Dual-Use Technologies and National Security
W. Clark McFadden, Dewey Ballantine
CHARLES WESSNER: I would like to first introduce the moderator for this session, Clark McFadden, who is one of the leading authorities on U.S. technology policy. He works with the well-known law firm of Dewey Ballantine and serves many of the leading high-technology companies. He has also worked very closely with SEMATECH over the years, and has been instrumental in developing a number of creative solutions to partnerships between the U.S. government and private industry.
CLARK MC FADDEN: As we continue the examination of friction and opportunities for international cooperation in technology development, I will focus this morning on dual-use technology, which is a curious and often elusive term. Inherently, all technologies tend to be susceptible to more than one application. The dual-use distinction is reserved for technology that has a significant government application and a private sector application, especially as the government application pertains to national security. Technology has become a more pervasive differentiator of military performance. Governments must compete in developing and securing technological advantage for national defense.
The Clinton administration has made a significant change in technology policy. Historically, the U.S. Defense Department [DoD] has had the latitude and resources to enlist industry to respond to its technology needs. It could regularly dismiss the commercial effects of its actions, impose unilateral terms and conditions on R&D activities, and rely largely on a defense-unique industrial base. All of this has begun to change under the new dual-use technology policy. The DoD will take greater account of commercial considerations, enter into more flexible contractual arrangements such as partnerships and place greater reliance on a
commercial, as opposed to a defense, industrial and technological base. In short, the Defense Department will become more attuned to and hence more involved in the commercial considerations surrounding technology development.
This emphasis on dual-use technology could have a profound effect on research and development in the United States. Although the dual-use policy has been evolutionary and responds to the circumstances of a post-Cold War environment, it has still provoked controversy, skepticism, and questions such as:
Can the dual-use policy be effective in meeting military needs?
Does the DoD have the skill and muscle to pull it off?
Can the DoD develop a consensus that will sustain it for the long term?
The ramifications of the dual-use policy will be felt by U.S. trade partners as well as the U.S. industrial base which responds to DoD needs.
The Japanese reaction is worth special attention. The Japanese government has its own approach to technology development. Japan is also in a position to be most affected by the U.S. dual-use policy both for opportunities to cooperate in the implementation of the policy and to feel the commercial impact of the policy.
Finally, the U.S. industrial base will surely be affected. Is it efficient for government to engage in this kind of activity—attending to the commercial dimensions of technology policy—or could industry better adjust by responding to the DoD as a customer with changing requirements?
We have on the panel today Paul Kaminski, the Undersecretary of Defense, who has been a major architect and proponent of the dual-use technology that the DoD has begun to implement.
We also have, from the House National Security Committee, Bill Andahazy, who has been grappling with technology issues in the national security area and dual-use policy.
Next we have a well-known expert on Japanese technology policy, MIT's Professor Richard Samuels, who can give us some insight on the foreign international reaction to dual-use technology policy.
And our final panelist is Jacques Gansler, a prolific writer, commentator, and activist in the area of defense base and military conversion.
A New Model for Defense Acquisition
Paul Kaminski, Department of Defense
Today I will share with you some of my views about where the DoD is headed in dual-use technologies and international cooperation and some of my thoughts about a new model for defense acquisition.
Currently, the DoD's technology strategy is shaped by three dramatic changes that are occurring in the national security environment. The first change has to do with the post-Cold War needs transition, or why we need weapons systems. Al-
though the United States will be operating much more in an allied and coalition environment, we will need to retain or maintain a leadership position. I will talk about this some more as a principal motivation for our international cooperative efforts.
In the environment that we are operating in today, I will describe the types of threats we face in terms of first-and second-order statistics. The first-order statistic, the mean level of the single greatest threat that we are facing today is, of course, down considerably relative to what it had been during the Cold War.
But the irony in the situation is that the second-order statistic, the variance, is not down. In fact, it is up. It is a more difficult environment in which we need to develop coherent plans for the medium-and long-term future. And this is a key underlying change that I will come back to in a minute.
The second change that we are dealing with is how America fights, and that affects what weapons systems we will buy in the future. This change is captured in the thoughts associated with studies of the "revolution in military affairs."
This revolution is driven by a number of factors, but a principal factor is the decision to ensure that a wide range of new technologies are available to improve our battlefield situation awareness and to shorten our battlefield action cycle time, the time it takes the U.S. and allied commanders to bring effective force to bear on an objective.
The third change that we are dealing with is a change in the way America develops and fields its weapons systems. This is a "resources transition" and one that I am promulgating at the DoD to change how we buy our various systems. My objective is to make the procurement system more efficient and to reduce the cycle time associated with the acquisition process. The DoD is placing far greater reliance on commercial sources to field technologically superior weapons systems at a more affordable cost.
Over the past 30 years, the evolutionary change in the industrial base that supports the DoD has been no less dramatic than the changes in the world order since the end of the Cold War. Although DoD purchases have declined, America's commercial markets have continued to expand. In aggregate terms, commercial industry surpassed the DoD in research and development spending way back in 1965. And the disparity between DoD and commercial sector investment in R&D has been growing wider ever since.
This difference means that the technological momentum of the United States is being driven to a greater extent by commercial market forces rather than the defense market. In this environment, we in the DoD have no choice but to move from separate industrial sectors for defense and commercial products to an integrated national industrial base. We must leverage commercial technological advances to create military advantage and ensure that our equipment remains affordable and the most advanced in the world.
Here is where the DoD's dual-use strategy and the Technology Reinvestment Project of the Advanced Research Projects Agency play a key role. Lever-
aging commercial technological advances to create military advantage is critical to ensure that our equipment remains at the leading edge. Our objective is to marry the momentum of a vigorous, productive, and competitive commercial industrial infrastructure with the unique technologies and system integration capabilities provided by our defense industrial base.
A tighter linkage with commercial markets can shorten the cycle time for weapons system development and reduce the cost of inserting technological improvements into DoD weapons systems.
The DoD can no longer afford a 15-year acquisition cycle time for our major systems when the comparable commercial turnover is every three to four years. The issue is not only cost. The lives of our soldiers, sailors, marines, and airmen may depend on shortened acquisition cycle times as well. In a global market, everyone, including our potential adversaries, will gain increasing access to the same commercial technology base. The military advantage will go to the nation that has the best cycle time to be able to capture those technologies that are commercially available, apply them to its defense mission needs, and get them fielded with people who are trained to effectively exploit them in the field.
The DoD's dual-use investment strategy has been documented in our 1995 report entitled Dual-Use Technology: A Defense Strategy for Affordable, Leading-Edge Technology. I will give a very brief summary of the highlights of this document, and I recommend it for your reading.
The DoD's dual-use strategy is based on three pillars. The first pillar involves leveraging the commercial sector's technology-based investment. As I said earlier, commercial industry is now the technological agent of change in a variety of leading-edge technology areas that are critical to the DoD.
Examples of where the department is no longer the leader include information systems, telecommunications systems, microelectronics, and a whole variety of fields associated with computer-aided design and manufacturing tools. The issue here is to capture what is being done commercially, perhaps to influence it slightly, and apply it to our needs.
The second pillar is the idea of "dual produce." The DoD is putting a great deal of emphasis on taking advantage of commercial production to manufacture defense equipment. Producing major weapons systems on a commercial line, in my opinion, will certainly be the exception rather than the rule. However, we have not given enough attention to commercial production of major subsystems or critical components for our defense systems. We have the design tools available to us today to design around components being produced commercially. We need to apply, and will be applying, a far greater effort to this dual-produce concept: to be able to produce our key subsystems and components off of high-volume commercial lines and then to apply our systems engineering and our software applications capabilities to fuse those components into usable defense systems.
The third piece of the strategy calls for the DoD to make those investments
that are needed to facilitate the use of commercial components into defense systems. The objective is to design components for dual-use applications. This pillar recognizes that acquisition reform and dual-use technology investments are not sufficient by themselves to ensure use of commercial components.
Program managers and contractors still face up-front costs and risks in adopting commercial products and technologies—for example, the cost of determining that a commercial integrated circuit will withstand the necessary extremes of temperature and humidity. In the past, the onus was on the program manager who did not use a military specification for a defense system.
We have removed the burden of proof from the program manager and, in essence, put the shoe on the other foot with respect to the use of commercial specifications. A waiver is, in essence, required to use a military specification. It can be used only when there is not a suitable commercial or international specification available for our products.
In addition to executing an overall dual-use strategy, the DoD must take steps to strengthen international armaments cooperation. It is clear to me that we will have to leverage the industrial base of all of our nations to modernize the equipment of our defense forces at an affordable cost.
To us that means increased emphasis on cooperation with our allies in a variety of endeavors to include increased cooperation in acquisition of defense equipment.
The United States seeks cooperation with its allies here for three reasons. The first is political: These programs help strengthen the connective tissue, the military and industrial relationships, that bind our nations in a strong security relationship.
The second reason is military: There is an increased likelihood of operating in a coalition environment where we need to deploy forces with interoperable equipment and rationalized logistics.
And the third reason is economic: Our defense budgets and those of our allies are shrinking—what we cannot afford to do individually may be affordable through economies of scale and a common effort. For the first time, the United States finds itself in a role in which there are programs we would not be willing to undertake of our own volition without a cooperative effort in which we can share some of the development costs.
The history of international cooperation on armaments has not been good. As I look at the record, I see that many programs were started but few have been completed or continued for very long.
In general, most of the problems in armaments collaboration revolve around conflicts between narrow national interests that are at odds with broader cooperative interests. To quote a good friend: "We have converging needs but diverging interests."
As I look at some of the key problems associated with our past cooperative programs, there are many that I believe are worth highlighting. One is the long
decision times associated with these programs, in which complex national decision processes have to be combined to produce an international decision.
The second problem is the relative lack of competitive forces once international teams are put together. Here we need to build on our commercial models so as to bring competitive forces to bear in international cooperative programs. If we do not maintain competition, the combination of long cycle times and a fixed team generally lead to inefficient performance.
I see additional problems developing in the area of increasing European-only defense cooperation. This construct is not objectionable. In fact, it is welcomed, so long as it does not come at the expense of the transatlantic link.
Taken to an extreme, this could have drastic results. Some of the possible negative outcomes could include closing out U.S. technologies and expertise from the European developments and related markets, the development of noninteroperable systems, and greater cost to our allies with less security to show for it in the end.
The Clinton administration is prepared to be an equal partner in armaments cooperation. Our objectives include:
increased emphasis on cooperative solutions;
the use of the best technologies, wherever developed, in our weapons systems; and,
systems-level cooperation versus cooperation only on parts and individual technologies.
A "triad" of key initiatives is under way today under the aegis of NATO's Conference of National Armament Directors [CNAD]. These programs are examples of large cooperative efforts that are breaking new ground on innovative management approaches in alliance ground surveillance/theatre missile defense, and combat identification.
In summary, given DoD's new budget realities and the amount of research being conducted by commercial firms, we have no choice but to take an innovative approach to technology development and utilization.
If we are to have assured and affordable access to the technologies needed for future technologies systems, then we must reach out and exploit technological advances being made in the commercial world here at home and abroad. I believe that the strategy outlined in rough terms here today is a prudent way for us to accomplish that goal.
PETER SCHARFMAN: Do you foresee a modification of the structure by which the DoD establishes requirements so as to be able to purchase commercial items in the way that commercial items are normally purchased? That is to say, some emphasize one thing and some another. You try to look for the best value.
For example, if you are going to buy a car, you do not make a list of 170
items that a car has to have and then reject a car because it has only 169 of these items. How will we create new links from the war fighters who know what they need through the purchasing process?
PAUL KAMINSKI: My response has two components. For smaller-scale purchases, certainly those under $25,000 and in most cases under $100,000, there is a lot more freedom in our system to buy commercially. I believe that it will have a significant impact. It represents well over 90 percent of the purchases made, but in dollar volume it is still a small percentage.
The bigger issue has to do with our major systems in which we are making some fundamental modifications to our approach early on in the acquisition process.
We have introduced the concept of integrated product teams that are working across all pieces of the system, and working to do a much better job of making affordability trades earlier in the process, so that the consequence of the trade looks at the numbers to be bought versus performance requirements.
During the Cold War, the paradigm that we operated under was one in which I would describe cost as a dependent variable. That is, the paradigm went as follows: We saw a threat system being developed, we often had exquisite intelligence of what the characteristics of the threat system were, or what they were going to be, and we had a good estimate as to when the system was going to be fielded.
So, in a sense, we could design a system to counter those capabilities. And the performance of the system dictated what was needed to counter the threat system. The cost was whatever it had to be. The cost was a dependent variable that came out of that process.
We are no longer in that environment. We are in the process of introducing these affordability trades up front so that we can make some reasoned assessment of cost and performance.
We have introduced some means to avoid a wholesale commitment to what I would call a platform-by-platform recapitalization, because we cannot afford to be replacing every platform in our inventory or successor platforms.
There are some places where we need to take some different approaches and to introduce some new concepts. That is a subject of an entirely different discussion on advanced concept technology demonstrations, which gets some things fielded, so our users can make some informed decisions about alternatives.
There is one other aspect to this equation that also needs very careful attention, and that is not simply the cost of development and procurement, but the lifecycle costs of our systems, looking at total cost in a systematic way. Sixty to seventy percent of the life-cycle costs of the major systems that the DoD fields occur after the system is fielded.
So we need to be giving much more attention to the affordability of those systems over the long term, especially as we keep them in the inventory longer. There is a big gain to be won there.
The big problem is there are not sufficient incentives in our system to produce savings in the future by making expenditures today.
CLARK MC FADDEN: You have described the new dual-use technology policy that moves away from a defense-unique industrial base and seeks to provide more flexibility from the take-it-or-leave-it contract terms that have been typically imposed, and it contemplates, by virtue of relying on a commercial base, international participation.
What are the guidelines that you would see as appropriate in determining when the DoD should move to international sourcing and international participation in their R&D program?
PAUL KAMINSKI: With respect to looking at major subsystems and components, we have really opened things up in a major way to international acquisition. The inhibitions are much reduced. We are seeing, in several of our new systems being developed, the insertion of a commercial-like international component. For example, the U.S. Army's new mobile artillery piece, the Crusader, is a system that will have a diesel engine produced by Perkins in the United Kingdom. So we are seeing a lot more work by looking at international sourcing of the best product for the key subsystems and the components.
At my level, we will review new developments over $50 million so that we can have a conscious look at whether some other more formalized international arrangement seems appropriate rather than just turning the crank the old way.
OZZIE SILVERMAN: Do you find that there are any areas of technology or components where you feel that the security supply is not there, perhaps because U.S. companies are obtaining part of their technology from elsewhere, where you feel you have to develop a base, say a manufacturing base, in the United States?
PAUL KAMINSKI: Yes, there are arenas where we feel we have to have a base in the United States. However, in almost all cases, it occurs at a very high level, at an integration or assembly level, as opposed to going down into a component or a piece-part basis.
The places where we have made a conscious decision to sustain an industrial base, for example, have been in areas such as the nuclear-capable yards for submarine and carrier production. In most other situations where we are not faced with current legislative restrictions, the policy has been a far more open policy, and I would say that the exceptions are notable and countable.
Policy and Budgetary Drivers
Bill Andahazy, U.S. House of Representatives Staff
We had a hearing in early March, where Lt. General Wilhelm from the Marine Corps Combat Development Command made a comment that is worth re-
peating here. He had been asked by a student what the next war would be like. His response was, ''Let me put it to you this way. It is going to be about four 'Bs.' And those four Bs are: brief, bright, bloodless, and a bargain." I bring this up because our investments in science and technology are also somewhat focused around this principle of the four Bs.
Brief: We all depend on the overwhelming power within the United States military, typically the joint forces in air, sea, and land, to overwhelm an enemy.
Bright: We will have knowledge of the battlefield and battle space through satellites, Unmanned Aerial Vehicles [UAVs], and intelligence, with a digital connectivity to all the battlefield components, so that there is a degree of knowledge that will carry from the theatre commander down to the lower echelons.
Bloodless: We are looking at removing the war fighter from the battle scene. We are making investments in precision-guided munitions. We are looking at stand-off capability in an effort to distance the war fighter from the enemy.
A bargain: We have to understand the fiscal environment in which we are working. For example, when you go to buy a house, the realtor knows that there are three things that are important in selling a house: location, location, and location. Similarly, when Congress looks at new weapons systems, the three things that it looks for are affordability, affordability, and affordability.
This new description of future battlefields and future wars gets to the point that technology will be a major player in our strategy. Technological superiority, which is one of our major tenets, will continue to be a factor that the DoD will view as a keystone in the way it builds future forces.
However, we must have access to that technology, and we will rely on both in-house and out-of-house sources. We must also have industries to produce those systems in ways that rely on technology so as to ensure performance and to control manufacturing costs.
Clearly we need the tools to get there. We have had robust programs in science and technology within the Defense Department for some time. Even when I came to the Congress back in 1988, we saw that the technology base needed support, and we put it on a reasonable growth curve.
We are in a situation right now in which the technology base is strong, even though the DoD budget has decreased. However, even though we have defense technology on the plate and we are continuing to develop new technology, we understand that we have to rely more and more on the national technology base and our access to it for the future.
If you look at the budget facts and figures for the National Science Foundation, the National Institutes of Health, and the Commerce Department, they are investigating technologies that are often common to the needs of DoD. Each department must have access to it all. Therefore, we are trying to shape and reformulate our defense technology base and the investments that we make in science and technology to ensure access and crosswalks for DoD and others.
Also, we need to move technology to the field more rapidly. For years the DoD has had a rather traditional model of moving along a continuum from its basic research to its exploratory development, advanced development, and final phases that allow us to take defense S&T and make meaningful products for the war fighter. We will continue to do that with new programs within the DoD. Advanced concept technology demonstrations, for example, are a way to synergistically bring in different types of systems based on new technology so we can look at what the system provides the war fighter before we move into the acquisition process.
We also must have early involvement with industry. It is senseless for us to have all the technology we develop under wraps and then all of a sudden reveal it to industry when we specify new systems. Bringing industry in early through a number of programs—particularly dual-use developments as a means of early industry entry—is important. This is one of the themes that we in this Congress are talking about. We have great support for dual-use technologies.
So we have a number of ways in which we can and will consistently work for industrial cooperation in technology development. But we also have some impediments to accomplishing this rapid transition of technology to product for the miliary. These impediments must be solved if we are to be successful.
Currently, we are infrastructure poor. We have over 100 laboratories and test facilities that were perhaps essential in the Cold War, but now that the Cold War is over, we probably no longer need that much capacity. We have a tough time taking these facilities down in the current political and economic climate.
We are fundamentally infrastructure poor, or infrastructure rich, however you want to look at it. It is certainly costing the DoD a lot of money to keep people on the job and to keep the lights on. We have to find ways to pare that down.
I want to assure everyone here that the Republicans are not the Dr. Kevorkians of technology. We are trying to interact with industry and other players. We are trying to foster, and will support, continued work in dual-use technologies as a major mechanism. For example, ARPA and, to a high degree, the service programs in S&T are producing not only new knowledge and new understandings of future systems for the DoD, but they are producing new technologies for the nation at large.
ARPA programs are a good example because they provide fundamental building blocks in electronics that are essential to the nation at large, not just the DoD. These programs are funded solely by the DoD in partnership with industry.
Currently we are trying to rationalize just what should be the future role of the DoD to continue to fund these types of developmental technologies. But at the present time, there is no change in what we have done in the past to what we are doing in the FY 1996 program.
I will, however, comment on the Technology Reinvestment Project. We have taken a new look at that program, and we have removed it from the current 1996 budget. We have also encouraged more dual-use partnerships that are tan-
tamount to the Technology Reinvestment Project, but over which we have appropriate oversight and control.
So, in summary, we are trying to refocus our technology primarily toward military purposes. We are still encouraging and emphasizing dual-use technologies for the purposes of civil and military integration, and we are relying more and more on the national technology base to support our military systems.
RICHARD THAYER: It seems that the concept of dual-use technology is straightforward, but it strikes me that there seems to be a lack of understanding, or a misunderstanding of this concept, and confusion of terms such as spin-off, spin-on, and technology transfer. Why is this?
BILL ANDAHAZY: Technology is worldwide. We are no longer the technological gatekeeper within the DoD or within the nation. Spin-off or spin-on technologies are terms that we utilize to arrive at an understanding among ourselves in terms of what does or does not make sense for public investment.
We have to rationalize the dollars that we are putting on the table. For example, for the basic research that we must conduct, we have to find a way to make the process more efficient. As we move across the continuum from basic research to exploratory development, we have roughly $4 billion in investment in the Army, Navy, Air Force, and DoD agencies, including ARPA, in which we are advancing technology. Whether or not that has spin-off or spin-on potential must be determined on a case-by-case basis. I believe it is applications dependent.
In most cases, particularly in electronics, we have a major stake in public investments. When electronic performance has to increase, the companies themselves provide research products that can be spin-on to defense. We use both approaches because we want technological superiority. Information sciences or information technologies are a good example of what we need to have so as to satisfy the four Bs.
Whether it is in the nose cone of a guided missile or whether it is in the radio used by a soldier, that electronics system or individual component has to be developed. It may have been through the public investment within the military or it may have come from private investment. But clearly when that chip or that component appears and we need it, we do not care if it is spin-on or spin-off.
It is far too difficult to separate technology out and put it into little boxes. So we have an emerging policy in that we will support a technology to the point where it tends to break or show feasibility and promise to move us forward for a future system that is, indeed, totally military. We know full well that there may be other nonmilitary applications.
Clearly the researchers who are in our industries, our laboratories, or whoever shares in the technology development that is supported by the DoD should have an opportunity to spin off to other sectors for the national good. It is an absolute certainty that this Congress and everyone else wants this to happen.
The form, fit, and function that will force this spin-off to happen is something that probably does not fully exist. We have enough councils within the DoD and the administration to motivate the functions for technology transfer. Most of these councils have a lot of responsibility but little or no authority to really get done what needs to be done programmatically.
On a similar note, part of our observation and criticism of NSF and NIH is that these agencies are too steeped in basic research to advance to the point where American companies, who are living by a different set of rules than public entities (that is, the companies focus on short-term payoff and short-term product), can connect to proven technology, not just proven theory. How does that technology bridge? What makes it bridge to a potential system? What forces it? What is the business environment that makes a company want to draw on the technology that has been advanced in a university? What is it that makes good national business sense, or why does industry not establish a more personal relationship with universities in an effort to move university technology into their R&D facilities for the next generation of whatever they manufacture? These are the real questions that must be answered by administration-appointed councils, and they should be followed by a plan of action.
So when we look at technology development, the DoD is clearly an important part of it with its public investment. But technology is an international woven fabric in terms of the way it functions by various investments. The DoD and the commercial sector need technology to stay profitable and competitive.
Where are the national leaders, and who has the game plan that will guide all of us who work within the public sector to make our investments? They do not exist.
CLARK MC FADDEN: The dual-use technology strategy implies a much greater sensitivity to and involvement with the commercial technology base by the DoD. It is going to take a much greater understanding of what is happening there, how to exploit it, how to come to grips with it effectively. What is your assessment of the will and commitment of the military services to embrace a dual-use technology and to move away from the approach of defense priorities first and doing it in a way that is a very simple take-it-or-leave it approach in dealing with industry? And how do you see the DoD obtaining the skills to manage this? How are the military services going to be able to manage technology development when they are forced to go into partnerships with commercial entities, forced to anticipate and exploit commercial developments in R&D?
BILL ANDAHAZY: ARPA is attempting to see where technology is going in various sectors and trying to institute new acquisition methods to allow ways for the DoD to get a hold of it. ARPA is a leader in trying to move into new dimensions within the DoD.
The military services are slow to react to that same mind set. It is not that
they do not understand it, it is just that the military departments are more internally structured. Before they can do the same things that ARPA does, for example, partnerships, there is typically a regulation that needs to be established within the DoD. People need to be willing to change both their attitudes and their ways of doing business.
Clearly the Office of Naval Research [ONR] is an activity that everyone knows and appreciates for what it has done and what it is attempting to do. But the Navy, in this particular case, has the authority, as does the Army and the Air Force, to take any of their technology-based programs and, where it makes sense, exercise a partnership, a joint venture, or any other agreement for the advancement of dual-use technologies. But it is just slow to happen.
At this point, ARPA has been in the business for several years. They have established a track record for getting these things done. But we should and do have the responsibility to take the entire $4 billion technology base and leverage all to some extent. Not that it has to be a 50%-50% shared cost, but perhaps an 80%-20% shared cost or whatever makes sense for a partnership. Part of what we are trying to do is to ensure that there is a military focus for that dual-use partnership.
LANCE GLASSER: ARPA has been in the dual-use business since it was created in 1958 in response to the launch of the Soviet Sputnik. The ARPA mission is to create and prevent technology surprise.
Our first mission was space. We were in space before NASA. So, in retrospect, our first mission was a dual-use mission. Since then we have done ARPANET that has turned into Internet. We have done parallel computing since the ILIAC-4. This is a 35-year-old record of success.
But let me also point out that dual-use is a dependent variable. The first issue for ARPA is, is there a military need? Is there a compelling military reason to invest in a technology?
The second issue is, will investment make a difference? There are a lot of things that we would like to have, but we cannot figure out how investment will make a difference.
The next question is, what is the most affordable way to do things? When a dual-use strategy can work, then it is usually the most bang for the buck for the military.
So it follows from the military need. It follows from the ability of investment to make a difference. It is a way of investing that is the best value for the U.S. taxpayer.
If you look at our various programs, from flat-panel displays to electronic packaging and many other areas, what do we need for the future revolution of military affairs?
This is all based on a revolution in information technology. If there is a revolution in information technology, there has to be a machinery of information technology. And it has to connect to people, to soldiers.
The highest bandwidth connection between the machinery of information technology and people, of course, is displays. That is why building armories for flat-panel displays is not a good idea. The only possible way to make that investment is a dual-use investment in which you build an integrated technology base that will serve the DoD's needs.
BILL ANDAHAZY: With respect to your last question, in terms of developing the management skills within a department, people have to be exposed to both the technology and the military system vis-à-vis the way the military system works. We have to recognize people early, groom them, put them in different assignments, make demands of them so that leaders can be grown. Whether it be in industry, whether it be in government, leaders have to be grown.
Dual Use: Implicit Japanese Policy
Richard Samuels, Massachusetts Institute of Technology
Today I want to outline some of the elements of Japanese dual-use policy, some of the differences, and their consequences for economic growth, innovation, and bilateral relations.
In 1936, Hermann Goering stated that, "guns will make us powerful; butter will only make us fat." That is one succinct vision of national security. Japan has now proved him wrong all together. Japan teaches us that butter is as likely as guns to make a nation strong.
The Japanese lesson is simple: Japan has subordinated defense production, yet has emerged as one of the most technologically sophisticated nations in the world. At a time when a nation' s defense skills will more than ever depend on the strength of its commercial economy, the Japanese are well positioned to have butter and guns—should they make the requisite political decision.
We know that the Japanese defense industry is very small. Japanese defense production comprises barely one-half of 1 percent of total Japanese industrial production. Barred from export markets since 1976 by cabinet policy, Japanese arms sales are no larger than those of the nation's sushi shops.
But despite limited production of final systems and large-scale weapons platforms, Japanese firms have emerged as world leaders in the design and manufacture of materials, components, and subsystems essential for defense systems at home and abroad.
Indeed, the most rapid growth in postwar Japan was in sectors closely linked to the materials and technologies that enhanced the battlefield capabilities of modern weapons: data processing, telecommunications, optoelectronics, and lightweight materials.
By making integrated circuits in large volumes for consumer electronics and graphite fiber in large volumes for tennis rackets and golf clubs, Japanese manu-
facturers were able to accumulate experience and "spin on" their knowledge to military aerospace applications. Having responded to the escalating demands of rapidly changing civilian markets for these and other products, they found themselves able to meet military specifications of performance, reliability, and quality—often at lower cost.
Notwithstanding the U.S. security guarantee that made this possible, Japanese firms and the Japanese government have embraced technology and the economy as matters of national security. In particular, three values are maximized: autonomy, diffusion, and nurturance. This fusion of industrial, technological, and security priorities was driven by military needs in the first half of Japan's industrialization and by commercial needs in the second half.
(1) Autonomy: Autonomy has been Japan's strategic constant over the course of its industrialization. Since the mid-nineteenth century, Japanese security planners have had to navigate between the Scylla of technological backwardness and the Charybdis of foreign dependence.
Consistent with this desire for autonomy is the belief that national security is enhanced by the design and production of weapons as well as by their deployment. There is rarely an industrial policy document that fails to justify its goals with reference to the development of "autonomous technology" (jishu gijutsu) or "indigenization" (kokusanka).
In accordance with this principle, in both military and civilian cases, it is not uncommon for each subsequent generation of Japanese products—whether aircraft, machine tools, eyeglasses, or chemicals—to depend less than its predecessor on foreign technology, as one MITI official put it, "ichingo yunyu, nigo kokusanka. "
Thus the paradox: Licensing has been the middle road toward the higher ground of pure (jun) technological autonomy. Japanese firms have purchased enormous stores of knowledge, mostly from the United States, as a way to achieve technological independence.
The contrast to the United States could not be more stark. During the Cold War, American firms were not only willing, but eager to sell technology. U.S. firms operated under a perverse set of incentives comprising the U.S. financial structure, Japanese demands for technology, and the Soviet enemy. Note how "offsets"—the allocation of production among allied nations as a way to entice them to allow deployment of U.S. troops and military systems—provided extensive foreign access to U.S. military and aerospace design and production technologies.
The United States transferred more weapons to Japan than to any other ally except Germany, mostly in the form of licenses at every level of production—from the final, integrated platform to the production machinery that formed the components. Japanese defense contractors licensed and co-produced 29 major U.S. weapons systems, more than any nation in the world. Benefits have not been insignificant.
(2) Diffusion: A commitment to autonomy is not uniquely Japanese, of course. However, layered on this is a corresponding commitment to diffuse technologies as broadly as possible throughout the economy.
The history of technology is a history of interdiffusion between commercial and military applications (the wheel was not invented for the Roman chariot, but the spoked wheel was), but in Japanese practice, technology is often a quasipublic good developed and distributed through elaborate networks of producers and bureaucracies.
Participants in the process believe that proprietary technology can be distinguished from generic information, and that each contributes significantly to Japanese national security. As a consequence, Japan has built an extensive network of "technology highways"—an infrastructure comprising at least as many lanes, but perhaps fewer roadblocks than its U.S. counterpart.
Institutions such as research consortia enable competitors to achieve common technical goals before they compete with each other in the market. Japanese firms cooperate in consortia at every level of development and—especially in aircraft—device manufacturing. Although the form and function of these consortia vary—and although competition among the participating firms never disappears and is often extremely vigorous—collaboration persists as a highly valued norm in Japan, while it is denigrated as "collusion" in U.S. thinking.
A second difference with the United States is derived from the way the Japanese system facilitates extensive inbound (but much less outbound) technology traffic from abroad. It is able to exploit the opportunities other countries have created to promote technology exchanges as well. Partly as a result, Japanese technology highways much more effectively acquire and diffuse global and domestic technologies than similar systems in other countries, certainly greater than in the United States.
In the United States, the technology highway came close to resembling a "toll road," with restricted access lanes, while Japan's technology highways are "freeways" that can accommodate automobiles, trucks, or tanks with equal facility. The interdiffusion of civilian military technology is just another lane on a very busy highway. Any vehicle can travel on any lane at any time.
(3) Nurturance: In Japanese thinking, autonomy and diffusion are incomplete without a parallel effort to support and sustain the producers that benefit from these processes. There are many threats to the sustenance of long-term manufacturing capabilities, including market shifts and technological revolutions. Firms and the government vigilantly monitor the economy to mitigate the worst effects of each.
There is also the threat of "excessive competition"—the fratricidal competition among firms that results in bankruptcies and unemployment, but which is oxymoronic in Western terms. In the Japanese view, the social dislocations of "excessive competition" are as great or greater than the eco-
nomic costs of excessive concentration in the neoclassical model. Thus, firms and sectors are nurtured.
Japanese military manufacturing has been limited by comparatively low military expenditures. But the country's defense base—indistinguishable from the larger industrial base—has been sustained by regional producers who retained their skill and manufacturing networks.
In sum, then, the protocols of the Japanese economy differentiate Japan from U.S. practice in at least four ways:
In terms of industrial structure, Japan's leading defense contractors are also Japan's most innovative commercial firms. As elsewhere, the top defense contractors are among the largest firms in the economy, but unlike in the United States or much of Western Europe, these firms are highly diversified and depend little on sales to the military. Only two of the largest defense contractors in Japan are dependent on defense procurement for more than 20 percent of their total sales. Ten of the twenty have less than a 5 percent dependency.
In terms of technological diffusion, Japan's prime contractors—unlike U.S. prime contractors which virtually isolate defense from commercial production—make much less distinction between military and civilian products, except at final assembly.
In terms of collaboration, there are rarely clear-cut winners and losers in Japanese defense procurement. Firms that fail to be designated prime contractors often are assigned a significant subcontracting role and are rewarded the next time around with the more lucrative prime contract. In the meantime, each firm participates in each project and in the commercial economy. Technology is more widely diffused to the benefit of the entire economy. We know how important the ability to "team" has become for U.S. defense contractors. But in the United States, balancing competition and cooperation is a brave new and unchartered world. In Japan it is a well-practiced, fine art.
In terms of using foreign partners, Japan brings more than a century of experience in foreign technology licensing and "international cooperation" to a global market that is only slowly learning that single firms in single countries can no longer build complex military systems (or even all the necessary components) on their own.
The Japanese lesson is that, under propitious circumstances, a nation need not sacrifice national interests to foreign dependence. A corollary is that propitious circumstances, like comparative advantage, can be created.
In Japanese parlance, technological autonomy and "international cooperation" are not incompatible. Indeed, to the contrary, a central purpose of "international cooperation" is to enhance the Japanese technology base which, in turn, strengthens the Japanese position in international projects and enhances Japan's ability to demand more offsets and a higher value added.
The crucial task for the United States and Japan is to restructure bilateral
technology diffusion while maintaining grounds for collaboration rather than conflict. This involves far more than simply—and naively—promoting "joint development." "Co-development" in the context of different ideas about national security and without developing an accompanying capacity in the United States to acquire, diffuse, and nurture foreign technology is doomed to failure. Worse, it is likely to escalate the friction it is designed to ameliorate.
We need to restructure the "perverse incentives" affecting U.S. firms. The United States can and ought to develop its own version of the subtle blend of strategic cooperation and domestic technological nurturing the Japanese have practiced for years. Again, the ideas are neither alien nor "unfair." It is just that American and European strategists have been distracted and have allowed our institutions to evolve without regard for these concerns.
The threat that this will be interpreted as the need for crude protectionism is especially troublesome and misses the point entirely. Fortunately, it is too late for protectionism in any vulgar form. Nor should we want to be isolated from overseas technologies. This outcome would only ensure the United States' eventual obsolescence and generate even more negative commercial and defense consequences.
If global power increasingly depends on industrial capabilities, then all nations will lose their capacity to bargain in the world if they fail to link themselves more effectively with foreign economies in ways that assure that state-of-the-art technologies flow reciprocally into their domestic economies and are effectively exploited.
Nurturing without becoming predatory and indigenizing without protectionism is a delicate and difficult task, one made more challenging by the need to insist on reciprocal treatment and access to technology networks, manufacturing associations, consortia, and regional networks.
Military, Commercial, and International Realities
Jacques Gansler, TASC, Inc.
Three broad trends are affecting all developed nations' views of national security in the twenty-first century:
the globalization of markets and industrial structures,
the dramatically changing nature of warfare, and
the development of an integrated civil and military industrial capability.
These three highly interrelated broad trends increase the risks of friction, yet enhance the desirability of international competition in weapons development and trade.
Consider first the globalization of markets and industrial structures. Not only are commercial markets becoming global, but there is a growing and rapidly spreading proliferation in military technology and worldwide arms sales. This
had been led by the United States, which last year captured 73 percent of this shrinking market. Recently, the defense industry and the DoD have received added presidential and congressional encouragement to increase the worldwide arms sales efforts, based on the rationale that this is necessary to ''preserve the defense industrial base." Because most nations' domestic military budgets are plummeting, and because they all have an excess of modern military equipment, as well as huge excesses of defense industrial capability, this is clearly a buyers' market! Thus, there is fierce competition between the numerous selling firms, as well as the many producer nations. In fact, even Japan has been recently threatening to enter the market. As a result, sellers are making "give away" offers on equipment and technology transfers, offering local development and production, and offering "offset" purchases that greatly exceed the basic sale prices of weapons.
The overall result is that the United States and its military allies are developing frictions over domestic economic and trade issues in the national security arena. This problem is compounded by the very real need to reduce worldwide arms proliferation—for obvious long-term security reasons. Such action will require multinational cooperation, and it is certainly not aided by the fierce, politically supported, economic competition simultaneously taking place.
Ironically, this international weapons competition is occurring at a time when shrinking defense budgets and rising weapons costs require far greater cooperation in the development and production of future complex weapons systems (for example, for space and antiballistic missile systems). In fact, with significant defense industry consolidations taking place in both Europe and the United States, the need for weapons collaboration is being countered by the growing political drive for defense industry "self-sufficiency"—to assure "invulnerability," without recognition that the benefits of international cooperation can be achieved while maintaining competition, and without contributing to domestic vulnerability.
Finally, this friction is compounded by both the rapid changes in the nature of warfare and by the increasing overlap between civil and military technologies—which leads to consideration of the second broad national security trend, the dramatically changing nature of warfare (often referred to as the "revolution in military affairs"). With the end of the Cold War and the removal of the clear differentiation provided by the bipolar world, the evolving new geopolitical structures—which are far more liquid and multifaceted—introduce greater uncertainty into international relations. Therefore, they considerably blur the line between friction and cooperation. (One need only note the current U.S. relations with Russia and Syria, as examples, to see this fuzziness.) In addition, as was clearly shown in the Persian Gulf War, future military operations (from peacekeeping to war) will be done on a coalition basis; so increased military cooperation is absolutely required—but often with nations that, for political, economic, or human-rights reasons, do not make "natural bedfellows." So increased friction and cooperation will coexist in this new geopolitical environment.
The other major shift in the nature of warfare is from the historic model of
"attrition warfare," in which large masses of heavy forces wore each other down, to modern battlefield concepts of "information-based warfare," which utilizes real-time satellite and aircraft reconnaissance data to command and target smart weapons to a precision strike—as was demonstrated so effectively in the Persian Gulf War. Thus, for future weapon systems, nations must focus their defense resources on advanced information technology.
Here, of critical importance, is the fact that the information age explosion in the commercial world has caused large investments (in both engineering and manufacturing technologies) that have actually put the commercial world well ahead of the defense world in many technologies that are critical to defense. Thus, to obtain state-of-the-art capability, the military have no choice but to extensively draw on the commercial industrial base (in areas as wide ranging as electronics, software, and new materials) if they want to maintain military technological superiority—especially at an affordable price.
This, then, leads to the third of the broad trends in the national security arena, namely, the integration of civil and military industrial capability. Three factors are driving this trend:
commercial information technology increasingly represents the state of the art;
modern, "flexible" manufacturing allows efficient production of small quantities of military items on the same line with large quantities of related (but very different) civilian items; and
greatly reduced defense budgets.
Faced with these trends, nations have essentially no option but to move to a "dualuse" industrial structure to achieve affordable, state-of-the-art military capability. This not only means making maximum use of ruggedized commercial components, materials, and subsystems, but also achieving integrated R&D and, particularly, integrated production. Essentially, this means having the military as simply another customer of high-quality, high-performance, affordable goods and services from a large, integrated, and global industrial base.
For the United States to move in this direction it must remove the barriers that currently exist to integration of the commercial and military industrial bases and create incentives for firms that are in the commercial world to want to do defense business, as well as for firms that are currently in the defense business to diversify into related commercial areas. Essentially, this means removing the government-created barriers and disincentives to the operation of free-market forces.
Specifically, unique government oversight requirements, unique procurement practices, and unique military specifications are the answers given by world-class corporations (such as Motorola, Boeing, IBM, etc.) when asked why they have historically separated their commercial and military businesses. These barriers are now being addressed by the DoD and Congress—for example, with the initial
acquisition reform legislation of 1994. However, much more needs to be done in this area.
The issue here is not whether integration will be achieved, but when and how efficiently and effectively. Although inevitable, this civil and military integration trend—especially when combined with the equally inevitable industrial globalization trend and the changing nature of warfare—is accompanied by inherent increased internal and international friction, both in the economic and security spheres.
Given these inevitable trends, the challenge for the leaders of the developed world is to recognize and accept them; expect the increased friction; yet overcome the obstacles to achieve increased cooperation. There really is no viable alternative. What is needed is the evolution of a coherent, forward-looking public policy and the leadership to assure its implementation.
CLARK MC FADDEN: As you look into the twenty-first century, what do you see as the utility and the feasibility of a national technology base to support military activities?
JACQUES GANSLER: It seems to me there is no choice and understanding this point is critical. In an effort to stimulate the economy with defense dollars, the Clinton administration proposed spending $1 billion, which raised a lot of questions about certain so-called industrial policy issues. In contrast, the DoD cannot buy a new weapons system unless they can buy it at a low price, and yet it must be state of the art. This can only be done with civil and military integration. In most cases (e.g., materials, software, electronics, manufacturing technology), low cost and state of the art are represented by the commercial area.
In many cases, the commercial area has no interest in defense work. World-class companies, such as Hewlett-Packard, refuse to do defense R&D. So the DoD has to change the way it does business so as to interest those suppliers. It also has to encourage world-class commercial firms to want to do things that are different for defense. It is important to recognize that defense products will be different. The way to take advantage of these commercial capabilities, especially flexible manufacturing, is to imagine, for example, electronic warfare equipment (built with commercial components) and commercial electronics all on the same production line.
Another example could be a cannon (for which there is certainly not a large commercial demand) being built on the same rotary forge as a railroad freight car axle, again in the same plant. This simply requires that you recognize that defense items can be designed with commercial parts and be built in commercial facilities. The need for this change has to be understood by Congress.
RICHARD SAMUELS: I am reminded of an experience I had two years ago when I visited a factory in Japan where armored vehicles were being manufac-
tured. There I saw precisely what Jacques Gansler is describing. Gear boxes, transmissions, and other common goods were flowing down assembly lines, but as final assembly drew nearer, the lines were separating for snow mobiles here and bulldozers there. Final assembly for the armored vehicles was taking place behind a thin green curtain, unguarded in any way. When I asked about the curtain and remarked about what, by U.S. standards, was a lack of security, I was told that the curtain was there only because the "Americans like to segregate military from commercial products"! True or not, the image stays fixed of the difference between an integrated and a segregated defense industrial base. The United States must be the only industrialized country that even takes this question seriously. Everywhere else, integration is taken for granted.
U.S. firms even talk about becoming "virtual corporations." They say that they care little about whether they actually manufacture anything, just so long as they capture added value through design, assembly, or even simply sales. But a nation cannot fight wars with virtual weapons, and a nation should not build an economy with virtual companies.
HORST SIEBERT: I have a question for Dr. Samuels. The intent of this conference was to look at frictions in technology policy within countries and then to possibly see to what extent we can establish an international order that will prevent these frictions.
After listening to your talk, I have the impression that, apparently, countries can take quite different approaches to technology policy. You talked about Japan and they have done it in a specific way. Other countries could follow a different role. Should we allow a variety of approaches to technology policy in the world economy?
RICHARD SAMUELS: First we must acknowledge that differences exist. There are many academics and policymakers who are in deep denial about this point. They cannot imagine that the Japanese can possibly be different than the Americans or the Europeans. The Japanese have no problem imagining this, however. The second step is to be very clear about what we each need and want in the global economy. I have never heard the United States state clearly and convincingly what sort of economy and technology base we must have. We pay lip service to the relationship between the technological and economic dimensions of national security, but until we are clear about our goals, we will forever be very unclear about the appropriate means to achieve them. We must decide what we want, and above all, we must decide what we want from our partners.
JACQUES GANSLER: I would argue that we also have two sets of technology policies within the United States: national security and commercial. We are now trying to see if we can merge these two at the same time. Historically, they have been dramatically different, and they have been moving further apart.
CLARK MC FADDEN: With respect to the objectives of this conference, it may be slightly more modest to come up with a set of guidelines or rules of operation that can accommodate these differences and that can lead to growth and prosperity without diminishing the differences in national interest.
SYLVIA OSTRY: It seems almost inevitable that as you move towards the blurring line between civilian and military, friction is bound to increase. I have been in meetings in Europe where it is believed that the Americans are going to pull out of NATO, that the Republican Congress is such and such, and that therefore the Europeans will have to be autonomous.
The Japanese stance is perfectly logical. They have done extremely well. But as they approach the frontier, as the catch-up phase diminishes, they will be less willing to cooperate.
But there was a point that was made here today that I find even more interesting. In the weapons competition, which is very fierce, I was trying to imagine a high-technology enemy, and I thought of Bosnia. It is clear that it would be possible for the United States to produce some high-technology enemies by weapons competition, which in turn could develop into a vicious cycle.
JACQUES GANSLER: In fact, the most likely high-technology enemies are equipped with U.S. equipment. What many countries are doing—France, Russia, China, and Israel are probably taking the lead in this area—is taking good, firstline equipment and upgrading it. They are making it actually a lot better and for very small incremental costs.
It is this rapid worldwide spread of technology and weapons that is the concern that many people now have. You do not have to be a fully developed nation with the capability to develop these weapons. You can simply buy them at bargain basement prices.