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Panel 3 Technological Dimensions of National Security Moderator: William Keller, Deputy Director, Center for Trade and Commercial Diplomacy, Monterey Institute Dr. Keller began the session by commenting on how the technology dimensions of national security have changed since the end of the Cold War. In the past, the focus was on technological superiority to overcome Soviet numerical strength. Now the issue is one of national economic security, with a focus on jobs, the balance of technology trade, technology transfer, and the complex interaction between civil and military technology. The impact of offsets on technology dimensions of national security is also part of that focus. There continues to be much confusion over the definition of offsets. For a definition, Dr. Keller stated that he prefers the work of the GAO. It defines offsets as the entire range of industrial and commercial compensation and practices provided, plus inducements or conditions, for the purchase of military goods and services. These include coproduction, knowledge transfer, training, investment, marketing assistance, and commodity trading. Dr. Keller also observed that this is not a new topic. A 1991 Office of Technology Assessment study5 showed that most major arms sales involved some form of coproduction, codevelopment, or technology transfer. The study found that these practices were resulting in the transfer of military technology and the arms industry infrastructure—posing serious national security challenges for the United States. The study also found that the process was accelerating—to the detriment of the subcontractors and even the prime contractors. Alliance Politics, Defense Trade, and Technology Transfer Paul Hoeper Deputy Under Secretary of Defense (International and Commercial Programs), Department of Defense Mr. Hoeper began by stating that his job at the Defense Department is to equip U.S. military forces with the systems they need for a qualitative edge, within the context of national security needs, budgetary constraints, and domestic and international politics. The world in which he does that job has changed since the end of the Cold War. Former adversaries now sit at the NATO table, and the traditional security threat to the U.S. has diminished. As a result, the military force structure has been reduced by one-third. The defense budget has declined from about $400 billion ten years ago to around $250 billion today (in constant 1997 dollars). The procurement budget has dropped even further—declining by two-thirds. In this new environment, there is a need to rethink how the U.S. fights wars and designs and builds weapons systems, as well as how we trade and compete with our allies. That re-thinking process is reflected in the Secretary of Defense's recently released Quadrennial Defense Report (QDR).6 The QDR is a blueprint for matching defense requirements and resources. It attempts to identify potential threats and opportunities facing the U.S. and how the U.S. should respond. The QDR seeks to reallocate resources to achieve the best balance of capabilities. The approach taken here is to trim the force support structure and modestly cut combat power. This allows DoD to stabilize its investments in order to achieve the capabilities needed, as described in the Joint Chiefs of Staff report, Joint Vision 2010. This report lays out operational concepts for future war fighting. Mr. Hoeper went on to describe the importance of information technology. As outlined in Joint Vision 2010, there are four key operational concepts: having a complete picture of the battlefield; destroying the key nodes of enemy systems at a great distance with fewer munitions and less collateral damage; maintaining freedom of action in deployment and maneuver; and delivering the right support at the right place and the fight time. 5 Office of Technology Assessment, Global Arms Trade: Commerce in Advanced Military Technology and Weapons. Congress of the United States, Washington, D.C., 1991. 6 Office of the Secretary of Defense, Report of the Quadrennial Defense Review. Department of Defense, Washington, D.C., May 1997.
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All these concepts require information superiority. The QDR underscores the importance of greater international arms cooperation because of the increased likelihood of coalition operations. With the rise of these joint operations, interoperability becomes a guiding principle in the procurement of weapons systems. In addition to allowing for common logistical support, the use of the same equipment fosters a bond between forces. Budgetary pressures are also contributing to an increase in international cooperation. In a time of needing to do more with less, it is important to avoid duplication of weapons systems. This requires early harmonization of requirements and increased incentives for international teaming. Mr. Hoeper stressed that defense systems cooperation and trade contributes to improved efficiencies and interoperability. He also pointed out that the view of offsets as necessarily bad is not correct; only bad offsets are bad. Offsets are bad if they destroy economic value and foster weapons proliferation. Good offsets are those which reduce costs and create long-term value. These issues of offsets become especially important in the task of equipping U.S. forces for coalition operations. Critical here is C4I—command, control, communications, computers, and intelligence. For example, our NATO allies are balking at adopting U.S. C4I standards and equipment for reasons of cost, national sovereignty, jobs, and industrial competitiveness. This moves an important defense issue into the area of industrial policy. It also creates a technical divergence between the defense forces of the U.S. and our allies that should be avoided. Mr. Hoeper stressed the need to work together with our allies on these issues. He suggested three ideas that should be explored. First, recognize and exploit the world industrial base as a source of important defense components and subsystems. Second, understand that much technology has a short half-life, thus it is better to expend resources to run faster in technological development, than waste them in trying to trip up the other guy. Third, begin cooperation early in the process and compete weapons systems programs among international teams from the partner nations. Offsets: Drivers and Technological and Policy Consequences Carol Evans Assistant Professor of International Business Diplomacy, Georgetown University Cautioning that offsets have differential impacts, Dr. Evans suggested that the analysis of offsets must go beyond good and bad impacts—and look at offsets "for whom?" In that context, there seems to be less concern about offsets with our NATO allies and more concern about offsets with developing countries—for a number of reasons. First, offsets encourage indigenous production of weapons systems in developing countries. This production can lead to serious but unintended proliferation problems. For example, technology transferred to Brazil through an offset program ended up improving the targeting capability of the Iraqi Scud missiles. Thus, offsets can have a major impact on U.S. national security through indirect routes. Even if the offset, or the country involved, may seem relatively unimportant, we must take a broad view of proliferation, since aerospace offsets can enhance the platforms used for the delivery of chemical or biological weapons. The question must also be raised whether we have the capability of monitoring where the technology goes. Companies often fail to keep direct evidence of exactly where the technology is being transferred to and need to have more "due diligence" in tracking offsets. It is clear that offsets have encouraged greater defense capabilities in some developing countries, which now pose a greater defense threat to the United States. In addition, offsets have a spiraling effect, by creating an arms industry in certain developing countries that seeks even further offsets. A second issue concerns the impact of offsets on the sub-tier supplier base. This sub-tier base is critical. It underpins both the defense and information technology industries that are key for both economic and national security. Consequently, there is a need to be concerned about the continued viability of this critical dual base and the impacts of offsets on that base. Offsets adversely affect the supplier base by aiding foreign competitors at the same time that the supplier base is being hit by shrinking defense budgets. Shrinking budgets then lead to a further squeeze on suppliers to give even more offsets. Yet, the Defense Department does not have adequate information on the companies that make up the sub-tier base and on the impact of offsets on these firms. On the policy side is DoD's push for greater inter-operability. The new report from the Under Secretary for Acquisition makes clear that DoD sees offsets as a means of increasing interoperability. The issue has moved beyond whether offsets are good or bad, to how to make offsets work better. In that respect, DoD is looking at the lessons that can be learned from the commercial sector. For instance, what alliances and joint ventures in the commercial side might be used as models in defense? Of greater importance is the recommendation that DoD should not necessarily get involved in labor issues of job sharing. Instead, these is-
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sues should be left to the international partnerships. One of the positive impacts of offsets has been to bring NATO, and now Eastern European, countries into partnerships. But as these partnerships expand, the issue of the criteria for encouraging these partnerships must be addressed. Likewise, we must address the important question of who makes the decisions, business or government. On the issue of the policy impacts on companies, Dr. Evans pointed out that offsets have been a critical driver in the globalization of the U.S. industry. The result has been a cycle of even more globalization and a deepening of company relationships with the countries in which they are located. Companies are no longer in a set of bilateral business agreements, but in a web of alliances. This raises the questions about what is a U.S. company and where are the allegiances of these webs of alliances. Companies are drawn even more to the defense and foreign policymaking areas to protect their own interests. For example, many companies sought to affect U.S. policy when the U.S. sent warships to the Taiwan Straits. Multinationals are being forced not only to look at business relationships, but also to become even more active political actors, with interests in many countries that must be balanced off. Companies now focus not only on traditional trade issues but also on defense, arms trade, and proliferation issues. Given this more political role, we need to think more about how other countries attempt to use companies as a means of pressuring U.S. policy. Finally, Dr. Evans remarked that the issue is not just a question of aerospace, but of C4I. As the role of information in the military increases, we need to ask whether platforms are less of a concern. In that case, we may need to reassess the significance of the aerospace industry. New Technologies: Battlefield Advantage from Not-So-New Technologies Lee Buchanan Deputy Director, DARPA Dr. Buchanan began his remarks with the comment that the discussion of offsets has been framed so far in simplistic terms regarding the benefits of offsets—that is, market share and sales—versus the risks in terms of jobs and the loss of technology. He stated that his remarks would challenge the assumption inherent in that framework with regard to technology. First, technology is not a commodity. It cannot be inventoried or traded away in any meaningful sense. The value of technology is variable and based on the context. In order to use a technology, you must be able to incorporate it. It must be congruent with your infrastructure and be close to your own state-of-the-art. Therefore, technology that is valuable to one party may not be so valuable to another party. To use the earlier example of the salami theory, the extraction of technology is like trying to go from the sliced salami all the way back to the pig. Second, technology is perishable. Dr. Buchanan confirmed that the DARPA view of technology is clearly the same as the "run faster" model mentioned earlier by Mr. Hoeper. Control of technology is difficult. As an example, he cited the Norden bombsight—which was subject to all types of security arrangements before and during World War II, for fear that it would fall into the hands of the Germans. However, through effective espionage, the Germans already had a version before the Norden bombsight was ever put into use in Allied bombers. And the Germans decided not to use the Norden bombsight because their technology was already superior. In addition, Dr. Buchanan found a comment from an industry participant concerning the transfer of old technology as an offset especially interesting. He remarked that, given the perishable nature of technology, this might represent a tactic of "technology disinformation." Dr. Buchanan stated that because technology is not a commodity and not a deciding factor, the use of technology in offsets does not matter much for national security. He made the point that the Cold War was won with a strategy of industrial attrition. Old technology became obsolete as new technology was developed. This strategy, however, only works with a monolithic adversary who adopts the same strategy. That situation has disappeared. Now there is no monolithic enemy, but numerous adversaries with a diverse set of threats—none of which are directly countered by the infrastructure built to fight the Cold War. In the same period, the commercial sector was in its own war. Because commercial interactions were more frequent and often acrimonious, the commercial sector ran faster. So now commercial technology is ahead of military technology in important areas. Thus, the notion of having something to guard—in order to keep it to ourselves—is beginning to go away. There is, Dr. Buchanan agreed, a revolution going on in military affairs. Agility and diversity of action are now supreme. Information technology is the key to maintaining superiority—and is one of the areas in which defense is behind. Therefore, in order to succeed, the U.S. military must have close ties to the global commercial technology base. The bottom line for Dr. Buchanan is that if offsets help in maintaining and developing those ties, it is a win.
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Holding the Technological Edge James Sinnett Corporate Vice President, Technology, McDonnell Douglas Corp. Mr. Sinnett began by making a number observations based on his experience in the defense side of the aerospace business. First, he noted that information technology has been growing exponentially. Software development costs and cycle-times exceed those required for hardware. Consequently, software is now pacing the development of weapons systems. He pointed to flight control as a good example. In addition, information has created new management tools, including modeling and simulation. He then went on to point out that competition is growing from European and some Pacific Rim countries. U.S. aerospace companies can no longer think of themselves as domestically based firms with international sales. They are part of a globalized industry. The nature of offsets has shifted from soft, indirect short-term business transactions, such as countertrade, to being part of a strategy of technology transfer and the thirst for meaningful work. Aerospace products have taken on a value to national pride as countries move from parts and component production to complete systems. Moreover, neither the costs of aerospace products nor their development costs are going down. This need for resources may be a mitigating circumstance, however, looking at the competitive issue country by country. In contrast, the creation of consortia with investments from many nations may be of significant concern, on the condition that the costs of the consortium can be managed. He also noted that both cost and timing weigh in on technology transfer decisions as either reinforcing or mitigating factors. Technology transfer concerns within the U.S. have also shifted. In the past, concerns were heavily weighted in terms of commercial releases that could be used for defense purposes. Mr. Sinnett senses that this may be reversed, particularly with regard to supplier base organization. However, concerns remain about the transfer of commercial technologies feeding foreign commercial competitors and about the transfer of certain defense-unique technologies. From a government perspective, the issue is how to balance national security needs, in both an economic and military sense. For companies, it is an issue of their competitive position and the bottom line. It may even be a matter of survival—with the associated short-term needs. The overall issue facing the industry is how to maintain dominance. Mr. Sinnett stressed that it is important to look at technology transfer to both capable competitors and not-so-capable competitors who can survive in closed markets while striving to become more capable in the future. To deal with the issue will require a balancing of the various interests throughout the supplier chain and a balancing off of the near-term demands created by offsets with long-term needs of competitiveness. It also requires that all parties look at intellectual property arrangements and technology safeguards as rigorously as they now review a project's financial position. In doing so, each technology transaction must be judged case-by-case on the basis of the technology, the recipient, and the potential impact. Mr. Sinnett pointed out that technology transfer can also be a resource. It can be used to dominate, to bargain, or to build upon. Technology usefulness is time sensitive—like ice cubes, technologies have a peak value and a limited useful life. Competitive strategy must seek the proper timing for the release of technology, while being linked to a plan to maintain the next-generation technological edge. It is also important to recognize that technology does not solely flow out of the United States. The goal should be to pursue and apply technology from wherever to the benefit of the U.S.—before the technology melts away. Mr. Sinnett gave examples of using foreign technology to improve the U.S. position: the incorporation of Swedish ceramics and Japanese process technologies into machine tools, the utilization of jump jets from the U.K., and the use of Russian composites technology. Thus, the key question becomes: what is technology transfer? What is skills transfer? Are management, organization, planning, and integration skills really the technology that we are concerned about? Answering the questions about technology transfer will require looking at the types of technology, the transfer patterns, the recipients, and the timing. Our policy must be flexible. It must be able to recognize national security needs, a relative balance of technology in global regions, the importance of timing, and the need to maintain technology investments to continue global leadership. Discussion Mr. Hoeper opened the discussion by reminding the participants that much of the conversations seemed to focus on economics, but that economics is not policy. A member of the audience, Professor Todd Watkins of Lehigh University, brought up the issue of the impacts of offsets on the sub-tier suppliers. He remarked that the speakers mentioned the squeeze on suppliers caught between foreign competitors and shrinking defense budgets. He commented that there is a third force
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also squeezing the suppliers—the managerial practice of pushing more and more responsibility for areas such as technology and quality on to the suppliers. Dr. Keller remarked that the issue of international cooperation and interoperability has been a problem for a long time and that past attempts to address the issue, such as the Nunn Amendment programs, have not seemed to progress very far. He asked if there Was a new strategy to really get technology cooperation, especially from the Europeans. Mr. Hoeper responded that a number of the Nunn programs—NATO cooperative R&D programs—were working rather well, with a four-to-one leverage. As far as new strategies, he gave the example in the communications area of a successful five-nation partnership, in part due to the fact that the teaming was done early.
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