high-technology
goods-including transistors, plastics, computers, air-
craft, and jet engines-amounted to 14.4 percent of
total manufactured trade from 40 key exporters.' By
1980, the latest year for which data are available, the
share had increased to 15.9 percent. This increase
occurred despite the fact that the relatively poor
economic performance of the last decade depressed
investment demand and purchases of consumer dura-
bles-both of which are more likely to embody high
technology than other trade categories such as indus-
trial materials and light industry goods.
Over the same period, high-technology trade became
more dispersed among producers (see figure 1):
? The United States continued to dominate high-
technology exports, but its share fell, as did that of
Western Europe.
? Japan increased.its share from 7.4 percent in 1972
to 8.5 percent in 1980.
? The newly industrializing countries (NICs) doubled
their share of high-technology exports during the
same period. By 1980 they exported one-half as
much in the high-technology field as Japan. F_~
If anything, these data understate the degree to which
technology is spreading. To the extent that more basic
items are contained in the high-technology trade
categories we have used, the growth in more sophisti-
cated products is masked. Even if high-technology
I In defining an aggregate for traded high-technology goods, we
have relied on research done at the United States Department of
Commerce. This work identified 10 product categories which
embodied significantly higher amounts of applied research and
development than other less technology-intensive products. See
Lester A. Davis, Technology Intensity of US Output and Trade,
Office of Trade and Investment Analysis, July 1982. We have
attempted to approximate the categories in the Davis report by
using the following Standard International Trade Classification
(SITC) categories in our definition of high-technology trade: air-
craft, jet engines, business machinery (including computers), scien-
tific instruments, medicines, plastics, transistors, telecommunica-
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Figure 1
Exports of Internationally Traded High-Technology Goods'
Percent
1972
Total: $80 billion"
Other developed
countries 2
1980
Total: $150 billion
a Internationally traded high-technology goods are defined as air-
craft, jet engines, business machinery, scientific instruments,
medicines, plastics, transistors, telecommunications equipment,
and firearms. The group of exporters includes most of the OECD
plus selected LDCs.
bTo roughly account for inflation, the nominal total for 1972 was
adjusted to reflect 1980 prices using a world consumer price index.
c Hong Kong, Singapore, South Korea and Brazil. Data limitations
prevented including Mexico and Taiwan.
goods could be broken out, it would be almost impos-
sible to measure the importance of high-technology
inputs which are incorporated into more traditional
goods. Finally, trade data fail to capture the increas-
ing share of high-technology goods in domestic mar-
kets
Unlike traditional economic forces-such as GNP
growth and inflation-no systematic measure has
been developed to gauge the speed of technology
diffusion. As a result, it is difficult to "prove" that
diffusion is accelerating. Thus, there is a divergence
of opinion among analysts about the current diffusion
pace, with some arguing that it is not out of the
ordinary and others that it indeed is increasing and
even revolutionary.
Those observers who believe that current technology
diffusion trends are not extraordinary base their
position on several observations:
? From a historical perspective, technology diffusion
has always occurred, and recent trends are just part
of a continuous, ongoing process.
? Many of the impacts and policies associated with
the current diffusion have historical precedents; for
example, in the past governments have frequently
attempted to manage technology transfer through
foreign investment policies.
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? Finally, even if there has been some speedup in
diffusion, it is probably mostly explained by expand-
ed world economic activity;'technology diffusion
would be remarkable only if it could be shown that
it was outpacing world economic growth.
Several factors, however, favor the view that, indeed,
a speedup in diffusion has occurred, even compared to
overall economic activity. First, rapid strides in com-
munications technology, coupled with the information
explosion, have greatly encouraged technology trans-
fers. Second, the completion of the postwar recon-
struction periods in Japan and the West European
countries some years ago has allowed them to resume
their more "normal" active roles in the global technol-
ogy diffusion process. Finally, although again hard to
prove, technological change itself-particularly in the
United States and Japan-seems to be occurring.
faster and in more fields than in earlier years. This
faster change naturally increases the opportunities for
international transfers, tending to raise the rate of
diffusion.
Economic Underpinnings: Past and Future
A number of reasons for the spread of technology can
be identified. Foremost perhaps is the nature of
technology itself. In contrast to natural resources,
labor, and physical capital-which are relatively im-
mobile-technology, consisting largely of technical
information and teachable skills, is highly mobile. A
number of institutional phenomena also have contrib-
uted to the more rapid pace of international techno-
logical diffusion.
Multinational Corporations, Joint Ventures, and Co-
production. Direct investments by multinational cor-
porations, joint ventures, and coproduction agree-
ments increasingly have become mechanisms
contributing to technological diffusion. Multinational
corporations seeking low labor costs, for example,
often install some of their best production technol-
ogies in foreign subsidiary plants. Similarly, many
joint ventures involve technology transfers. For exam-
ple, to escape restrictions on imports or majority-
owned foreign investments, a foreign firm with ad-
vanced technology will combine with a domestic firm.
The foreign company agrees to transfer some technol-
ogy to its partner and in return may receive access to
low-cost labor, market access, and perhaps distribu-
tion channels and a service network. The close busi-
ness relationships often developed in joint ventures
and similar agreements tend to pave the way for
further transfers of technology over time and, there-
fore, are encouraged by some governments.
Trade journals and press reporting provide numerous
examples of these processes:
? In Singapore throughout the 1970s foreign investors
accounted for more than 70 percent of the total
commitments in manufacturing and now dominate
key industries. The presence of a trainable and
disciplined labor force particularly has attracted
American and West European electronics firms,
which have been in the forefront of Singapore's
technological advance.
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? Similarly, South Korea's relatively low-cost but
skilled and motivated labor force has attracted
many foreign investors. With the startup of its joint- 25X1
venture plant with Corning Glass in March 1983,
South Korea's Samsung Company, Ltd., overnight
became a world-class competitor in one of the most
difficult glass technologies-picture tubes for color
televisions. Another South Korean firm, the Kolon
group, recently joined forces with Japan's Fanuc
Corporation to set up a plant to manufacture indus-
trial robots.
? In late 1981, Fujitsu entered into a cooperative
agreement with. financially troubled International 25X1
Computers, Ltd., the leading UK computer firm.
Although not all of the terms of the agreement
between ICL and Fujitsu are known, we believe that
Fujitsu will provide technical assistance, possibly in
the semiconductor area, in exchange for which ICL
will market Fujitsu's large-scale computers in the
United Kingdom.
In coproduction agreements, firms from different
countries each manufacture components of a finished
product. As in the case of joint ventures, there
frequently is one technological leader among the
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Coproduction and Technology Diffusion in the
Aircraft Industry: A Case Study
Coproduction agreements have been particularly pop-
ular in the aircraft industry. Because aircraft are
large and costly products with many components,
coproduction offers special advantages of risk sharing
and division of tasks. It also serves as a tool in selling
planes: countries buying new aircraft often are offered
the chance to produce subcomponents for the firm or
consortium building the planes. Furthermore, in
countries with national airlines, governments are the
major customers for civilian aircraft, and they have
taken advantage of their buying power to foster
coproduction agreements to acquire technology and
employment:
? Rolls-Royce negotiated a 50-50 partnership with
Japan in 1981 to develop and produce a medium- 25X1
size jet engine. this
deal provided engineers in Japan's engine compa-
nies-Mitsubishi, Kawasaki, and Ishikawajima-
Harima-with access to state-of-the-art technology
and the experience needed to develop their own
designs using new materials and coatings.
? The nationalized French avionics firm SFENA,
along with Smiths Industries (UK) and Boden-
seewerk Geratechnik (FRG), developed flight con-
trol systems for the Airbus.
? In the development and production of the 767,
Boeing's foreign partners, Italy and Japan, will
contribute about 35 percent of the airframe value,
the largest foreign involvement ever agreed to by
Boeing. Japanese aircraft companies and Aeritalia
will obtain access to some of the latest aircraft
manufacturing technologies by working with
Boeing, the industry leader.
The resulting technological diffusion has helped
Western Europe's Airbus Industrie to develop civilian
airliners that are competitive technically with those
produced by US firms. Japan also is relying on these
agreements to advance its aerospace industry to a
world competitive level
? Pratt and Whitney's new engine for the Boeing 757
includes foreign participation by Motoren and
Turbinen of West Germany and Fiat of Italy
amounting to about 15 percent.
participating companies that agrees to transfer tech-
nology to its partners. In return, they share the risks
of research and development and also provide market
Outlook. The rapid pace of technological diffusion,
particularly to the LDCs, probably will be maintained
into the 1990s, as both the technology pool in the
developed countries expands and the absorption capa-
bility of the LDCs grows. However, as in the past, this
diffusion will be uneven, depending on the economic
conditions in individual countries:
access.
Increasing Absorption Capability of the LDCs. Suc-
cessful technology transfers to LDCs often depend
crucially on the knowledge and skills of the labor
force. Over the last 20 years, literacy rates and upper-
level school enrollments in the LDCs have grown
substantially (see table 1), thus increasing their ability
to absorb technology. Some of the LDCs that have
been most aggressive and successful in acquiring
technology have also made major strides in upgrading
the technical skills of their labor forces. For example,
vocational school enrollment rates have skyrocketed in
Brazil, Singapore, Taiwan, and South Korea.
? The Asian NICs have ambitious plans to continue
upgrading the skills and knowledge of their labor
forces and the general technological base of their
economies; it seems almost certain that they will
rapidly increase their technological capabilities.
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Table 1
LDC Regions: Increases in Average Education Levels, 1960-80 a
Region
Average Literacy Rate
(percent of adult populace)
Average Secondary School
Enrollment Rate
(percent of 12-17 age group)
Average Vocational School
Enrollment Rate
(percent of 12-17 age group)
1960
1980
1960
1980
78.8
26.4
66.0
6.9
12.2
64.5
77.5
19.1
42.0
4.9
8.5
Middle East-South Asia
26.0
42.9
14.8
36.1
1.8
4.1
Sub-Saharan Africa
14.0
31.8
2.5
14.0
0.5
1.1
a The data in this table represent the simple averages of figures for
the individual countries in each region.
? Gains by the South American NICs-Mexico and
Brazil-will depend heavily on the international
debt situation, at least for the medium term. Fund-
ing problems are likely to slow indigenous efforts to
improve the technology base. In fact, the import
retrenchment, especially in producer-good catego-
ries, is already under way. At the same time the
emphasis on hard currency exports, coupled with
import restrictions, could provide numerous oppor-
tunities for foreign investments, especially if local
governments added special incentives.
? The recent leveling and decline in oil prices will
reduce the earnings of the oil-exporting countries
and are likely to slow the diffusion of technology to
the Middle Eastern LDCs and other key oil
exporters.
? The financial troubles of many other LDCs and the
East European nations will tend to dampen the
diffusion of technology into these countries.F_
Economic Impacts
The most immediate impact of technology diffusion is
on the economic front. Some of the forces that will
come into play will accelerate present long-term
trends, while others will result in the emergence of
new economic patterns.
Growing Competition in High-Technology Products.
The spread of sophisticated technology has increased
the global availability of and competition in the
production and export of high-technology goods. Al-
though the United States, Japan, and the key West
European countries continue to dominate production
and trade in the most advanced items, the NICs and
other countries have started to become significant
exporters of less advanced but still moderately sophis-
ticated goods. During the 1970s NIC high-technology
exports to Western Europe grew at a rate of about 25
percent per year in real terms and to Japan at 18
percent per year (see table 2). Much of this trade
consists of exports of electrical apparatus from the
East Asian NICs, reflecting their advantage in rela-
tively low-cost, skilled labor. We believe the level of
competition in industrial-country markets for high-
technology goods will continue to grow as the NICs
expand their product lines. This will be even more
true if other LDCs are able to emulate the NICs 25X1
successfully.
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While the larger and more innovative producers in the
industrial world are unlikely to be threatened, many
of their product lines may come under growing pres-
sure. The major impact is likely to be felt by firms
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Table 2
NICs: Growing Suppliers of
High-Technology Goods, 1972-80a
High-Technology Imports
From NICs
(billion 1980 US $)
Average
Annual
Growth Rate
(percent)
1972b
1980
World c
1.3
6.0
21
United States
0.6
2.2
18
Japan
0.1
0.5
18
Western Europe
0.1
0.8
24
LDCs
0.4
2.2
24
a High-technology goods are as defined in figure 1. The NICs
include only Hong Kong, Singapore, South Korea, and Brazil
because of data limitations.
b To account roughly for the impact of inflation on trade values, the
1972 figures were converted to 1980 dollars using a world consumer
price index.
c Because of data limitations, world imports are represented by
imports into 40 key countries, including most of the OECD and
selected LDCs.
with a narrow product line and whose products have
become standardized, which allows time for the NICs
and other countries to acquire the necessary technol-
ogy and to compete, based on low labor costs. For
example, those industries in the West and Japan
currently facing greater competition from the NICs
produce such standard products as steel, ships, and
textiles. Regardless of where the competition is felt,
the risks are high that economic pressures will quickly
make their way into the political arena
The impact of technology diffusion will not be limited
to home markets. Industrial-country producers will
also find themselves under pressure in exporting to
Third World countries. For example, between 1972
and 1980 the NICs increased their share of all high-
technology exports to the LDCs from 2.5 to 6 percent.
The NICs' success in expanding sales to this market
may reflect efforts to tailor their products to the less
demanding performance requirements often encoun-
tered in LDCs, coupled with lower prices. The NICs
would not be alone in doing this. Israel, for example,
has carved out a niche in the world high-technology
market by adapting technology to the specialized
needs of small users, which are often ignored by large
Western firms. A US Government official was shown
a sample of the circuitry in an Israeli electronics
product by its manufacturer; the circuitry was in-
stalled on a pegboard that the manufacturer claimed
would make repair and maintenance simpler for a
relatively untrained technician in a Third World
country than the soldered circuitry in a similar US
product.
More Suppliers of High-Technology Arms. Increased
technological capability in their civilian economies
has permitted a small number of Third World coun-
tries to begin to assimilate Western technology for
producing sophisticated arms. This group includes
several of the NICs-Brazil, Singapore, and South
Korea-plus such advanced nations as Israel and
South Africa. The manufacture of sophisticated
weapons in these countries generally follows a pattern
whereby West European and US producers, through
licensing agreements, provide design and production
assistance and also complex subassemblies like elec-
tronics and propulsion systems, and the Third World
producer performs the more basic and simple tasks
such as metal forming and assembly.
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Secret
Diffusion of Technology for Producing
Sophisticated Arms
Few Third World states possess the ingredients nec-
essary for successful weapons development programs:
production technology, strong management, skilled
labor, access to materials, professional design teams,
and adequate funding. To overcome these difficulties,
Third World states have attempted to acquire tech-
nology, directly from more advanced weapons manu-
facturers. Efforts to produce weapons with direct
foreign assistance, under license, through codevelop-
ment and through "reverse engineering" have had
mixed results.
Direct Foreign Assistance. Manufacturing technology
South Africa, Brazil, and South Korea all have
begun the licensed assembly of jet engines for fighter
aircraft in the last decade.
Codevelopment. Joint development of sophisticated
arms in which one of the partners is a Third World
country is still uncommon because of the relatively
low design and manufacturing capabilities of even the
advanced Third World states. It may occur with
more frequency as these countries increase their
expertise. Brazil, for example, has nearly completed
the first AMXjet attack aircraft codeveloped with
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often has been directly acquired from foreign arms
industries, especially where sophisticated arms are
involved. West Germany has been a major source of
Licensing. Most of the licensing agreements signed by
Third World countries have been for the production
of ground forces equipment. Licensing agreements for
complex aerospace, naval, and communications sys-
tems are of more recent origin. For example, accord-
ing to academic studies and trade journals, Israel,
While these countries have started to assimilate the
technology needed to produce moderately sophisticat-
ed weapons, in the near future most will have to
continue to depend heavily on Western assistance.'
Moreover, the rapid pace of advance in weapons
technology in the West is probably increasing the
technology lag of the Third World suppliers. Never-
theless, they are likely to continue to move into the
' Israel and South Africa are much further advanced than the other
countries in this group. They have reached the point, for example,
of being able to design and produce on their own some less
complicated and less costly sophisticated arms such as air-to-air
Italy.
Reverse Engineering. Several Third World countries
have attempted to "reverse engineer" advanced weap-
ons, particularly those developed in the Soviet Union
because of their relatively simple designs. Egypt, for
example, has attempted to develop infrared guided
surface-to-air missiles by copying weapons previously
purchased from the USSR. Always hard to accom-
plish successfully, particularly in Third World coun-
tries, this method will be increasingly difficult to
follow with the rapidly growing complexity of sophis-
ticated weapons.
production of advanced arms on a selective basis as a
means of increasing the domestic pool of technical
expertise, obtaining ready access to such weapons,
and expanding exports. For example:
? Brazil probably will move beyond the production of
light armored vehicles and trainer aircraft to the
manufacture of fighter aircraft and tactical missiles.
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? Singapore will complement its small-arms industry
with the assembly and refurbishment of jet attack
aircraft, missile patrol boats, and armored vehicles.
While these new products will first be used by the
armed forces of the manufacturing country, the pres-
sures to gain the scale economies of larger production
runs undoubtedly will push these countries to seek
foreign markets for their products.
Reduced Earning Power of Primary Commodity
LDCs. A long-term fall in the average real prices of
some primary commodities is another potential fallout
of technological advance and diffusion (see figure 2):
? The development and spread of new production
techniques and products will allow the substitution
of cheaper raw materials or synthetics for more
expensive ones. For example, cheaper synthetic rub-
ber, whose supply is also more reliable, has substan-
tially reduced the market share of natural rubber
(see figure 3). Moreover, fiber-reinforced compos-
ites, structural ceramics, and other high-technology
materials probably will replace metals in a wide
variety of applications.
? Technical advances are leading to increased conser-
vation of raw materials, tending to result in reduced
demand for primary commodities. Fiber optics, for
example, could largely eliminate the use of copper
wire in telecommunications.
? Increased recycling-in part an offshoot of techno-
logical advance-also will lower the demand for raw
materials. For example, the National Materials
Advisory Board estimates that within 10 years
technological innovations could make possible the
recycling of 5 percent of the chromium used in US
metallurgical applications, 6 percent of that used for
chemical purposes, and 65 percent of that used in
linings of US metallurgical furnaces.
To the extent that technological change shifts the
structure of demand from goods to services, the
impact on some primary commodity prices may be
even more unfavorable.
Figure 2
Trends in Real Price of Selected Commodities'
I I I I I I I[ I I I I I I I I I I I I I I t I I I I I I I
0 1950 55 60 65 70 75 80
a To roughly account for the impact of inflation, nominal prices
were converted to real prices using a world consumer price index.
Because of the pace and variety of technological
change, it is difficult to identify those primary com-
modities that will be most vulnerable to slackening
relative demand. For those commodities affected,
however, any price shifts will have different impacts
on different countries. In countries where costs of
production for the commodity are relatively high, a
price decline will encourage a move into other fields.
Malaysia probably falls in this category'
' Malaysia, long dependent on exports of tin and rubber, has
adopted an economic strategy that emphasizes heavy industry
domestically and labor-intensive manufacturing for exports. Prime
Minister Mahathir Mohamad touts Japan and South Korea as role
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25X1
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Figure 3
Market Shares of Synthetic and Natural Rubber, 1950-80
Percent
1950
2.5-million-ton market
1970
8.6-million-ton market
1960
4.5-million-ton market
1980
12.4-million-ton market
25X1
25X1
On the other hand, in economies where costs are low
because resources are very accessible, agricultural
conditions are excellent, or labor is cheap, the differ-
ence between the world price and supply cost may
continue to be substantial for many years, even
though diminishing. Countries facing these cost con-
ditions can continue to specialize in commodities
production and trade, even though they have to export
more volume to maintain real earnings. This interac-
tion could lead to a vicious circle whereby a country
exports more to offset price reductions, but the in-
creased volume puts additional pressures on prices.
While many of the LDCs with favorable cost condi-
tions may continue to develop processing facilities
that will allow them to increase the value added to
their exports, continued advances, particularly in the
area of high-technology materials, may increasingly
make such investments uneconomic. 25X1
Many of the countries that will probably continue to
specialize in primary commodities are in Sub-Saharan
Africa. Indeed, these African countries have become
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Impact of Technological Change on
the Demand for Copper
? In plumbing applications, plastic pipes and tubes
have made strong inroads on copper. For the most
part plastics are cheaper, lighter, and easier to
work with than copper, and their use is becoming
more widespread with the gradual easing of local
construction codes.
? Sizable amounts of copper could soon be displaced
in heat exchanger applications, particularly auto-
mobile radiators. Since automotive manufacturers
are concerned with reducing vehicle weight to in-
crease fuel economy, lighter aluminum radiators
pose an attractive option. If technical problems
such as weldability can be eliminated, a rapid shift
could easily occur. At present, only VW Rabbits use
aluminum radiators.
? Another challenge comes from fiber optics. Optical
fibers are technically superior to copper coaxial
cables in telecommunications, which account for
about 15 percent of copper usage in the United
States. Although copper is still somewhat cheaper
than optical fiber, as demand for the latter in-
creases, prices could drop. By the late 1980s these
technological innovations could make substantial
gains at the expense of copper in communications
applications.
more dependent on a small number of commodities
for exports in recent years, whereas countries in Latin
America and Asia have generally reduced their con-
centration on commodities (see figure 4). For example,
the World Bank reports that coffee, cocoa, and cotton
exports as a share of total Sub-Saharan agricultural
exports rose from 46 percent in 1964-66 to 63 percent
in 1978-80.
Increased Unemployment in Traditional Industries.
An important element of the worldwide diffusion of
high technology is the increasing use of robotics and
other automated equipment in manufacturing proc-
esses. While this substitution of machinery for labor
has been an ongoing phenomenon, we believe recent
? Improvements in the design and performance of
telephone equipment have permitted the use of
thinner gauge wires. Currently the telephone sys-
tems in most countries are shifting down to 0.4-mm
or 0.32-mm wire as the standard gauge, and it is
estimated that by 1990 in the United States this
process will have eliminated around 40 percent of
the copper required for a given volume of traffic. In
addition, improvements in multiplexing-the proc-
ess of sending multiple conversations through a
single telephone circuit-are reducing the need for
additional cables.
? Savings in the use of copper have also been encour-
aged by the drive toward lightness and miniaturiza-
tion. For instance, the potential widespread use of
lighter aluminum in automobile radiators has
spurred copper fabricators to develop thinner gauge
'strip and walled tube.
rapid advances in computer-aided manufacturing may?
encourage an acceleration, particularly where poten-
tial returns from such investment are high because of
relatively steep labor costs.
The use of robots and automated equipment has a
twofold impact. It increases productivity and lowers
costs but also inevitably displaces workers in the
industries that shift to automated production.' While
'This does not mean that employment would necessarily be higher
without automation. On the contrary, since automation often is
pursued by a firm to ensure its survival in the face of tough
competition, automation may in fact minimize the loss in employ-
ment caused by changes in market demand, imports, or other
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Figure 4
LDC Regions: Trends in Commodity
Exports Concentration
Percent of countries where three major commodities
account for 50 percent or more of total exports.
Latin America and Caribbean
77
This process has already started in Western Europe,
where surging labor costs in the 1970s have encour-
aged companies to introduce laborsaving equipment.
Between 1970 and 1980 the price of labor relative to
plant and equipment advanced 45 percent in Western
Europe; in the United States during the 1970s, labor
costs increased relative to capital by only 25 percent.
The increasing availability of industrial automation
technology coupled with very high labor costs proba-
bly will exacerbate structural unemployment-a ma-
jor source of the 18 million jobless now in Western
Europe.
Even if labor costs level off, we believe Western
Europe may have difficulty in responding to the
fallout from the spread of automation. The major
West European countries have large traditional man-
ufacturing sectors, which makes the labor force at risk
from job displacement through automation relatively
large. We estimate that about 100,000 to 400,000
manufacturing jobs could be eliminated during the
1980s in each of the Big Four countries, representing
as much as 1.6 percent of total civilian employment
(see table 4). Moreover, higher income taxes, coupled
with generous unemployment and other social pro-
gram benefits, have reduced work and investment
incentives and will tend to slow employment increases
in other sectors.'
In Western Europe the impact of automation will be
superimposed on a rapidly changing labor force struc-
ture (see table 5). Later in this decade and well into
the next, the inflow of new entrants into the labor
market will drop off dramatically in northern Europe.
By contrast, southern Europe will see the real bulge of
its baby boom reach working age during this period.
6 The average tax-to-GDP ratio for 17 West European countries
rose from 28.4 percent in 1965 to 37.5 percent in 1980, while the
the boost in real earnings for the economy as a whole
will lead to additional jobs in other sectors, this may
occur with a fairly long lag, during which unemploy-
ment would be significantly higher. During this ad-
justment period governments will also have to cope
with a shift in the desired skill mix of the labor force
toward more technically trained workers.F_
income taxes increased from 25.3 percent to 30.6 percent. On the
other hand, consumption taxes, which are thought to have smaller
impacts on work incentives, had a smaller increase from 13.8
percent of total tax receipts to 16.1 percent. See OECD, Long-Term
Trends in Tax Revenues of OECD Member Countries, 1955-1980,
1981
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Table 4
Big Four: Estimated Jobs Impact From
Industrial Automation
Country
Civilian
Manufacturing
Employment,
Projected Jobs Displaced by
1990, Assuming 1- to 5-Percent
Impact on 1980 Civilian
1980
(millions)
Manufacturing Employment a
Millions
Percent of Total
Civilian
Employment,
1980
West Germany
8.9
0.1-0.4
0.3-1.6
France
5.4
0.1-0.3
0.3-1.4
United Kingdom 6.9
0.1-0.3
0.2-1.2
Italy 3.8
0.1-0.2
0.1-1.4
a The OECD Secretariat has estimated that 0.5 to 3 percent of the
manufacturing work force in key industrialized countries could be
affected simply by the introduction of robots by 1990. A recent
study by W. E. Upjohn Institute for Employment estimates that
robots alone could eliminate 1 to 2 percent of all production jobs in
the US manufacturing sector by 1990. A 1- to 5-percent impact
from all sources of industrial automation by 1990 thus seems
reasonable. These estimates are gross impacts in the sense that they
do not reflect new jobs that could be created by the producers of
automated equipment or new jobs in other sectors as the result of
greater incomes from using automated equipment.
This shift in demographic trends will complicate
attempts to adjust to the impact of high technology on
employment levels, if further, labor migration between
EC states intensifies current guest worker problems.
At the other extreme, Japan is positioned to benefit-
or at least not lose as much-from these trends. As
the world's leading producer of robots, Japan proba-
bly will be able to secure many of the new jobs
created by this industry. This should help Japan
adjust to lower employment levels in such traditional
industries as steel, aluminum, and shipbuilding, cur-
rently suffering substantial overcapacities, although
the problem of shifts in required labor skills will have
to be overcome. Any net gains will come at a time
when the flow of new entrants into the labor force is
likely to slow.
Table 5
OECD: Projected Increases in
Labor Force, 1980s a
18.3
13.3
5.9
4.4
Japan
2.5
2.1
Western Europe
8.3
5.6
Scandinavian countries b
0.3
0.2
North European countries c 3.7
1.1
South European countries d 4.4
4.2
They assume no change in
age-sex specific labor force participation rates from 1980 levels.
b Denmark, Finland, Iceland, Norway, and Sweden.
cAustria, Belgium, France, Ireland, Luxembourg, Netherlands,
Switzerland, United Kingdom, and West Germany.
d Greece, Italy, Portugal, Spain, and Turkey.
The LDCs will not be immune to the impact new
technologies are likely to have on traditional indus-
tries and employment. With the development of new
materials that probably will offer cheaper substitutes,
real prices for a number of traditional metals are not
likely to grow and could continue to fall. Some LDCs,
for example, probably will either have to provide large
subsidies for the production of steel and other metal
products or shut down capacity and lay off workers.
Any moves by the developed world to protect their 25X1
own steel producers from foreign competition would
only intensify the problems faced by Third World
producers. Since some of the LDCs with the greatest
steelmaking capacity are among the key debt-troubled
countries (for example, Brazil, Mexico, and Argenti-
na), reduced ability to afford large subsidy bills could
favor idling capacity as the most likely option. Any
job losses will come at a time when the LDCs will be
trying to cope with rapid labor force growth. During
this decade these countries as a group will see 550
million people added to the working-age populations
(see table 6).
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Table 6
Increases in Global Working-Age
Population, 1951-90
1951-60
1961-70
1971-80
1981-90
28
38
59
84
Asia
124
216
324
399
Latin America
24
35
52
64
Industrial countries
58
73
75
59
Total
234
362
510
606
Government Responses
Because of the broad-ranging impacts of technological
advance and diffusion, governments are increasingly
responding to the technological boom. In some cases
they are attempting to speed their countries' entry
into high-technology industries. In others they are
attempting to insulate their countries from the im-
pacts of rapid technological change
Foreign Investment Policies. A number of govern-
ments have already introduced policies designed to
attract foreign direct high-technology investment.
Singapore is perhaps the best example of a country
that has pursued this strategy successfully. Through-
out the 1970s foreign investors accounted for over 70
percent of the total commitments in manufacturing.
Furthermore, using tax incentives, the government's
Economic Development Board has guided investment
toward the new knowledge-intensive industries. As a
result Singapore has moved rapidly up the technology
curve, from specializing in such labor-intensive export
lines as textiles and footwear to electronics and oil-
drilling equipment. The other East Asian NICs-
Hong Kong, South Korea, and Taiwan-have. also
instituted policies to attract foreign investment in
high-technology industries, though on smaller scales
than Singapore.
Based on the rapid progress of the NICs, other
countries in the second-tier group of-LDCs are now
beginning to reexamine the impact foreign investment
can have:
? Primarily through government financial assistance,
Malaysia is encouraging foreign investment and
joint ventures and is exploring the possibility of
encouraging basic "smokestack" industries operat-
ing in developed countries-especially in Japan-to
relocate in Malaysia.
? In India procedures for approving nonequity "col-
laborations" have been simplified, increased royalty
rates are allowed, and a somewhat more accommo-
dating approach toward new equity investment is
also evident.
We believe it will be only a matter of time before such
countries focus on high-technology investment as well.
Attempts by Western firms to increase their market
share through selected licensing in Third World coun-
tries purchasing their goods will accelerate this pro-
cess.
As a less direct means of encouraging technology
transfers, governments are subsidizing domestic firms25X1
participating in joint ventures with foreign technology
leaders. More commonly practiced by governments ii25X1
the developed countries, these efforts have provided
subsidies to numerous domestic firms participating in
coproduction agreements in the aerospace field.
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Special Incentives for Foreign Investment in High-Technology
Industries: Case of the Asian NICs
The East Asian NICs-Hong Kong, Singapore, The Economic Development Board also has estab-
South Korea, and Taiwan-have developed a range lished a science and technology park adjacent to the
of policies designed to encourage foreign investment National University of Singapore to encourage inves-
in high-technology industries. These countries have a tors to establish research and development facilities
special interest in upgrading their economies' techni- in Singapore.
cal capabilities because of their lack of natural
resources. Like Japan, they must depend on imports
to obtain raw materials, and, therefore, it is essential
for the further development of their economies that
they expand exports. With the growing competition in
their traditional export markets-textiles, footwear,
and similar products from other LDCs, they have
sought to move up the technology curve as a way of
improving their position in international trade
According to press reports, the focal point of Hong
Kong's drive to attract high-technology industries
has been the Taipo Industrial Estate, which at little
cost to entrepreneurs provides basic facilities for
firms manufacturing high-technology products. In
addition, the government is opening industrial promo-
tion offices in San Francisco, Tokyo, London, and
Stuttgart
Singapore has established the Economic Develop-
ment Board to assist private investors. It has targeted
tax incentives to encourage investment in high-
technology industries such as electronics, aircraft
components, and advanced medical equipment. Firms
investing in these industries are eligible for:
? Accelerated depreciation on fixed investment.
? Tax holidays for five to 10 years.
? Tax exemptions on export profits.
Education Policies. Governments have also placed
increasing emphasis on educational and training pro-
grams to aid entry into the technological mainstream.
According to World Bank statistics, the East Asian
NICs-Hong Kong, Singapore, South Korea, and
South Korea's Ministry of Finance announced several
policies late last year to improve the foreign invest-
ment climate, including an expansion in the number
of industries eligible for foreign investment, reduced
red tape, and an increase in the foreign equity share
permitted in selected industries. Seoul also views
joint research projects as a way to attract foreign
technology. Projects in mechanical engineering, ge-
netic engineering, semiconductors, and communica-
tions technology are under way or planned with MIT,
Bell Laboratories, and ITT.
An important element in Taiwan's strategy is the
Hsinchu Science-Based Industrial Park. It offers two
universities, a research center, schools for foreign
children, and a computer center. To ensure that
technology-intensive industries are attracted to Hsin-
chu Park, Taipei has offered a number of incentives
to prospective investors, including subsidized rents,
special financing arrangements, duty-free imports,
tax holidays, freedom to repatriate profits, and, in
some cases, up to 49 percent government funding of
venture capital.
Taiwan-are in the forefront of this effort (see figure
5). Official government and press reports indicate that
Singapore has established four industrial training
centers since 1972 with assistance from foreign firms
and governments to provide two-year courses in such
fields as precision machining, tool and die making,
optics, and instrumentation. Singapore's Vocational
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Figure 5
Asian NICs: Vocational School Enrollment Ratios
Institute Training Board now operates 17 institutes
covering the entire spectrum of technical skills. Even
in Hong Kong, despite its basic stance of limited
government activity, enrollment in technical schools
expanded rapidly. These countries' efforts in this area
have been abetted by high rates of growth in the
relevant age groups.'
These governments also have ambitious plans to con-
tinue this upgrading process. For example, by 1985
Singapore plans to graduate 1,200 engineers annually,
compared to 300 now. In South Korea university
enrollment is being expanded significantly, scholar-
ships and research subsidies are being increased, and
military exemptions are being granted to graduate
students. Malaysia is just beginning to focus on
technical education; it is building six new trade
schools that will provide training in engineering and
machine tools.
Increased Protectionism. On the other side of the
coin, several countries are pursuing a variety of
protectionistic measures to defend their industries-
both infant high technology and traditional-from
foreign competition. For the most part, these meas-
ures consist of nontariff barriers such as government
subsidies, procurement restrictions that favor domes-
tic firms, and negotiation of voluntary export re-
straints (VER) with trade partners. To the extent
these barriers apply to investment goods such as
sophisticated machinery and computers, they will
tend to slow the adoption rates of new technologies or
at a minimum encourage alternative forms of technol-
ogy transfer based on, for example, joint ventures and
coproduction agreements.
' According to United Nations data, growth rates of the age group
15 to 24 for Singapore, South Korea, and Hong Kong during 1971-
Western Europe may be the region most susceptible
to increased protectionism in high-technology goods
because of its severe unemployment problem. The rate
of unemployment in this region has risen from about
3 percent in 1970 to over 10 percent currently.
Furthermore, Western Europe's competitive position
in high-technology goods compared to Japan and the
NICs has declined significantly in the 1970s; growth
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Figure 6
Western Europe: Trends in
High-Technology Trade'
West European Trade With Japan
Million US $
100
60 1972 73 74 75 76 77 78 79 80
100
60
I I I I I 1 1 i
1972 73 74 75 76 77 78 79 80
HHigh-technology goods are defined as in figure 1.
bThe NICs are Brazil, Hong Kong, Mexico, Singapore, South
Korea, and Taiwan.
of Western Europe's imports of such goods from these
countries easily outpaced the growth of exports (see
figure 6). Partially as a result, there are some indica-
tions of greater protection for domestic high-technol-
ogy industries in Western Europe:
? In mid-February the EC secured from Japan a
three-year VER agreement covering a number of
products. These include some that reflect advanced
technology, such as color television picture tubes,
numerically controlled machine tools, and video
tape recorders.
? In the United Kingdom major financial commit-
ments have been announced to support British pro-
duction of high-technology goods. A $25 million
grant went to British microchip manufacturer In-
mos International. London has reiterated its support
for computer maker ICL by pressing local govern-
ments to boost spending on British computer and
office equipment.
? The Mitterrand government is continuing to try to
identify markets, especially in high-technology ar-
eas, where an effective French presence may be
secured. Going beyond their predecessors, the So-
cialists are making an effort to use the expanded
nationalized industrial and banking sectors and
substantially increased levels of government funding
to back this effort. The government has also not
been reluctant to impose new barriers against some
more technically oriented products-the now-re-
scinded administrative delays directed at Japanese
VCRs being a case in point.
Implications for the United States
Given its widespread impacts, continued rapid tech-
nology diffusion could pose numerous challenges for
the United States. Many of these will involve particu-
lar instances of technology transfer or their impacts-
requiring attention to specific firms, technologies, and
countries. At the same time, there appear to be a
number of broadly based potential problems, ranging
from increased opportunities for greater access to
sophisticated technologies by Communist countries to
greater pressures for protectionism in Western
Europe.
Easier Communist Country Access. While Commu-
nist Bloc access to critical technology has been a
longstanding security issue for the United States, a
new challenge in this area will arise if the list of
countries that are not members of COCOM, but have
developed or acquired COCOM-restricted techniques,
expands! The NICs, in particular, as they continue to
'Austria, Switzerland, and Sweden, which are not members of
COCOM, have been important suppliers of advanced tools and
controlled equipment to the USSR in the past. For example, since
the late 1960s Austria has sold at least 26 automated rotary forges
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Figure 7
Growth of Hong Kong Exports of
High Technology Goods to China'
Besides becoming potential overt suppliers of high-
technology exports to Communist countries, the
NICs, or even some of the other rapidly developing
LDCs, may offer easy targets for illegal acquisition of
technologies. These governments may be unconcerned
about the possibility of industrial espionage and other
illegal means of technology acquisition, given their 25X1
economies' relatively new status as possible targets.
China's efforts in Hong Kong illustrate some of the
move up the technology curve could, perhaps within
five to 10 years, offer the Communist countries
promising sources-or targets-for obtaining such
technologies. At the same time we believe the pres-
sures for the Communist Bloc to obtain Western
technologies is likely to grow rather than diminish.
For instance, the Soviet lag in computer technology-
a vital part of military preparedness-is currently
three to seven years.
The NICs' responses to overtures from Communist
countries are likely to differ. For example, political
differences currently limit economic exchange be-
tween South Korea and Communist countries to small
amounts of indirect trade. On the other hand, Hong
Kong-both as a producer and as a transshipper-has
been a growing source of high-technology goods for
China since the beginning of Beijing's modernization
drive in 1979 (see figure 7). In 1978 Hong Kong
accounted for about 1 percent of high-technology
exports to China; by 1980 Hong Kong's share was
running at 10 percent, even though total high-technol-
ogy exports to China were growing rapidly in the
meantime. In particular, Hong Kong has become a
key supplier of telecommunications equipment and
transistors.
Increased Economic Tensions. Rapid technological 25X1
change and its diffusion internationally could increase
economic and political strains among some countries
and regions. Although the pace and wide variety of
change make it impossible to suggest a complete list
of possible trouble spots, some of the key ones proba- 25X1
bly will involve Western Europe and LDCs' exporting
primary commodities vulnerable to slackening de-
mand. 25X1
Western Europe probably is lagging countries such as
the United States, Japan, and the East Asian NICs in
moving rapidly into the high-technology fields. West
European officials openly admit they are far behind
the United States and Japan in high-technology prod-
ucts and argue that they need quantitative restrictions
to catch up. Further protectionist measures not only 25X1
would strain US relations with Western Europe di-
rectly but could involve the United States in disputes
between Western Europe and Japan as well as other
US Pacific allies. It also could lead Japan and the
NICs to focus on non-European markets where the
United States competes, or on the US market itself.
Although Western Europe is moving into most new
technologies relatively slowly, high labor costs will
encourage quick adoption of the new automation
technologies. Structural unemployment probably will
increase, further straining the domestic fabric in these
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countries. In addition, since foreign workers are likely
to be a particular target of resentment, guest worker
and labor mobility problems among European Com-
munity members could mount.
If the longer run demand for some primary commod-
ities drops, Third World countries producing these
goods for export will face lower trade earnings and
slower economic growth. The economic fallout could
easily become a political issue if, for example, severe
austerity measures were imposed. As a result, such
countries could become more subject to domestic
instability and perhaps Soviet interference. This is
especially true for some countries in Sub-Saharan
Africa that, apart from heavy reliance on commodity
exports, also face many other economic and political
problems. In addition, even though concentration on a
small number of commodity exports has fallen some-
what in Central America, most countries in this
region still depend heavily on such trade and therefore
also continue to face extra economic risks.
Increased Proliferation of Sophisticated Arms. The
diffusion of technology to Third World suppliers for
producing moderately sophisticated arms poses in-
creased risks of arms proliferation to other Third
World states. As competition in the international
arms market intensifies, Third World suppliers will be
tempted to expand the range of military assistance
they can provide to potential customers. In some
cases, this may include introducing less than state-of-
the-art weapons into a region, thereby giving recipi-
ents new capabilities which are threatening to their
neighbors, to US interests, or to US allies.
In the immediate future, these increased risks from
diffusion of production technology will be fairly small.
Usually the licensing agreement, that permits a Third
World producer to manufacture complex arms con-
tains provisions that restrict third-party sales. Fur-
thermore, because the manufacturing process usually
depends on Western provision of key subassemblies,
production and sales to third parties could always be
limited through embargo of these essential compo-
nents. Finally, the risks from sales of less than state-
of-the-art weapons from Third World suppliers will
continue to be overshadowed by the threat of transfers
of Western or Soviet state-of-the-art arms from an
approved purchaser to potential Third World adver-
saries.
Nevertheless, over the long run and with sufficient
effort, some Third World producers could approach
the capability of manufacturing selected state-of-the-
art weaponry, especially near the less complex and
less costly part of the weapons spectrum. At the same
time some Third World producers have or in other
cases can develop the expertise needed to produce
parts which can be used in existing weapon systems.
Given existing and future potential, arms proliferation
risks could rise while the leverage of the United States
and other leading arms producers through arms ex-
ports and production assistance could be reduced.
Dependence on Imports of High-Technology Goods.
Japan soon may be able to reach a leadership position
in some high-technology fields with defense applica-
tions. For example, the leading Japanese computer
firms, Fujitsu and Hitachi, have developed and soon
will be marketing supercomputer systems that match,
and in some cases surpass, the performance levels of
present and near-term US products. Because these
systems have a number of military applications-such
as advanced aerodynamic modeling, cryptanalysis,
and strategic battle management-this outcome could
place the US defense establishment in a position of
reliance on Japan for this equipment.
With the rapid diffusion of technology throughout the
world and growing capabilities for indigenous innova-
tion, over the long run other countries also could
eventually become technology leaders. If this happens,
the United States could have to rely on foreign
sources for important components of weapons and
other defense goods. Such a reliance on imports as a
source for state-of-the-art technology would be more
risky than reliance on imports for other goods, even
such strategic ones as oil. Particularly if the technol-
ogy leader is substantially ahead of competitors, any
supply cutoff would be complete, in contrast to stan-
dard goods where close substitutes usually exist or
purchases can be switched to alternative exporting
countries, though perhaps at higher costs and with
some time delay.
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A Final Note
This paper has explored some of the key economic
changes and policies likely to result from the spread of
modern technologies internationally. Many others
probably will emerge given the rapidity of the change
occurring. Issues involving technological diffusion
thus will continue to be important in the near future.
Moreover, the rapid change means that the manage-
ment of the fallout from technology diffusion will
become more difficult. For example, greatly improved
and expanded communications and transportation
links have created numerous channels for technology
transfer that will make it much harder to restrict the
flow of technology to the Communist Bloc. Further-
more, the faster pace of change means that leadtimes
for government actions will be considerably shorter.
These and other problems point to much greater costs
of managing the national security impacts of the
continuing worldwide technology diffusion.
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