Finding Common Ground U.S. Export Controls in a Changed Global Environment, Commissioned Papers (1991) / Chapter Skim
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TlIE STATE OF PERESTROIKA AND ITS RELATIONSHIP TO WESTERN TECHNOLOGY EXPORT CONTROLS: A S1JR VET OF SPECIALISTS OR I~ SOYS UNION A Wc~r~c~ng Paper Prepared for The Panet on the Future Design and Implementation of U.S. National Security Export Controls, National Academy of Sciences by Joel S
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aclc Snyder, Plumbs University Edward Warner, The RAND Corporation
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In addition, they were asked to speculate about the influence that alternative Western export control policies might have on the course of reform. This paper will summarize the points of agreement among the specialists while focusing more closely on the key debates among them through the presentation of individual views.
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-The Soviet economy has not yet reached the stage of development ~ which it could s~g~ficantly Agree and benefit from the most advanced high technologies. Rather, it requires a large dose of 1960s-1970s lease]
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Within these parameters of agreement, debates among the specialists developed around a series of specific issues, mclud~ng: -the potential for success of economic reform ~ the medium term and a set of criteria with which to analyze the progress of reform; -the potential for a return to the stylus quo ante, eepeciaBy a recentralization of economic authority; -the effects of refo£ m -an the coherence and performance of the military-industrial sector and its priority status ~ relation to the civilian economy; -the effects of reform on the acquisition and assimilation capabilities of different sectors of the Soviet economy, melud~g the new cooperatives and joint ventures; -the potential beneficiaries, both ~ the Soviet Umon arid in the West of active engagement In technology transfer In the near term; -the role that technology transfer and COCOM restrictions have played and might play ~ Soviet technological development, and; -the extent to which policy action in the West oouicl affect the course of reform ~ the Soviet Union. The positions that different specialists took within these debates became the basis [or their competing policy recommendations on the issue of aller~g Western export controls.
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How one evaluates the progress of economic reform depends upon one's projection of the endpoint of reform, which is still a matter of controversy among Western specialists. AD the specialists interviewed agreed that a reformed Soviet economy should include a considerable decentralization of decision-making power to actors who have sufficient information to make rational economic choices, a radically reformed price-setting mechanism to link prices to the forces of supply and demand, a well-defined set of property rights that transfers ownership to independent groups or individuals, a monetary reform that can restore value to the ruble, and measures to foster both entry into and exit from the market in order to expand competition.
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Hewett indicated that the Soviet Union is "flirting with a decompression in industry similar to the situation In Poland ~ the winter of ~ 980-S I." Richard Ericson of Columbia University has observed a growth of autarky at the city level aIld within economic branches as supply networks have broken down. He also claimed that the ruble has lost much of its [unction as a store of value.
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Though he recognized the nevitabdity of economic instability, he argued that 1990 is a critical year to see if the Soviets wid take the measures necessary to turn the economy around in ~ g9 ~ . "We must distinguish," he said, "between ins tab city that comes from an inability to do anything (as in the current sieuseion)
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Hewett claimed that the most difficult task is identifying those half-measures that seem to push the reform process forward, while having built into them a logic that win lead ~ the reverse direction. One example would be the introduction of flexible price formation without accompanying reforms ~ the financial structure and ~ the opportunities for market entry that would foster competition.
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The signs of regression ~ the reform process would include the setting of high growth and investment targets by the Gentry leadership, as weD as attempts to increase production efficiency through administrative techniques. Hewett argued that any attempt to rely primarily on increasing state orders (gos~)
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Whatever the numerous laws and edicts on new ruses of work and management proclaim they are not put into practice or are irrelevant during the state of acute economic crisis that persists. Moreover, the Soviet Umon is not preparing the essential conditions and prerequisites for the conduct of a radical reform ~ the future." Ericson argued that the problem with the reform program already introduced and the basis for his skepticism about its future success lies ~ the basic conceptual [laws of the economic reform as whole.
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Abalk~n has already drafted a comprehensive program for market~zation of the Soviet economy which was presented ~ December 1989. Third, Hewett argued that the current economic difficulties may push the Soviet economists off the plateau of the tr conceptual progress.
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Within these parameters of agreement, debates among the specialists developed around a series of specific issues, mclud~ng: -the potential for success of economic reform ~ the medium term and a set of criteria with which to analyze the progress of reform; -the potential for a return to the stylus quo ante, eepeciaBy a recentralization of economic authority; -the effects of refo£ m -an the coherence and performance of the military-industrial sector and its priority status ~ relation to the civilian economy; -the effects of reform on the acquisition and assimilation capabilities of different sectors of the Soviet economy, melud~g the new cooperatives and joint ventures; -the potential beneficiaries, both ~ the Soviet Umon arid In the West of active engagement In technology transfer In the near term; -the role that technology transfer and COCOM restrictions have played and might play ~ Soviet technological development, and; -the extent to which policy action in the West oouicl affect the course of reform ~ the Soviet Union. The positions that different specialists took within these debates became the basis for their competing poncy recommendations on the issue of aller~g Western export controls.
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To those who claim that recentralization win be the most ikely response of the central leadership under the threat of economic chaos, Hewett responded, "As the crisis gets worse, any option looks better mclud~g market reform." These disagreements over the prospects for the reform's success =d the potential for economic recentralization were an important foundation for the specialists' contending analyses of the likely beneficiaries of more active economic and technological engagement with the Soviet Umon ~ the short term. Their views on the extent of economic instability and on the ability of economic reform to produce a viable set of economic institutions =d pro&eases to replace the command-adm~n~strative system underfed their projections regarding the capacity of civilian economic actors to take fun advantage of the new opportunities that would be available in a more active engagement between the Soviet Umon and the West.
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Richard Ericson claimed that "the military-industrial sector still has a carte Blanche on what it can preempt from the general economy: the best minds, the best resources, and first choice on Western technology transfers and indigenous technologies." Its comparative advantage in attracting the most qualified personnel lies not only on its higher salary scale, but on its established network of apartments, special stores, arid preferences ~ the distribution of consumer goods -- a system of priorities that has not yet been dismantled. Regarding Western technology, Ericson argued that "the entire hierarchical structure is designed for bringing in technology and making it usable for the military sector." Though he admitted uncertainty on this question, he has not seen any evidence that this administrative structure has 1 d2
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The defense sector, whose strong research and design bureaus and quality control system produced ~nternationaDy competitive goods, was held up as a model for the civilian economy. But as the modernization program was abandoned in favor of the more immediate task of providing more consumer goods, the protection and privileges of the mil~tary-~dustrial sector began to erode.
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In addition, the move towards self[~nanc~ng throughout the economy has eroded the special price structures and budgetary overruns that defense industries have traditionally enjoyed. Through these measures, the defense sector has been drawn into the general economy, making the defense-civilian distinction increasingly insignificant as a meaningful segmentation of the Soviet economy.
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The conversion program is a plan to transform entire enterprises which had been engaged entirely ~ defense production into producers of civilian goods. The plan, which was supposed to have been In place by ~ 989, has been postponed for another year amidst numerous press reports of haphazard and chaotic conversions.
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Meyer has noticed a decreased level of output, breakdown of supply patterns, decreased capacity, and a general demoralization and rising level of frustration among defense sector workers and researchers. Most significantly, he predicts that the pace of technological innovation Will come to a halt over the next several years, while the conversion and diversification programs win lead to a technological regression.
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Though they may have questioned the degree of technological regression In the defense sector, they did agree with Meyer that the cohesion, privileges and stability of the sector has been and win continue to be severely threatened by the tendencies within the general economy and the more specific reform measures implemented within the defense Industries. The extent to which these changes In the military-~dustrial sphere should be "permanent" is the sub ject of current debate ~ the Soviet Union, according to Julian Cooper.
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In opposition are those who have been arguing for a decisive, comprehensive demilitarization of the Soviet economy, involving the transfer of production and R&D capacities out of the defense sector on a permanent basis. "There is no doubt," Cooper stated, "that the outcome of this debate win depend to some extent on Western responses during the coming months." Philip Hanson, also of the University of Birmingham, argued that, though nothing is permanent in the long run, the evidence that investment ~ defense plants has been used to re-equip them for civilian production indicates that it would at least take time for these plants to return to military production.
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This crisis has two immediate sources: the initiatives of the political leadership and the revolutionary changes In Eastern Europe. Regarding the initiatives, Gorbachev introduced the notion of unilateral cuts without negotiated reciprocal agreements, which the military would have demanded.
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Second, the nationalities crisis has forced the armed forces to am as a domestic gendarme, an uncomfortable position for any military. These challenges are threaten ng the Soviet military with disintegration along national lines.
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Civilian specialists on military affairs and arms control have been given ~ mandate by the political leadership to provide new ideas and widen the range of discussion on previously restricted military issues. The press has become a vehicle for debate and discussion on issues of strategy, doctrine, and the military's role In society, as weD as a persistent 22
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especially to the further development of the legislative branch. The combination of these vises and changes has had a devastating effect on the Soviet military.
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The military is not looking to get involved ~ politics, but because the state is fad' jng to buffer the military organization from politics, the ponties gets forged upon them. He admitted that the Soviet military has no historical tradition of political activism beyond very narrowly defied military interests, nor has it ever a~d as a competitor for political power.
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This does not mean that the Soviet military does not remain a potent force, but that it simply cannot fulfill its mission, for example In the event of a European conflict, on the basis of the old assumptions. As Legvold explained, "The Soviets have to think through the implications of these changes and defer mme what national security is all about In these new conditions." This new strategic landscape combined with the overwhelming domestic problems facing the Soviet Union as a whole and the military in particular have virtually precluded the reemergence of the old Soviet military threat.
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They tend to claim that the source of Soviet domestic problems has been its "tnternationalis m." Consequently, the nationalists, according to Snyder, "are just as isolationist as everybody else ~ the Soviet Umon." Of course, this does not mean that a new, more conservative Soviet leadership, faced with the same internal imperatives, would Inevitably continue on the path of dramatic reform and drastic reduction of the size and character of the Soviet Armed Forces. The specialists agreed that this is still an open question.
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TECENOLOGIC1LL DEVELOPMENT AND TEcl~oLoG! TO - Sow The key questions of technology transfer -- what the Soviets need, how they attempt to acquire it, and how it is assimilated into the system -- are embedded ~ the larger issues of the stability of the economy, the potential for successful economic reform, the relationship between the civilian and military sectors, the internal changes In the defense sector, and the nature of the Soviet threat that the specialists addressed above.
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, which have been tightly controlled by a combination of COCOM guidelines and state controls, as wed as by the manufacturers themselves. Yet Goodman warned that "the number of products faring mto this highly controDable category is shrinking." The Soviets have acquired Western technology primarily through passive mechanisms6 -- Western scientific literature and commercial catalogues (the largest source)
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from the civilian economy and then isolated the benefits of the technology transfer within the highly secretive defense sector. The most significant effect of the COCOM restrictions on the acquisition process has been the prevention of large-scale transfers.
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This view led Meyer to argue that 'it has not been COCOM restrictions that have retarded the level of the Soviet industrial and military base." While Goodman agreed that the key problem in technology transfer lies in deficiencies within the Soviet economy' his analysis of the role of transfers ~ Soviet technological development differed from Meyer's view ~ an interesting way. On the one hand, he placed more emphasis on the role of COCOM restrictions ~ siow~g the pace of Soviet technological development.
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One of the earnest driving forces of pere~traita was a desire to restructure the economy so it could benefit from technology and develop more mbigenous capabilities that would bring the Soviet economy up to world technological standards. "Perestroi~fa Ore," as several specialists referred to the origmat reform strategy, was a modernization program that caned for an merease ~ investment ~ the economic infrastructure and techrologicat base, along with a Iarge-scate infusion of high technology goods through joint ventures and increased integration into the world market.
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The specialists could not disagree more with the leadership's view. S ewe ryn Bialer summed up a unanimous opinion: "The Soviets' priority problems are not the futuristic technology of the Third Industrial Revolution of today, but the unfulfilled 'normal' tasks of the First and Second Industrial Revolutions -- infrastructure, abundant and nourishing foot cheap durable consumer goods, labor discipline and organization, a financial and service net, etc." The Soviet view that it is possible to Jump to Japanese techniques in a single leap ignores both the basic needs "d present capacities of the Soviet economy.
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If decision-making power is genuinely transferred to this level and basic changes are made In the broader economic environment ~ which technology assimilation takes place, then the issue of technology transfer could become extremely important In generating Soviet economic development. The extent to which perestroi~a has implemented permanent institutional changes ~ the mechanisms of technology acquisition "d assimilation is stiD uncertain; the specialists offered contending positions on 2~
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which provided information on Soviet technology acquisition efforts from 1979-1981. Thane Gustafson of Georgetown Um~ersity analyzed the documents and came to the conclusion that "it's business as usual" for the VPL-VIMI network.
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He thought that defense sector plants would offer the most promising sites for successful partnerships. Joint ventures could add some developmental capacities to the existing first class research operations within the defense sector to produce In the pre-reform Soviet economy, aU relationships between Soviet enterprises and Western firms were ch=neDed though the Foreign Trade Organizations (FrOs)
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Under pressure to make profits and, possibly, to pay world prices for their inputs' defense plants will actively seek out Western partners to provide innovation, to raise capital and hard currency, and to prevent Gosplan from forcing far-fetched conversions to the production of consumer goods on them. Cooper claimed that joint ventures between defense sector enterprises and research organizations and Western firms are already growing at a rapid pace.
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~ some areas and not ~ others.'' Goodman once again pomted to the infrastructure problems ~ the Soviet economy to argue that "there are very few organizations of any kind that are in a position to be good partners with Western firms." The quality of Soviet personnel, training problems, and the obstacles to introducing modern equipment In an antiquated economic infrastructure win make adjustment difficult. Cowman was not surprised that the initial enthusiasm surrounding joint ventures has been moving towards discouragement as Soviet overtures to the West are, [or the most part, not taken up.
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Thumb 1be East BuropeaDs my s1m be willing 10 trade 1bese gems gab the 1be S-el USA, 1be prigs w~ rise subs Ed Be m pe e mild ollber W estern m e gets for iluose good ~ es Baslern Europe beglos prod using for ltua m ore ~ m pelllize W esL ID Tbls peer oat dews ~~ cages ~ Me "guppy side" ~~ ~ baked ~ We reams Lumens udders ~ Me Soviet Ualoo ad _= Europe. May of Me -~ ~~ ~ gem cage ~ ~~= ~ =~ ad ~d~1~ ~~e ecbook~ ad Me ~c=^g up ~ cent ecboo~g~ A ~D desc~pOon of ~e.
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In fact, Hewett believed that Eastern Europe could even serve as a "cheap West" for the Soviets, creating a whole new channel of technology flows. While the specialists did not speculate about how changes in the COCOM guidelines might alter the "supply side" of technology transfer, they did claim that a comprehensive nbera Cation of Western export controls would significantly expand the range and quantity of technological goods and processes available to Soviet users.
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In Ericson's view, a lib eratization of Western export controls could only benefit the Soviet economy as a whole if "the Soviets 40
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In addition, the joint ventures and cooperatives have the ability for the first time to work out deals which might get some of the new technologoies into their part of the economy. In the end, Goodman argued that the beneficiaries of a more liberal trade regime would depend more precisely on what types of technologies are decontroDecI.
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which provided information on Soviet technology acquisition efforts from 1979-1981. Thane Gustafson of Georgetown Um~ersity analyzed the documents and came to the conclusion that "it's business as usual" for the VPL-VIMI network.
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, could make a substantial difference ~ the level of performance or innovation of the Soviet defense sector. In fact, he argued that the opening of the Western export control regime would have little effect on any of the significant economic actors the Soviet Union until the larger internal problems of the economy are adequately addressed.
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Yet he did suggest that removing the technology barriers might do some good in promoting economic development in certain areas. Those who did assert that Western export control policy could have an impact on Soviet development and reform admitted that this would occur only at the margins.
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With one exception, all the analysts interviewed caned for a comprehensive reform of COCOM guidelines that would reduce export controls to a "reasonable, plausible minimum." In their common view, this minimal test of controlled exports should include those items that are exclusively for military-strategic use, as weD as the most advanced dual-use technologies. 1 3 They overwhelmingly agreed that this list should not include those items that could help the Soviet {Anton improve its basic economic infrastructure and~ra~se the quality and quantity of its consumer goods production.
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From page 284... ...
$ optics ~ ~m~11 Ed ~ Adage ~ _ _ ~u~ ~ presses. Thumb 1be East BuropeaDs my so be willing 10 trade 1bese Hems gab the 1be Sahel USA, 1be prigs w~ rise subset Ed 1be ~ m Pete mild ollber W estern m arkets for iluose good ~ es Eastern Europe beglos prod using for llba m ore ~ m pelllize W esL ID Tbls peer oat dews ~ cages ~ Me "guppy side" ~= ~ baked ~ we reams current udders ~ Me Soviet Ualo" "d _= Europe.
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From page 285... ...
In fact, Hewett believed that Eastern Europe could even serve as a "cheap West" for the Soviets, creating a whole new channel of technology flows. While the specialists did not speculate about how changes in the COCOM guidelines might alter the "supply side" of technology transfer, they did claim that a comprehensive nbera Cation of Western export controls would significantly expand the range and quantity of technological goods and processes avaHable to Soviet users.
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In Ericson's view, a lib eratization of Western export controls could only benefit the Soviet economy as a whole if "the Soviets 40
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Instead, he argued that Western choices should be based on an acceptance of the inherent instability involved In the process of transition, a close analysis of the transition as it evolves, and an effort to contribute, even if only on the margins, to the stabilization of the larger environment in which this inherently unstable transition takes place. CONCLUSION In all the interviews, one theme was predominant: the Soviet order that inspired the creation of the post-war Western export control regime has been seriously undermined by the current wave of reforms.
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They consistently argued that COCOM restrictions need comprehensive reexamination towards a more reasonable, plausible minimum that does not impede the process of economic reform and the development of a technological infrastructure for ~ more efficient, flexible economy. Though they suggested alternative views on what such a minimum set of restrictions should be, they agreed that the level of technology transfer would not have a significant impact on Soviet development until the domestic reforms cre ate c!
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