7
Issues for U.S. Policy: National Security

The post-Cold War era is one in which the role of economic and technological factors in national security is increasing. The global changes taking place today are so sweeping that old concepts of national security must be thoroughly reexamined. In the sphere of U.S.-Japan relations, for example, one of the cornerstones of the bilateral security alliance—namely, the threat of Soviet and Communist expansion—has been undermined by the collapse of the USSR. Without the cohesion provided by a common perception of the Soviet or Communist threat, will the U.S.-Japan relationship remain intact, or will conflicts engendered by the huge trade imbalance destroy the structure of the alliance? Will the United States continue to tolerate the lopsided trade deficit? Will it permit the private sector to continue concluding alliances that give Japanese competitors access to some of America's leading-edge technology?

In the United States, the commitment to the ideology of free market economics runs so deep that government interference in private sector alliances is usually justified only in those exceptional cases in which national security is clearly jeopardized. The marketplace is regarded as the most effective mechanism for fostering economic efficiency, and government intervention—particularly protection or excessive regulatory control—is believed to distort the market and expose it to the dangerous virus of special interest lobbying and partisan politics. Given this deeply embedded ideology, the primary justification for government intervention is the nation's security, the state's highest responsibility and ultimate source of empowerment.



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U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy 7 Issues for U.S. Policy: National Security The post-Cold War era is one in which the role of economic and technological factors in national security is increasing. The global changes taking place today are so sweeping that old concepts of national security must be thoroughly reexamined. In the sphere of U.S.-Japan relations, for example, one of the cornerstones of the bilateral security alliance—namely, the threat of Soviet and Communist expansion—has been undermined by the collapse of the USSR. Without the cohesion provided by a common perception of the Soviet or Communist threat, will the U.S.-Japan relationship remain intact, or will conflicts engendered by the huge trade imbalance destroy the structure of the alliance? Will the United States continue to tolerate the lopsided trade deficit? Will it permit the private sector to continue concluding alliances that give Japanese competitors access to some of America's leading-edge technology? In the United States, the commitment to the ideology of free market economics runs so deep that government interference in private sector alliances is usually justified only in those exceptional cases in which national security is clearly jeopardized. The marketplace is regarded as the most effective mechanism for fostering economic efficiency, and government intervention—particularly protection or excessive regulatory control—is believed to distort the market and expose it to the dangerous virus of special interest lobbying and partisan politics. Given this deeply embedded ideology, the primary justification for government intervention is the nation's security, the state's highest responsibility and ultimate source of empowerment.

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U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy The problem with invoking national security is that the concept is slippery. From a strictly military point of view—territorial defense, force postures, and conflict scenarios—national security is clearly definable, but when nonmilitary factors are introduced, the concept of national security becomes exceedingly hard to specify. How are linkages made and definitional boundaries drawn? Is a certain industry—semiconductors, for example—or even a specific product such as microprocessors or DRAMs, essential to a nation's military-industrial capabilities? What is the connection between the commercial health of an industry such as semiconductors and national security? Unless answers to these and other questions can be given, the concept of national security cannot be spelled out definitively. There will always be the problem of unbounded elasticity, expanding the definitional boundaries to include almost any industry or product, be it DRAMs or aluminum, that can be argued to have an impact on national security, however indirect or marginal. It is hardly surprising, therefore, that defining national security in the post-Cold War era has become a subject of intense debate. In years past, the issue of supply dependence and disruption was a primary focus of concern from a national security perspective. If U.S. arms manufacturers, for example, become too dependent on foreign producers of weapons components, equipment, or systems, and if the supply of those goods could be disrupted, U.S. national security would be at risk. To ensure that the worst-case scenario would never occur, the U.S. government had a relatively straightforward policy solution: developing a safety net, consisting of supply diversification (procuring from domestic and foreign sources, or from more than one foreign source) and accumulating a stockpile of supplies that could be drawn upon during emergencies. In today's fast-paced world of high-tech weaponry and commercial competition, however, it is no longer possible to cling to old concepts of security based solely on supply disruption. The salience of economic factors has not only increased but also become intertwined with other dimensions of national security. It is more difficult today to disentangle the economic from strictly military factors and to define the concept of national security comprehensively in terms of military, political, social, and economic factors.31 What has happened to alter the calculus of national security? Listed below are a few of the seminal developments: a continual broadening and deepening of ties of international economic interdependence led by capital flows, trade, and technology transfers; U.S. reliance on technological superiority (as opposed to the pure firepower of its arsenal) to maintain a credible military deterrent; 31   For a thoughtful analysis, see Theodore H. Moran, "International Economics and National Security," Foreign Affairs, Winter 1991, pp. 74–90.

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U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy a shift in the directionality of innovation from the commercial spillover benefits of military-based R&D to the military spillover benefits of commercially driven R&D—in other words, a dramatic rise in the relative importance of commercial activities for national security, especially in high-technology sectors (such as semiconductors and software); a steady shift in employment and output from old-line manufacturing to the high-tech and service sectors; the seminal importance of being competitive in high technology industries for the nation's overall economic well being, including the productivity of manufacturing industries and the service sector; the end of an era of U.S. dominance in high-technology sectors and Japan's rise as a formidable competitor (and in certain industries, the emerging leader); the relative decline of American hegemony and evidence of serious and unresolved economic problems at home (e.g., budget and trade deficits); the growing public perception in the United States that economic competition from Japan may pose a greater threat to America's national security than the Soviet military threat; and hard questions concerning a more equitable distribution of costs and burdens associated with the provision of such collective goods as peace, stability, and security (disproportionately shouldered by the United States), and the image of Japan as an opportunistic "free rider." Reflecting the importance of such developments, a variety of specific questions concerning the fusion of economic and military factors in the calculus of national security have arisen. Of these, the most germane are listed below: How dependent has the U.S. military become on foreign vendors and on foreign technology? At what point is national security placed at risk? How essential is it that U.S. corporations maintain a position of commercial leadership in high-technology industries? How would military security be affected if the United States were to lose its competitiveness? Under what conditions are foreign acquisitions of domestic companies a security problem? Are tags of national identity losing their meaning in this era of multinationalization and globalization? Does it matter that manufacturing facilities located in the United States bear a Japanese name, as long as the technical work force is predominantly American and the physical facilities, value added, and learning curves remain here? To what extent, if at all, should the United States be concerned about the industrial policies of foreign states targeted at promoting their high-tech, strategic industries? Is it necessary for the U.S. government to

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U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy ''level the playing field" by taking industrial policy measures to promote domestic producers? Should foreign companies be encouraged to invest in R&D and manufacturing facilities in the United States? What are the advantages and dangers? In what technological areas is leakage damaging to national security? How might it be shut off or at least contained? The problem of defining national security interests goes far beyond simple questions of supply access and disruption; it now involves such complex issues as the commercial competitiveness of domestic producers in key high-tech industries, the scope of the state's role, and coping with the consequences of proliferating ties of economic interdependence. How can these far-reaching and diverse issues be feasibly dealt with? In theory, the slippery notion of economic security can be best understood in terms of enhancing the twin objectives of economic efficiency and adaptability. Whatever damages economic efficiency and adaptability significantly can be construed as a threat to economic security—for example, very large budget deficits, low savings rates, inadequate investment levels in research and development, poor manpower training and education, or falling rates of productivity. In this sense, trade protection can also be considered a security threat if the costs of protection—inefficiency and structural rigidity—outweigh such benefits as the survival of an indispensable industry. Clearly the cost-benefit matrix will always involve complex calculations of difficult trade-offs. Formulating the calculus in terms of efficiency and adaptability at least provides conceptual guidelines on which to anchor what is otherwise an amorphous and unmanageable problem. Perhaps the most parsimonious way of dealing with the relationship between military and economic factors is to funnel concerns through the prism of a fundamental question: To what extent is the nation's capacity to innovate and manufacture diminished in technologies critical to military security? In the final analysis it is the nation's capacity to generate and produce essential state-of-the-art technology that should be the overriding criteria by which definitional boundaries of military security are drawn. Using this conceptual lens makes it possible to sort through the maze of issues that have a direct bearing on national security. If, for example, a strategic alliance involving the transfer of seminal technology, such as operational software, places America's capacity to innovate and manufacture essential weaponry at risk, then the proposed alliance would constitute a national security question requiring analysis and possible public policy action. Conversely, if the loss of commercial leadership in a particular product market, such as ASICs, is likely to have relatively limited impact on America's capacity to innovate and manufacture, then it would not be

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U.S.-Japan Strategic Alliances in the Semiconductor Industry: Technology Transfer, Competition, and Public Policy regarded as a national security problem. Even with the adoption of such a prism, a number of difficult questions remain, such as definitions of critical technologies and predictions of impacts on U.S. capacity to innovate in the long run. Focusing on the effects on innovative capability provides a foundation for addressing these complex issues.