(introductory text...)

New technologies are increasingly important factors in defining each country's position in the international division of labour and in the hierarchy of states. In this chapter the dynamics of technological change are briefly reviewed, introducing an assessment of the technological performances of the US, Europe and Japan, and an analysis of the strategies developed in this area by corporations and governments.

4.1. The dynamics of technological change

The roots of technical change are in the operation of firms, with their decisions to research, invest and produce, and in the institutions, government agencies and public bodies that are involved in research, financing and procurement, as well as in other forms of public policy. While the corporations' scale of operation and innovative activity is increasingly international, the public policy issues still maintain a strong national focus.

Technology and the regime of accumulation

Most of the current discussion in this area defines its object as 'high technology.' Such a concept however can be misleading as it implies an identity between technological advances and 'progress' itself. It portrays technical change as a unidirectional advance from a 'low' to a 'high' technology, as defined by a set of indicators of capital intensity, expenditures for research and development, sophistication of engineering and design. Furthermore, 'high technology' is often considered as a specific and separate sector of the economy, losing in this way the perception of the pervasive nature of innovation in the whole of the economy.

A more appropriate concept is that of 'new technologies,' which stresses the variety of possible technological developments at the technological frontier that are made possible by the present 'radical breakthroughs' and their possible applications in the whole of the economy. In fact, new technologies transform traditional industries as well as the 'emerging' ones. Nor is the specific outcome of technological change simply the product of technological factors; social relations, pressures from workers and the civil society, and the technological policy of governments have a strong influence on the direction and outcomes of technical change.

This network of relations results in a specific regime of accumulation, of which the technological system is a part. As Richard Walker has noted, this was the case for the technological systems based around the railroad, the automobile and information flows, but all of them were much more than a 'technology,' and 'none may be said to be the source of growth. In short, it is the pattern of accumulation that is the central thread in capitalist growth, not the technology, labor process or any other single part of the system' (Walker 1985: 244; see also Aglietta 1979; Blackburn et al. 1985).

The relation of new technologies to the regime of accumulation may be summarized in the sequence of steps similar to the 'chain of relationships' proposed by Perez (1983: 366). First, technology, through 'radical breakthroughs' and their pervasive nature, creates the conditions for new forms of production. Second, the economic structure is transformed, with the growth of new sectors, different inter-industry relations and the development of new products, processes and forms of organization. Third, the labour force is reorganized, with changes in the labour process, in the formation, composition and skills of the workforce. Fourth, the social structure is reshaped, with a new wage and social stratification, that leads to a new pattern of demand and form of consumption, but also to new needs, identities, forms of consensus and contradictions. If the changes in the supply side produced by the introduction of new technologies find a match in the changes developing on the demand side, through a balanced transformation in all the four levels, the development of new technologies may offer a path of sustained growth for the economy, leading to a new cycle of accumulation expressed by a particular regime (ibid.). This process unfolds through market relations on an international scale; by its very nature, it transforms the social relations and the division of labour. A country's economy may not be able to match the changes introduced by new technologies, resulting in crises and decline. It can also find its previous specialization threatened, while at the same time discovering new opportunities in the development of new market positions. In this process, the government's technological strategy is the key instrument for intervening in these transformations of the national economy. In a phase of growing internationalization and dislocations, this is an increasingly important element of economic policy.

The questions of how technological change takes place in the economy and how to develop a technological policy are old issues of political economy, that have recently received new interest (Schumpeter 1961; Freeman 1974; Nelson and Winter 1982; Rosenberg 1982). The debate has gone beyond simplistic views of technical change, considered on the one hand as exogenous, a 'black box' supplying new technologies that develop autonomously (the 'technology-push' model), and on the other hand, as produced by the pressure of growing demand that stimulates innovation (the 'demand-pull' effect) (Schmookler 1966; Rosenberg 1982). Recent analyses have suggested a more articulate approach, using concepts and categories that have stressed the nature of the 'paradigm' of a technological system.

Referring to the definition of 'scientific paradigm' by Thomas Kuhn (1962), Giovanni Dosi proposed the concept of 'technological paradigm' as 'a "model", and a "pattern" of solution of selected technological problems, based upon selected principles derived from natural sciences and on selected material technologies' (Dosi 1982: 152). Dosi's example is drawn from the case of semiconductors, where in order to perform a generic task (amplifying and switching electrical signals) a material technology is selected (silicon semiconductors), which uses specific scientific properties, in order to reach some economic maximization of performance (ibid.: 153; Matthews 1985).

Once the 'technological paradigm' is established, a 'technological trajectory' develops, as decisions are made looking for the best possible trade-off between the variables that characterize the paradigm (Dosi 1982; Nelson and Winter 1977, 1982). The new technological outcomes are selected through market relations, government decisions, institutional pressures, social conflicts, through a variety of economic and social interactions (Dosi 1982: 151; Nelson and Winter 1982).

Besides the continuity of technological choices within a given 'paradigm,' there is the cumulative nature of technological change, the use of past experience and the inertia of technological paradigms. This can be summarized by the concept of 'technological accumulation' (Rosenberg 1982; Patel and Pavitt 1985) that accounts for the slow and continuous expansion of knowledge that is often tacit, limited to specific firms and productions, developed not only in research laboratories but also in a wide range of innovative initiatives, often mixed to production activities.

In this view, 'technological accumulation' is parallel to capital accumulation and closely related to the quality of labour used in production. The strength of such an approach is confirmed by the empirical evidence on the distribution of innovative efforts among different activities within industrial firms reported by Pavitt: 'the distribution of costs of innovation - excluding normal investment in plant and equipment - is roughly as follows: research 10-20%; development 30-40%; production engineering 30-40%; market launch 10-20%' (Pavitt 1985: 5), with between 10 per cent and 30 per cent of inputs coming from outside the industry, mainly from universities and public research institutions (ibid.).

This evidence challenges the simplistic view that equates innovative activities with research and development (R&D). Other important factors have a crucial role in innovation and they cannot easily be bought, expanded or reproduced elsewhere. This contradicts the analyses that have emphasized the mobility of new technologies and their informational nature. Raymond Vernon, for example, argued that 'the continued technological change promises to increase the availability and reduce the relative cost of channels by which technical information is communicated across international borders. That prospect could prove to be the most important single factor in shaping the international trade patterns of the 1980s' (Vernon 1982: 145).

Patel and Pavitt have criticized the 'widely held assumption that technology is a form of "information" that has the properties of being costly to produce but virtually costless to transfer and to use (and, by implication, widely applicable in the first place)' (Patel and Pavitt 1985: 6). In fact, the growing transfer of new technologies should not make us forget that the success of their application remains related to the levels of technological accumulation present in an economy and in an industry.

According to Nathan Rosenberg, 'perhaps the most distinctive single factor determining the success of technology transfer is the early emergence of an indigenous technological capacity. In the absence of such a capacity, foreign technologies have not usually flourished' (Rosenberg 1982: 271). In fact, the most rapid technological development was experienced by those countries that already had a minimum level of technological accumulation, that was needed to adapt imported technologies to local conditions and to make appropriate choices among the existing technological alternatives (ibid.). In Rosenberg's view, in European history the ability to assimilate foreign technology has been as important as inventiveness itself (ibid.: 246), while for Japan the key has been its ability to adapt Western technology to the different factor proportions, lowering capital intensity and engineering product and process improvements, a road followed also by the new industrial countries of the Pacific, such as Taiwan and South Korea (ibid.: 271-2).

In Japan a key role has also been played by the government strategy: 'direct foreign investment has been virtually excluded, and advanced technologies have been acquired by relying heavily upon licensing agreements, together with a large civilian R&D effort' (ibid.: 275).

Technological development and accumulation however are not a smooth and continuous process. Rather, innovations often develop in 'bunches' and are introduced in the economy with a cyclical trend, that has been associated to the 'long wave' pattern of the world economy (Kondratiev 1979; Freeman et al. 1982; Van Dujin 1983; Mensch 1985). Freeman et al. have stressed the advances in basic sciences, the social and organizational changes that helped the clustering of innovations in the downswings of cycles, the positive effect of technological trajectories on the growth cycle and the social and economic factors that facilitate capital investment in the new leading sectors, while society adapts to the resulting transformations (Freeman et al. 1982: x, 64-5).

These factors, however, have been considered inadequate by Rosenberg and Frischtak (1984) to explain the relation between long waves and innovation. Perez offered a solution outside the narrow economic mechanisms, suggesting a lag between the technological waves and the socioeconomic cycles. Perez argued that while the modes of development of the economy, with given social and institutional relations, move from trough to trough of the long waves, the technological styles go from peak to peak. The recurring imbalance between the potential for technological development and the old social and institutional structure can explain the crisis and the downswing of cycle; growth restarts only when the economy and society adapt to the new technological style (Perez 1983: 358).

In this model, the emergence of a new technological style and the potential of a new long wave of growth is marked by the shift from the previous technological trajectory, with a stable cost structure and incremental improvements, to a new set of radical innovations that produce a dramatic increase of productivity. This is made possible by the availability of a particular input with low and falling costs, unlimited supply, able to pervade all sectors of the economy, and leading to generalized improvements of efficiency (ibid.: 361).

Technology policy

Technology is a natural object of public policy. The aim is first to harness technology for the economic and social goals of government policy; second, to make the best decisions on the alternative options that technical change opens both at the technological frontier and in the application (and import) of new technologies. Third, technology is seen as an element of state power; as Skolnikoff noted, 'historically, science and technology have been seen by governments as a means of serving national interests' (Skolnikoff 1977: p.508). What is to some extent new is the growing role played by technological factors in the restructuring of the world economy and of international political relations, in comparison to other factors - macroeconomic, monetary or financial ones - that have been crucial in other contexts (see also Williams 1984).

The basic economic rationale for technological policy is to increase the efficiency of the domestic economy, where the 'market' by itself does not reach optimal results, as in the case of R&D and innovation. Kenneth Flamm, of the Brookings Institution, has summarized it with the widely held view that 'there are no grounds for believing that the correct amount and type of projects will be undertaken. This theoretical argument for intervention in the market for research is bolstered by an extensive empirical literature which consistently documents social returns to research investment far greater than private returns' (Flamm 1984: 27).

On the other hand, the political rationale for technology policy is that it contributes to the 'national security' and to the technological prowess of the economy; therefore technology, 'in addition to being an instrument of competition between firms, is critical to economic and political competition among nations' (ibid.: 24).

Both the economic and the political rationale lead to increasingly active technological strategies by governments, at the time when technology shows more and more its 'global' nature, that sharply reduces the possibility of national control on technological processes (Skolnikoff 1977: 512; Reich 1987). The emergence of an international scientific community and the global operations or corporations highlight and reinforce the uneven technological development among countries. In this way technology has become a policy issue in international relations, especially in the North-South perspective, playing a role in co-operation and in the debate on the 'New international economic order' (Aseniero 1984).

A major part of governments' technology policy is developed for 'defence' purposes, through the research and procurement of weapons systems, but the development of military technology represents also as a form of industrial policy, supporting national firms in key sectors. However, the nature of military technology remains different from civilian technology for a variety of institutional factors, the mode of financing, the absence of market mechanisms and its very mission: developing new deadly weapons systems.

The different quality of military technology is often ignored in the analyses of technical change, or is treated simply as a separate sector of the economy. However, the size of the effort to develop military technologies in countries such as the US and the UK is so large that its effects on the pattern of innovation cannot be ignored, just as a large military economy has been shown to have an impact on the performance of the national economy (see section 3.5). In section 4.3 we will investigate in detail the effects of military technology. Now let us start with the review of the technological performances of the US, Europe and Japan.

4.2. The technological performances of the US, Europe and Japan

The ability to develop and apply technological innovations is a crucial factor in the economic performance of the more advanced countries. Expenditures for research and development (R&D), number of scientists, patents and licences, high technology trade, are some indicators that can help to investigate the innovative capacity and the success of its application in the US, Europe and Japan.

R&D expenditures

A first indicator of the activities to foster innovation is the expenditure for research and development. In the previous section the limits of this variable in describing the whole of innovative activities have already been pointed out, as the effort in production engineering and in part-time R&D activities in medium and small firms is largely left out of the official data (Patel and Pavitt 1985: 13). R&D spending, however is a widely used indicator that also allows comparisons over time and space.

In 1986 the US spent almost $120 billion on R&D, about 2.7 per cent of GNP. Half was financed by industry and $55 billion came from the federal government, but 70 per cent of public funds went to military research, while in 1981 the share of defence was 50 per cent (Fortune, 13 October 1986, p.39). Japan and West Germany spent a slightly lower share of GNP than the US, but their effort in civilian R&D is better than the US (ibid.). This has been true since the 1980s; National Science Foundation data in Table 4.1 show that in 1981 the US spent 2.39 per cent of GNP on R&D, more than any other country. Only 1.65 per cent, however, went to civilian R&D, less than the 1.9 per cent spent by Japan in 1978 and the 2.15 per cent spent by West Germany in 1980.

Table 4.1: Expenditure on research and development as a percentage of GNP

	France		West Germany		Japan		United Kingdom		United States		USSR
	All	Civilian	All	Civilian	All	Civilian	All	Civilian	All	Civilian	All
1961	1.38	0.97	NA	NA	1.39	1.37	2.46	1.48	2.73	1.20	NA
1962	1.46	1.03	1.25	1.14	1.47	1.46	NA	NA	2.73	1.23	2.64
1963	1.55	1.10	1.41	1.26	1.44	1.43	NA	NA	2.87	1.29	2.80
1964	1.81	1.34	1.57	1.38	1.48	1.47	2.29	1.49	2.96	1.31	2.87
1965	2.01	1.37	1.73	1.53	1.54	1.53	NA	NA	2.89	1.33	2.85
1966	2.06	1.40	1.81	1.62	1.48	1.47	2.32	1.58	2.88	1.39	2.88
1967	2.13	1.50	1.97	1.70	1.52	1.49	2.29	1.65	2.89	1.48	2.91
1968	2.08	1.54	1.97	1.72	1.60	1.57	2.25	1.66	2.82	1.46	NA
1969	1.94	1.52	2.05	1.81	1.64	1.61	2.22	1.66	2.72	1.49	3.03
1970	1.91	1.47	2.18	1.96	1.81	1.77	NA	NA	2.63	1.50	3.23
1971	1.90	1.33	2.38	2.16	1.85	1.82	NA	NA	2.48	1.46	3.29
1972	1.86	1.35	2.33	2.13	1.86	1.82	2.05	1.48	2.40	1.44	3.58
1973	1.76	1.30	2.22	2.01	1.90	1.86	NA	NA	2.32	1.43	3.66
1974	1.79	1.36	2.26	2.07	1.97	1.91	NA	NA	2.29	1.49	3.64
1975	1.80	1.39	2.38	2.19	1.96	1.90	2.05	1.38	2.27	1.50	3.69
1976	1.77	1.38	2.29	2.10	1.95	1.89	NA	NA	2.27	1.50	3.55
1977	1.76	1.38	2.31	2.13	1.93	1.87	NA	NA	2.24	1.50	3.46
1978	1.76	1.36	2.31	2.13	1.96	1.90	2.13	1.49	2.24	1.55	3.47
1979	1.81	1.38	2.34	2.16	1.97	NA	NA	NA	2.28	1.59	3.44
1980	1.84	1.35	2.32	2.15	NA	NA	NA	NA	2.37	1.66	3.47
1981	NA	NA	NA	NA	NA	NA	NA	NA	2.39	1.65	NA

Notes: NA - Not available.
Figures for US exclude capital expenditure

Source: For 1961-66 NSF Science indicators 1980, Appendix tables 1-3, 1-4; for 1967-81, NSF National Patterns of Science and Technology Resources 1982, Tables 17 and 19. Table, in this form, taken from Flamm 1984: 31.

Since 1960 the share of US R&D expenditures financed by the federal government has fallen from about 60 per cent to 47 per cent in 1986 (ibid; Flamm 1984: 29). At 1972 prices the amount of US R&D expenditure has increased from less than $20 billion in 1960 to $37 billion in 1982. These data are obtained using the GNP deflator; if a price index for the inputs of R&D is used, the net increase is likely to appear much lower, because the costs of innovative activities tend to increase faster than the average, as a study by Mansfield et al. (1982: 231) has shown.

Using OECD data and defining Western Europe to include Belgium, Denmark, West Germany, France, Ireland, Italy, the Netherlands, Sweden, Switzerland and the United Kingdom, Patel and Pavitt have offered a detailed comparative analysis of the positions of Europe, the US and Japan. Table 4.2 shows the distribution in 1982 of the R&D expenditures (at 1975 constant prices and US dollar purchasing-power parities) among these three areas. The US accounts for almost half (48.9 per cent) the total R&D carried out by the most advanced countries, but falls to 43 per cent when we consider only civilian R&D, with 34.6 per cent in Europe and 22.4 per cent in Japan. The US share is higher, with 52.7 per cent of the total, in R&D expenditure by industry.

Table 4.2: Distribution of R&D expenditure among Japan, Western Europe and the US in 1982

Percentage shares	Japan	US	W. Europe	Total
Total R&D (GERD)	18.5	48.9	32.6	100
Non-defence R&D	22.4	43.0	34.6	100
Total industrial R&D (BERD)	16.1	52.7	31.2	100
Industry financed R&D	20.9	47.6	31.5	100

Note: R and D expenditures (at constant 1975 prices) converted to US dollars using 1975 purchasing power parties.

Source: OECD

Table taken from Patel and Pavitt 1985: 15.

Comparing the dynamics of R&D expenditure in the past two decades, Japan has shown the most rapid growth, nearly 10 per cent a year in real terms since the late 1960s, against the 4 per cent for Europe and the 2.4 per cent for the US before 1975, later increased to 6.3 per cent. The result is that the share of Europe in the total R&D expenditures of the most advanced countries has fallen from 35.5 per cent in 1975 to 31.5 per cent in 1982 (Patel and Pavitt 1985: 17).

R&D expenditure in per capita terms, at 1975 prices, shows a similar pattern. In civilian R&D, in 1982 Japan had almost reached the US level ($147 per capita in Japan, $155 in the US); since 1967 Japan has tripled its R&D per capita, while the US has increased it only by 20 per cent. Europe, in the late 1960s was ahead of Japan, but has increased its per capita R&D spending only by 40 per cent, reching $105 in 1982 (ibid.: 22).

Considering the share of R&D expenditure in the GDP at 1975 prices, from 1967 to 1982 Japan increased its rate from 1.58 per cent to 2.47 per cent, an increase almost entirely due to civilian R&D expenditure. Europe increased its share from 1.78 per cent to 2.04 per cent, with a constant share of military R&D. In the US the share has fallen from 3.07 per cent to 2.69 per cent, while civilian R&D has remained at 1.97 per cent, after a fall in the 1970s (ibid.: 18).

After 1981 the US has accelerated the share of R&D in GDP at a pace near to 8 per cent from 1981 to 1983. This was the highest rate among the most advanced countries (almost twice as much as France and Germany), with the only exception of Italy, whose 20 per cent increase is explained by the much lower levels of the previous R&D effort (The Financial Times, 3 December 1985).

Patel and Pavitt tried to show how the increased value of R&D expenditure by industry results from a combination of growth of output and the increase in the share devoted to R&D by firms. Between 1967 and 1981, the corporations' decisions to increase the share of R&D activities explained one-third of the real growth of R&D in the US and half that in Europe. The recent fall in European R&D expenditure by firms is then mainly due to a stagnating output, while the share devoted to R&D is already high (Patel and Pavitt 1985: 19).

Table 4.3 shows the position of different European countries. France, Germany and Italy had the highest rates of growth of industry-financed R&D, while in Britain the expenditure did not increase. Britain and France devote to defence one-quarter of industry R&D. The orders of magnitude need also to be remembered: the whole R&D expenditure by firms in Italy is about the same as the R&D budget of Siemens, the large German firm (Brainard and Madden 1985: 63).

Table 4.3: Industry-financed expenditure for R&D in Europe in 1982

	Shake % (1982)	Proportion of value added (%) (1981)	Per capita (1982)	Growth % pa. (1967-82)	Defence as a % of GERD (1982)
W. Germany	36.1	1.76	94.2	5.88	4.1
France	18.8	1.04	55.8	5.93	23.8
UK	16.5	1.31	47.3	0.90	27.4
Italy	8.9	0.60	25.3	5.52	2.9
Switzerland	5.0	n.a.	123.6	1.21	1.6
Sweden	4.9	1.85	95.6	6.13	9.6
Netherlands	4.5	1.10	50.4	1.54	1.5
Belgium	4.1	1.31	66.7	7.15	(*)
Denmark	1.0	0.72	29.9	4.56	(*)
Ireland	0.2	0.37	10.1	6.46	(*)

Notes: R and D expenditures and industrial value added (at constant 1975 prices) converted to US dollars using 1975 purchasing-power parities.

(*) In Belgium, Denmark and Ireland Defence R&D accounted for less than 1 per cent of GERD.

Source: OECD. Table taken from Patel and Pavitt 1985: 23.

The resulting picture is not so different from that outlined in the previous chapter for the economic performances. After a relative decline in comparison to Europe and Japan, the US has retaken the lead in the growth of R&D expenditure, but, as in the economy, most of the growth is the result of increased military spending.

Table 4.4 shows the size of military R&D using the data of the Stockholm International Peace Research Institute (SIPRI) for the 1977-85 period, at 1980 prices and exchange rates. In 1985 the US spent $27.8 billion for military R&D, more than three times the combined amount spent by France, Britain and West Germany. The dynamics of

the civilian and military expenditures has been summarized by a report to the US Congress that noted that the civilian R&D budgets of Japan, Britain, France and Germany had risen in the 1964-1979 period from 10% of US R&D civilian spending to 121 % of the US commitment. Between 1980 and 1984, federal support for research and development had declined by 15%, while military R&D increased 110%. A large part of the Department of Defense programs, moreover, have little potential for civilian spillovers.
(Quoted in Tirman 1984: 21)

Table 4.4: Military R&D in Western countries

Country	1977	1978	1979	1980	1981	1982	1983	1984	1985
France	1,982.8	2,235.2	2,517.1	2,685.8	3,276.1	3,116.5	3,081.3	3,303.0	3 152.1
West Germany	991.1	1,047.0	1,072.3	951.8	813.7	809.6	873.0	899.9	1 139.8
UK	(2,936.8)	(3,181.8)	(3,503.9)	(3,718.7)	(3,583.3)	(3,354.0)	(3,514.1)	(3,695.2)	(3,814.2)
US	16,363.6	16,206.8	15,850.5	15,766.5	17,125.2	19,386.4	21,050.5	23,673.7	27,796.7*

Notes: Military R&D, constant prices, calendar years 1977-85, US $ M., 1980 prices and exchange-rates

*Provisional figure
() SIPRI estimate

Source; World Armament and Disarmament: Sipri Yearbook 1987: 156

It must be stressed that even before the increase in military R&D spending of the Reagan administration, in 1981 71 per cent of the $3.5 billion spent by the US federal government on R&D were distributed to the Defense Department, NASA and the military activities of the Department of Energy (Melman 1983: 89). Besides the greater funding available for military research, a number of other factors - modern laboratories, 'challenging' projects, higher salaries - have attracted scientists and engineers to the military sector, diverting important resources away from the rest of the economy.

Scientists, patents and licenses

The number of scientists and engineers at work in a country offers another indicator of the dynamics of innovative activities. In the US their number has increased rapidly between 1950 and 1963, slowing down before 1970 and moving only slightly in the 1970s (Mansfield 1980: 594). This has contributed to increase the average age of US scientists and technicians.

The importance of military research can be found here again, as more than a quarter of all US scientists and technicians work on military projects, with the highest concentration in aeronautic and astronautic engineering (80 per cent), and more than 40 per cent in electronics (DeGrasse 1984: 125).

The slow increase of the US pool of scientists and engineers is also documented by the graduation of PhD students. In 1986 the number of foreign students obtaining PhDs in engineering in US universities was greater than the number of American students (Reich 1987: 63). The share of foreign PhD students in all US universities has also increased from 12 per cent in 1960 to 20 per cent in 1986 (Business Week, 20 April 1987, p.59).

The main indicator of the 'output' of innovative activities is the number of patents. Usually the distribution of patents filed and granted in the US is used as a key indicator, but these data need to be considered with particular caution. The patenting by non-US firms, in fact, is limited to products and processes relevant for the US market, reflecting commercial as well as technological performances. Nevertheless, in 1986 42,000 patents were granted to US inventors and 35,000 to foreigners, while in 1960 less than 8,000, out of a total of 47,000 patents, were granted to foreign inventors (ibid.)

As the share of US patents granted to American firms fell from more than 80 per cent in 1963 to about 60 per cent in 1983, European firms have slowly increased their share to about 25 per cent, while Japan has jumped from virtually nothing to 18 per cent of all US patents granted in 1983 (Patel and Pavitt 1985: 29).

A different analysis of patents, classified by year of application, rather than by year of registration, has been carried out by Mansfield, who found that the applications of US residents have declined since 1969, and 'there is also some evidence that the percentage of United States innovations that are radical breakthroughs tended to decrease during the 1960s and 1970s' (Mansfield 1980: 595).

The US National Science Foundation pointed out such a trend back in 1975, when it wrote in its report that apparently 'the number of patentable ideas of international merit has been growing at a greater rate in other countries than in the United States' (quoted in Dumas 1984: 143). This pattern is confirmed by the parallel decline of the patents registered abroad by US firms: 'from 1966 to 1976 US patenting activity abroad declined almost 30% in ten industrialized countries' (ibid.: 144).

However, the technological superiority of the US in the past decades has resulted in a continuous and substantial inflow of payments for the licensing agreements with foreign firms for the use of US technology. The largest part is by far that of the payments from foreign affiliates to US firms. According to US National Science Foundation data, in 1975 the US received $3.5 billion for patents and rights from foreign affiliates, a figure that, however, can be distorted by the effects of different fiscal systems and by account practices of US multinational corporations. In the same year, the payments from unaffiliated foreign residents have been little more than a fifth, $759 million, while the payments abroad by US companies have been $241 million to their foreign affiliates and $192 million to foreign firms (Mansfield 1980: 587-8). Although many current analyses consider past licensing to foreigners as a 'giveaway' of US technology (see Business Week, 20 April 1987, p.62), this flow of funds has represented a key contribution to the US balance of payments and to the profits of US corporations.

The trade of high-technology products

The relative performances of the most advanced countries are also described by the dynamics of international trade in high technology products, usually defined as those with a high share of R&D activities in the total sales of an industry. Here the US experience may have appeared as a major success. Stephen Merrill, in a report of the Center for Strategic and International Studies of the Georgetown University, noted that

the output of high technology industries grew at twice the rate of US industrial output as a whole. The average annual, rate of price increases in the high technology sector was one third that of the country's overall average inflation. The average annual growth in employment in high technology and its supporting industries exceeded the growth rate of total business employment by more than 50%. The average annual productivity growth rate in high technology was six times the average growth rate of US business as a whole. (Merrill 1985: 51)

However, looking at the performances on international markets, the picture becomes less rosy. Shortly after the 1980 peak in the US high technology trade balance, the second half of 1984 turned the US balance into a deficit. This is the result of the surge of imports favoured by the overvalued dollar, but Merrill himself pointed out that 'by any of several measures of technological intensity, the United States was losing market share in a range of high-technology industries well before the 1981-1983 dollar appreciation and the 1983 economic recovery' (ibid.: 52).

According to a study for the US Congress Joint Economic Committee, 1986 has been the first full year when the US trade balance in high-technology products registered a deficit, estimated around $2.5 billion (Finan et al. 1986). It must be stressed that this is both the effect of declining US competitiveness and the result of the strategies of US corporations to produce offshore and make greater use of foreign subcontractors, especially in the countries of South-East Asia (ibid.: 4). In the first half of 1986, South Korea had a trade surplus with the US in electronics-related goods of $448 million, the surplus of Singapore was $543 million and that of Taiwan $740 million (ibid.: 32).

Looking at the composition of US foreign trade, the share of high-technology products in US exports was close to 30 per cent in 1983, twice as much as that in US imports. However, the technological intensity of US exports has increased only a little from the 24 per cent of 1970, while the share of high-technology products in US imports has increased from 10 per cent in 1970 to 15 per cent in 1983 (Merrill 1985: 46).

The position of Europe is equally difficult. In 1983 the ten EEC countries imported from the US high-technology products worth $17.2 billion and exported to the US $7.3 billion (ibid.: 47). In 1985 the EEC had a $12 billion trade deficit in 'information technology' products (mainly computers and software) and half of the local production is carried out by US and Japanese subsidiaries. In five years, these foreign affiliates are expected to increase their share to two-thirds of the European output. This is the result of the poor performance of European industries dating back to the 1970s. According to EEC estimates, over the last decade the output of high-technology products has increased by less than 5 per cent a year in Europe, while in the US it increased by 7 per cent and in Japan by 14 per cent a year (International Herald Tribune, 28 November 1985).

The new technological landscape

The technological performances of the US, Europe and Japan in different industrial sectors have been summarized by Patel and Pavitt in a comprehensive picture of the relative advantages and disadvantages, using a set of indicators, in particular the index of revealed technological advantage. Their results are shown in Table 4.5. The sectors of relative strength of the US are those related to natural resources, aerospace and military industries, that are financed by the US government. Electronics and telecommunications are also areas of relative, although declining, US advantage. For Europe, the areas of strength are chemicals, machinery, nuclear energy and aeronautics. Japan has the greatest advantage in engines, motor vehicles, machinery and electric industry (Patel and Pavitt 1985: 39).

This picture of the competitive positions and specializations over the whole range of industrial sectors by the US, Europe and Japan, provide an adequate account of the complexity of the current technological situation, with three large economies that are at the frontier of technological development in different areas. The phase of 'catching up' by Europe and Japan of the overall US technological advantage has ended and is replaced by a growing specialization and a more articulate set of relative advantages and disadvantages in different sectors.

Table 4.5: Technological performances of the US. Europe and Japan in industrial sectors

(i) Patters and trends of technological advantage in the US
INCREASING	STABLE	DECREASING
ADVANTAGE	Petroleum & gas	Food	Rubber & plastics
	Fabricated metals	Soaps & detergents
	Farm & gardening machinery	Paints & varnishes
	Electrical lighting and wiring	Miscellaneous chemical products
	Guided missiles and space vehicles	Construction & mining equipment
	Aircraft & parts	Office computing
		Refrigeration equipment
		Electrical transmission
		Electronic components & telecommunications equipment
		Household appliances
DISADVANTAGE	Industrial inorganic chemistry	Industrial organic chemistry	Agricultural chemicals
	Nuclear reactors and systems	Plastics & synthetic resins	Ferrous & non- ferrous products
		Drugs & medicines	Metal-working machinery
		Stone, clay etc	Special industrial machinery
		Engines & turbines	Miscellaneous non-electrical machinery
		General industrial machinery	Electrical industrial apparatus
		Miscellaneous electrical machinery	Radio & TV
		Motor vehicles
(ii) Patterns and trends of technological advantage in Western Europe
ADVANTAGE	Agricultural chemicals	Drugs & medicine	Industrial organic chemistry
	Soaps & detergents	Primary ferrous products	Industrial inorganic chemistry
			Plastics & synthetic resins
	Metal-working machinery	Special industrial machinery	Primary and secondary non- ferrous products
	Household appliances
	Miscellaneous electrical machinery	Miscellaneous non-electrical machinery	Engines & turbines
	Nuclear reactors and systems	Electrical industrial apparatus	Motor vehicles
	Aircraft and parts
DISADVANTAGE	Food	Paints & varnishes	Office computing
	Miscellaneous chemical products	Petroleum & gas	Radio & TV
	Fabricated metal	Rubber & plastics	Electronic components & tele-communications equipment
	Farm & garden machinery	Electrical transmission	Instruments
	Construction & mining equipment	Guided missiles & space vehicles
	Refrigeration equipment
	Electric lighting & wiring
(iii) Patterns and trends of technological advantage in Japan
ADVANTAGE	Stone. clay etc	Electronic components & telecommunications equipment	Industrial inorganic chemistry
	Engines & turbines		Industrial organic chemicals
	Office computing		Plastics & synthetic resin
	Miscellaneous non- electrical machinery		Agricultural chemicals
	Electrical industrial apparatus		Paints & varnishes
	Radio & TV		Miscellaneous chemical products
	Motor vehicles		Drugs & medicines
	Instruments		Rubber & miscellaneous plastic products Ferrous & non-ferrous products
			Miscellaneous electrical machinery
DISADVANTAGES	Soaps & detergents	Paints & varnishes	Food
	Petroleum & gas		Farm & garden machinery
	Fabricated metals		Special industrial machinery
	Construction & mining equipment		Refrigeration machinery
	General industrial machinery		Household appliances
	Electrical transmission		Guided missiles & space vehicles
	Electrical lighting & wiring		Aircraft & parts
	Nuclear reactors & systems
	Other transport

The attempt by the US to regain a leadership position in the 1980s did not succeed in reversing the decline of its technological superiority. Japan has kept improving its positions, even if it remains weak in a few sectors and markets. The European performance has combined successes and failures, with prospects that have become more uncertain. In Europe there are low levels of innovative activities, lower than in the US and Japan on all the indicators, and their dynamics have stagnated due to the slow growth of European economies (ibid.: 68). However, in spite of this slow-down of the European technological accumulation 'there is no systematic evidence that Western Europe is any less effective than Japan or the USA in translating its technological knowledge and skills into superior products and processes' (ibid.: iii).

The result is that 'there are now three regions of the world that are competing along the world technological frontier. Given the differentiated nature of technology, the picture of technological leads and lags across countries is bound to be a complicated one, with considerable variations across sectors, types of activity and time' (ibid.: 4). The model of an overall 'technology gap' therefore has to be abandoned, but the power relations associated with positions of technological advantage remain an important aspect in the international arena.

Together with the 'technology gap' model, other conventional wisdom has to be abandoned. A 1986 report of the US National Security Council found a Japanese superiority in research and development for semiconductors, industrial automation, computer architecture, telecommunications components. The report concluded that the Japanese progress in research is such that 'the conventional model of US technological leadership in basic research followed by more successful Japanese commercial exploitation is no longer accurate in many of the critical technologies targeted by the Japanese' (quoted in Reich 1987: 65).

In order to understand the mechanisms of the American decline and the forces that are shaping the new geography of high technology, it is important to examine the different technological 'styles' that have inspired the innovative strategies of both corporations and governments. Although the result so far documented is a convergence of the comparative performances of the most advanced countries, the approaches to innovation have developed along rather different paths. According to Vernon, over the post-war period,

in consumer goods, US businessmen had traditionally concentrated on satisfying.., new high-income wants. The Europeans and the Japanese, on the other hand, paid much more attention to the adaptation of products for lower-income needs, including the trimming of costs and prices, as well as the improvement of durability. In producer goods, US businessmen had concentrated on finding substitutes for their high-cost labor, whereas the others had displayed a greater relative interest in material-saving innovations. As a result of these disparities, most US innovative effort found eventual expression in new products, while the Europeans and the Japanese appeared to be devoting a larger proportion of their innovative effort to improving their productive processes.
(Vernon 1982: 157)

Such a description by Vernon is a very good account of the 'Fordist' regime of accumulation, both of the consumption model of mass-produced standardized goods, and of the innovative patterns, related to the different market conditions, social structures and income distributions of the US, Europe and Japan. This had important effects on the innovative process within firms and on the technological accumulation of the economy, changing the relative positions of the most advanced economies. To return to Vernon, the European and Japanese producers showed a greater capacity to react rapidly to external pressure and 'these changes have meant that US businessmen have lost a critical lead that they for so long had enjoyed' (ibid.: 158).

However, the size of US firms, their presence in foreign markets and the importance of military R&D, are all factors that suggest caution 'in the assumption that US firms will lose much technological ground to their European and Japanese competitors; the ground will certainly shift, but the US firms may still be left with a visible competitive edge' (ibid.: 160). A major reason for such 'optimism' is that US firms are now also in the position to use technologies that have been originated in other countries, where the large presence of affiliates of US multinational corporations offers the US a particular access and degree of control.

On the basis of such processes, what is the outlook for the future? An interesting technological scenario has been suggested by Pavitt:

1. The US maintains its lead in technologies closely related to military activities. This poses some problems in international technology transfer West-West or West-East in such areas as aircraft, space, nuclear materials and electronics, but these are similar to problems that have existed over the past 25 years.

2. No new countries join the select club at the world technological frontier...

3. Japan, West Germany and few of its neighbors maintain their technological dynamism and increase their innovative capacity in general and in particular sectors of comparative advantage.
(Pavitt 1985: 17).

The growth of international technology flows by itself does not guarantee a greater access of new countries at the technological frontier because the conditions that have made possible the 'catching up' on US technology by Europe and Japan are neither present, nor transferable elsewhere. The levels of technological accumulation and the possibility to move know-how are not adequate for greatly expanding, in the near future, the number of countries with a presence on the technological frontier.

Rosenberg, however, has stressed the importance of the change that is taking place: 'by contrast with the postwar years of American hegemony, we are likely to see several technological competitors functioning within increasingly similar economic environments and therefore responding to increasingly similar stimuli and problems' (Rosenberg 1982: 289).

In a similar way, Merrill also noted that 'the evidence is overwhelming of a widening technological parity and a quickness on the part of certain competitors to capitalize on newly acquired capabilities and seize important market niches at the high technology end of various high technology industries' (Merrill 1985: 56).

In spite of the different emphasis and perspective, these analyses agree on the convergence of Europe and Japan on the world technological frontier, resulting in a more fragmented pattern of technological leads and lags in different sectors among the advanced capitalist countries. An overall 'technology gap' over all the range of high technologies is perhaps reproduced further down in the international hierarchy, with the developing countries.

In this framework, the objective of a technological strategy in the more advanced countries becomes not reaching (or restoring) an overall leadership, nor, for the weakest countries, an indiscriminate effort to imitate and reproduce a consolidated technological model, embodied by the leading country. Therefore it would be wrong to expect the new Japanese leadership in many new technologies to result in Japan 'replacing' the US with an overall technological superiority. This is prevented not only by the lack of political, economic and military conditions comparable to those that made possible the rise of US leadership, but also by concrete technological reasons. The range of new technologies is simply too wide for any country to maintain an undisputed 'lead.' Rather, the new objective of technological strategies becomes targeting the best position for the national economy in the international division of labour at the technological frontier. Nevertheless, the control of high technology continues to be a source of power, particularly in the case of military technology, whose role and effects are discussed in the next section.

4.3. The effects of military technology

The research and development effort for military technology is an important part of US innovative activities and of the government's technological policy. It deserves a specific discussion not only of its remarkable size but also of its quality and nature. The 'positive' effects of military research have been described as civilian 'spin-offs,' while the 'negative' effects can be summarized as a distortion of the research priorities, the pattern of innovation and the orientation of technical change.

The civilian spin-offs of military technology

Large expenditures for military research and development have a contradictory effect on economic and technological development. On the one hand, the US Defense Department research and procurement programmes have created a huge market, financed by public funds, for the emergence of new technologies. It is estimated that about 70 per cent of all Defense Department acquisitions of hardware over the past thirty years have been parts of high-technology systems, including missiles, aircrafts, space, electronics and communication equipment (DeGrasse 1984: 101). In sectors at the technological frontier, such as laser and space, according to Vernon, 'the US military establishment is likely to provide a market whose size cannot be matched in other countries' (Vernon 1982: 159).

On the other hand, the concentration of innovative activities in military projects diverts resources for the development of commercial technologies and increases the competition for limited resources in R&D funds, scientists, laboratories and specialized plants (Tirman 1984: x). Section 4.2 has documented the extent of this military drain of US innovative activities.

These worries are increasingly shared by American industry. According to the American Electronics Association, 'we cannot siphon off a disproportionate share of our skills and technical resources to military application and still stay ahead of Japan in commercial markets' (quoted in Melman 1986a: 65).

The acceleration of the pace of technical change that results from large military R&D cannot be separated from its direction. According to Nelson, the military and space programmes:

surely do not provide us with a model for future policies in support of high technology industries. That US procurement and procurement-related R&D had such a strong effect in building commercial leadership of US firms certainly does not provide a persuasive argument that we should augment our present defense and space programmes to increase 'spillover.' The massive expenditures we mounted then, and are incurring now, surely cannot be justified by the commercial returns.
(Nelson 1984a: 72)

The issue of civilian spin-offs is at the core of many studies on military programmes, from aircrafts to nuclear power, from semiconductors to computers. No general mechanism and pattern of technology transfer from military to civilian applications can be found, although institutional factors, funding for basic research, or procurement contracts at an early stage of development, played a role in the development of some of the new technologies. In the case of semiconductors, early procurement was the most important factor; in the early 1960s the military accounted for half the total sales of semiconductors in the US, a share that fell to 10 per cent in 1981 (Flamm 1984: 36). According to industry sources. half of all the R&D has been paid for by the US Defense Department in this way (ibid.). The lessons of this case, according to Rosenberg, are that

(1) The major innovations were not achieved on projects supported by military R&D. (2) Military R&D on possible alternative routes to miniaturization were largely spent 'betting on the wrong horses'. (3) The procurement needs of the military provided a pervasive and well-understood presence that served as a powerful inducement to innovative activity on the part of private firms spending their own R&D money.
(Rosenberg 1986: 18)

If the US military has been the successful 'midwife' of innovation in semiconductors, this does not mean that it is the legitimate father, nor that no other institutions may have played the same role. The case of nuclear power is an example of a highly unsuccessful technology on commercial terms that was developed from military research on nuclear weapons. The case of supersonic aviation is another example of the attempts to use in civilian areas possible spin-offs from the development of military supersonic aircrafts. This is another case of failure of spin-offs: the SST project by Boeing was never developed and the sixteen Franco-British Concorde airplanes that were produced had development costs of several billion dollars: 'the indiscriminate pursuit of military spillovers thus turned out to be a recipe for commercial disaster when optimal design requirements of the military and civilian sectors were sharply divergent' (ibid.: 24).

A growing divergence between civilian and military needs is evident in many areas, from aircrafts to integrated circuits, from satellites to space (ibid.: 24-5). This is also confirmed by a study commissioned by the ministry for Research and Technology of West Germany; using extensive documentation, the study found examples of transfer of technology from military to civilian uses only in very few cases, when there was a direct compatibility among the products. The possibility of spin-offs falls rapidly as the products develop through the 'life-cycle' and move to a greater differentiation in various applications (Krupp and Kuntze 1986: 27).

A reason of the declining importance of spin-offs is the growing applicative nature of military research; a spokesman for the group Business Executive for National Security' argued that in 1986:

when the Department of Defense will spend more than 32 billion dollars on research, development, evaluation and testing, only 861 million, or about 2% of the total, is to be spent on basic research which might be expected to further commercial technologies. Almost no commercial applications result from the development of particular weapons systems, only from basic research. In addition, the technologies developed for use in military systems are often too costly or sophisticated for commercial application (McKenna 1986: 7).

Military R&D is therefore characterized by low levels of productivity of the investment. Melman has reported that the US Commerce Department estimates that a commercial patent requires on average ten man-years of industrial R&D to be developed, and a thousands man-years for the R&D that the Defense Department and NASA contract out or perform in-house. (Melman 1983: 178). A study of the percentage of spin-offs from military R&D has estimated for the US a value between 5 and 10 per cent (ibid.).

Besides the individual interesting cases of civilian spin-offs, there are three basic factors, outlined by Tirman, that reduce their scope and effect: many of the products would have been developed anyway by the industry; the largest benefits have already taken place, as the greatest potential is when a technology is in the early stage of development; finally, any agency that may spend the amount of resources the Defense Department invests in high technology will inevitably lead to some commercial by-products (Tirman 1984: 221).

High military R&D expenditures are therefore a bad technological policy, a view on which there is broad agreement among the major US experts. Edwin Mansfield noted that, in spite of the spin-offs, 'the benefits to civilian technology seem decidedly less than if the funds were spent directly on civilian technology' (Mansfield 1980: 589).

According to Richard Nelson, 'the large spillover from the defense and space programmes of the late 1950s and 1960s was the product of a rather special set of circumstances.... Many analysts have suggested that spillover has diminished markedly since the mid-1960s' (Nelson 1984a: 72).

Nathan Rosenberg added an additional criticism: 'although the beneficial spillovers from the military and space programmes to the civilian sector are often cited, far less attention has been given to their possible deleterious effects in raising the costs of civilian R& D and in reducing the sensitivity of American engineers to cost considerations' (Rosenberg 1982: 284). Such a spin-off can make a lot of engineers unable to produce for competitive cost-conscious markets, such as the civilian ones, with a major effect, this time a negative one, on the pace of innovation and on the direction of technological change.

The distorting effect of military technology

The development of military technologies has an effect on the direction of technological change that goes beyond the simple diversion of resources from civilian innovation. A set of factors - basic principles, technological preferences, performance requirements, nature of the demand - have a strong effect on the kind of technologies developed by the military, in ways that have reduced efficiency, slowed down civilian applications and distorted the overall direction of technical change.

How is it possible to document these effects? The inefficiency of technological systems developed on the basis of military requirements, in the case of numerically controlled machine tools and nuclear reactors, has been shown by detailed reconstructions of their development and by international comparisons with the same technologies developed on other countries in a civilian environment.

David Noble has documented how the development in the 1950s of numerically-controlled machine tools at the Massachusetts Institute of Technology with the funds of the US Air Force has led to machinery that offered a strong centralization of control and wide versatility, while ignoring cost constraints: 'in an effort to meet Air Force specifications therefore, the industry ended up with perhaps the more complex and expensive approach to N/C (numerical control) then available' (Noble 1984: 203).

Cost constraints have made the application of these machines extremely limited in civilian sectors. In 1978, twenty years after their introduction in 1958, only 2 per cent of metal-working machinery in US manufacturing industry was numerically controlled. Only in the aerospace industry, largely financed by the Defense Department, the ratio was 6 per cent. According to Melman, the military nature of their development 'probably had the long-term effect of severely retarding the adoption of advanced technology in the metalworking industry' (Melman 1983: 107). This delay in the diffusion of numerical-control systems allowed Europe and Japan to reduce the advantage of the US in this field, and made easier their successful effort to export their machine tools in the US market.

A second example is that of nuclear power. US nuclear reactors were developed after a strong R&D effort by the US Navy, without exploring alternative designs and without competitive mechanisms, that have led, according to various studies in this field (G. Thompson 1984) to the failure of the industry. In the US, 'the design fostered by the US Navy was heavily promoted by the Atomic Energy Commission, a design flawed in many respects. The consequence, as we have seen in the 1980s, is a wholesale economic disaster compared with the widely held expectations for the technology' (Tirman 1984: 217).

The main current example of the distorting effects of military technology is provided by manufacturing automation. The same tendency towards eliminating the control and presence of production workers that had so deeply marked the development of numerically controlled machine tools has led to a major involvement of the US military in a variety of industrial automation programmes, from the Air Force Integrated Computer-Assisted Manufacturing (ICAM) aiming at a 'workerless factory' (Melman 1983: 236), to the Navy's Rapid Acquisition of Manufactured Parts (RAMP) (Business Week, 20 April 1987, p.60; see section 3.2 above).

The effects of such a form of industrial automation can be seen in the project sponsored by the US Air Force for producing the B1-B bomber in a 'factory without workers.' Vought Aero Products, a division of LTV Aerospace & Defense Co. has built a $10.1-million factory with eight Flexible Manufacturing Systems that can build 564 parts of the bomber. The system has been in operation since July 1984 and it has been considered 'an absolute success' (Business Week, 3 March 1986). But the bombers so far completed have shown major defects in the electronic systems, fuel leaks and an early need of parts replacement; repairing them is expected to take two years and $7 billion, on top of the $27 billion already spent for the first 100 aircrafts (Business Week, 24 November 1986, p.47). From being the gem of US military technology, the B1-B bomber has become another major scandal of US military procurement.

This time, however, on the road to militarized high technology, the US is not alone. In West Germany, Messerschmitt-Bolkow-Blohm is producing parts for the European MRCA-Tornado aircraft in a factory with twenty-eight computer-controlled machining centres and milling machines, and automated transport systems for tools and components (Schneider 1984: 160).

The defects, cost overruns, and the frequence of breakdowns of military high-technology systems provide additional evidence of the distortion of military technology. Many studies have listed the innumerable cases of malfunctioning, inefficiency, long down time and waste in weapons systems of all kind (Kaldor 1982a; Melman 1983; Adams 1982), proving the systematic nature of the problems of military technology.

Two recent examples are the US fighter aircraft F-15 and the Aegis anti-aircraft system for the destroyers of the US Navy. The former, with 127 individual electronic units, is not available, due to maintenance and other work, for 45 per cent of the time. The latter is available only for 42 per cent of the time, and its software works only for two and a half hours between failures (Melman 1986a: 66). The seriousness of these problems has been recognized also by the official report of the US Commission on defense management headed by David Packard, former deputy secretary of defense and president of Hewlett Packard corporation. The report admitted that 'weapons systems take too long and cost too much to produce' and that 'too often they do not perform as promised' (The Economist, 8 March 1986, p.34). Furthermore, the performances required are designed for imaginary combats; in 1980 the US Defense Science Board noted that the 'Defense Department creates requirements to meet threat projections that often do not materialize' (ibid.).

Extreme design sophistication and strong centralization of control over production are key characteristics of military-oriented technological development. Its very high costs, however, continue to limit the applicability of its results to civilian industry, which pays the price of the diversion of resources, loss of efficiency and distortion of innovation. In the factories, this results in workers losing their skills and control over the production process. In the educational system and the labour market for qualified engineers new distortions emerge and, according to Rosenberg, this

may have had a significant effect in slowing the rate of productivity growth and in contributing to declining international competitiveness that has plagued the American economy in recent years. The possibility needs to be seriously entertained that large-scale military R&D programmes do not offer a solution to these intractable economic problems; rather, they may have constituted a serious part of the problem itself.
(Rosenberg 1986: 29)

The effects of military technology on innovation and on the economy have been summarized by Mary Kaldor with the notion of the 'baroque arsenal':

Modern military technology is not advanced; it is decadent. Over the years, more and more resources have been spent on perfecting the military technology of a previous era. As a consequence, modern armaments have become increasingly remote from military and economic reality. They are immensely sophisticated and elaborate; they are feats of tremendous ingenuity, talent and organization; and they can inflict unimaginable destruction. But they are incapable of achieving limited military objectives and they have successively eroded the economy of the United States and the economies of those countries that have followed in her wake.
(Kaldor 1982a: 1)

This has a major impact on the economy: 'baroque military technology artificially expands industries that would otherwise have contracted. It absorbs resources that might otherwise have been used for investment and innovation in newer, more dynamic industries. And it distorts concepts of what constitutes technical advance' (ibid.: 3).

These characteristics of military technology have affected the development and commercial success of many technologies of the past, and they are now influencing the direction of progress at the technological frontier, in areas such as microelectronics, computers, optics, telecommunications, industrial automation, space and materials research. Together with market relations, the logic of military technology can be traced in the technological strategies of corporations and governments, which are examined in the following sections.

4.4. The technological strategies of corporations

The technological performances of the US, Europe and Japan are the result of the activity of corporations and of government policy. Firms are the place where most innovative activities take place and where new products, processes and forms of organization are introduced, but the strategy of corporations, for R&D as well as for production and marketing, is increasingly international. Innovation takes place more and more within a network of relations with research institutions, universities, government laboratories and other firms. Two apparently contradictory processes have developed here. On the one hand, there is a growing internationalization of the technological strategies of corporations, with greater and more rapid flows of technology and greater integration of innovative activities at a world scale. On the other hand, there is strong pressure towards national co-operation in R&D between firms, government agencies and research institutions, in a strategy to advance a country's technological level.

The internationalization of technology

The development of new technologies has been associated with a growth of the international flows of technology. A study by

Mansfield et al. on a large number of US firms found that US-based multinational firms are transferring their technology to their foreign subsidiaries much more quickly than in the past. In 1969-78, about 75% of the technologies in our sample that were transferred to subsidiaries in developed countries were less than five years old; in 1960-68 the proportion was about 27%' (Mansfield et al. 1982: 209).

These greater flows of technology facilitate the imitation by other countries. The study found also that

in about one-fourth of the cases, the technology transfer seemed to hasten foreigners' access to these technologies by at least two and a half years. And in about one-third of the cases, the technology transfer resulted in at least a two-and-a-half-year reduction in the length of time elapsing before a foreign competitor imitated the innovation.
(Ibid.: 213)

The degree of internationalization of firms is greater in the high-technology sectors. Analysing a sample of fifty-seven US multinational corporations, Vernon found that the innovations are transferred more rapidly than in the past, particularly in the firms with higher R&D expenditures (Vernon 1982: 151). The cost of the technology transfer within a multinational firm has been estimated at 20 per cent of the cost of establishing a plant abroad (Mansfield et al. 1982: 215).

These greater technology flows have led to a different distribution of R&D activities within multinational corporations. The study by Mansfield found also that by the mid-1970s 'about one-half of the firms we studied felt that worldwide integration of overseas and domestic R&D had been achieved' (ibid.: 210). This evidence puts the relative decline of innovative activities within the US in a different perspective. In the early 1970s US multinational corporations controlled, through their foreign subsidiaries, one-seventh of all industrial R&D in West Germany and Britain, and a half in Canada (ibid.).

The growing divorce between the performance of the US national economy and that of US-based multinationals, already discussed in section 3.3, is developing also in the field of technology. The presence of large US firms in the foreign markets that are emerging as new sources of innovation puts them in the position to benefit from the new, reversed flows of technology. This has led to a growing number of agreements among firms of different countries for R&D projects and investment in new laboratories and plants. Japanese and European firms are expanding their research activities in the US, and US firms are doing the same in Japan and Europe. This pattern will be investigated in detail in the case of two major industries, semiconductors and telecommunications, in the next sections.

The scale of the new R&D co-operation among firms is unprecedented; according to a OECD report, companies 'have not previously cooperated so directly, on such a scale, in planning, financing and carrying out joint R& D' (Brainard and Madden 1985: 64). This leads to new business strategies, besides the traditional pattern of takeovers, mergers and joint ventures. Joint development agreements, sharing of research and design resources are increasingly frequent, together with cases of large firms investing as minority shareholders in small, dynamic companies, which are allowed to maintain their independence and innovative capacity, while offering the large company access to their results (ibid.: 66).

These transformations, according to Nelson, are leading to more integration and closer inter-firm relations at an international level (Nelson 1984a: 76). Vernon has argued that this will not necessarily result in a growing degree of concentration, as the current trend to mergers among national firms in high-technology industries is developing at a slower pace than the internationalization, with the entry of new foreign firms in national markets (Vernon 1982: 150).

The national co-operation in R&D

In contrast to the growing internationalization of innovative activities, within the national boundaries of all advanced industrial countries, there is evidence of an increased co-operation in the research and development of new technologies between firms, governments and research institutions. A network of relationships between industry, universities and government agencies has been a permanent characteristics of the R&D and innovation system in advanced capitalist countries (Noble 1977). In many cases, what used to be an informal network with a clear separation of roles, is transformed into close co-operation. The risk, the size of the R&D investment and in some cases the strategic importance of technological projects in key areas, have drawn together formerly competing firms, government funds and research institutions.

In Europe and Japan the intensification of co-operative R&D projects does not represent a qualitative difference with the past, as technological strategies have always been characterized by a strong role of governments in coordinating and funding private research. It is in the US that the emergence of co-operative strategies has marked a turning point, breaking with a competitive tradition that used to be strengthened by the anti-trust legislation. Corporate strategies are in this way becoming increasingly close and intertwined to the technological strategies of governments.

Striking similarities in the research fields, and deep institutional differences have emerged in a comparative study of US, European and Japanese high technology programmes (Pianta 1988).

The research on computers of a new generation illustrates this trend. In Japan the project of the Ministry for International Trade and Industry (MITI) for the 'Fifth-generation computers' has been a classical example of the co-operation between government and corporations that is common in Japan. Launched in 1981, it involves an expenditure of $450 million over ten years (The Economist, 24 August 1986, p.13). Europe and the US have made efforts in the same direction. The EEC countries have developed the 'Esprit' programme (European Strategic Programme of Research in Information Technology), which covers a wide area of research, and is funded by $800 million of EEC funds, which must be matched by an equal amount from the firms involved in its projects. Started in 1984, 'Esprit' has led in its first year to 104 co-operative projects that have involved 270 European firms, including affiliates of US multinationals. Its focus is pre-competitive research, but there are pressures to move towards demonstrative projects for commercial products (Brainard and Madden 1985: 65).

In the United States, the challenge for the new-generation computers has been taken up first of all by the Defense Department, with the 'Strategic Computing Programme' of DARPA, the agency specialized in directing high-technology defence projects (ibid.: 59). DARPA has spent $300 million over the past five years on military Very High Speed Integrated Circuits (VHSIC) and plans to spend $1 billion on research on supercomputers (The Economist, 23 August 1986, p.13). This response is typical of the US technological strategy that is discussed in section 4.7.

More unusual has been the initiative of twenty-one US electronics firms - all the major ones, with the exception of IBM, for antitrust fears - that for the first time pooled together resources and in 1983 formed the Microelectronics and Computer Technology Corporation (MCC). Each company contributes to the $75 million annual budget, financing the research performed by 250 scientists in the new MCC laboratories in Austin, Texas. The four areas of research are systems architecture, software engineering, manufacturing of microprocessors and computer-aided design of Very Large Scale Integrated Circuits (VLSI). The ten-year systems architecture project has the same objectives as the Japanese programme (ibid.).

As US legislation prevents full co-operation among firms in the development of a product, MCC focuses on pre-competitive research; MCC will own the patents on the results and will license them to the individual companies of the pool, who will then carry out the development and production (Brainard and Madden 1985: 64; The Financial Times, 27 January 1986). The degree of success of this experiment is still uncertain, and the founder of MCC, Admiral Bobby Inman, resigned as chairman at the end of 1986 (see also Pianta 1988), but the same model of the MCC is now being proposed for the semiconductor industry, as we will see in the next section.

Behind the apparent paradox of growing internationalization and growing national co-operation, there is a common tendency to greater inter-firm agreements. Both processes search for the size and scale of research efforts that is needed, with government help, to remain at the technological frontier. Two classic cases of these apparently opposing tendencies will be presented in the next two sections: the semiconductor industry, that has been dominated by the internationalization of R&D and production; and the telecommunications industry, characterized by close government control and co-operative national research.

4.5 The case of semiconductors

The semiconductor industry offers a major example of corporate strategy in a new technology that has been deeply characterized by the internationalization of R&D and production. A recent OECD study (Ypsilanti 1985) has examined the forms of technology transfer, from direct investment to joint ventures, licences and technology agreements. The summary of the processes is that

firstly there was a period when American firms dominated the industry and were involved in direct overseas investment and some licensing agreements. Secondly, there was a period marked by the emergence of Japanese competition and the increasing drive of European firms to obtain technology. Finally, in more recent years, there has been an increasing emphasis on direct investment and on international cross-licensing between firms which are at a similar technological level.
(Ypsilanti 1985: 48)

By documenting the many foreign investments, joint ventures and inter-firm agreements, the study draws a picture of highly dynamic corporate strategies, large international technology transfers and rapid changes in the relative position of individual firms, with regard to their specialization, R&D activities, production and marketing strategies.

The picture of direct investments shows a slow down of those by US firms in East Asian countries, a growing presence of European and Japanese firms in the US market and of Japanese companies in Europe. The agreements that are reviewed between 1979 and 1983 are largely for licensing and joint ventures, aiming to get access to new markets and to improve the technological capacity of each company, with greater integration upstream or downstream of production. These agreements have become more frequent after 1983, marking a change in the industry structure (ibid.: 51).

The web of agreements around Intel, a major US semiconductor company, is indicative of what is happening in the industry. Around the ownership by IBM of a share of Intel, there is an extensive network of inter-firm relations. Eleven electronics companies have licenses from Intel (Sanyo, Oky, Nec, Signetics, Mitsubishi, Matra-Harris, Toshiba, Memorex, Siemens, Amd, Harris). Three others (Fujitsu, the former Burroughs and Texas Instruments) have developed agreements with either IBM or Intel. Furthermore, there is extensive cross-licensing between IBM, AT&T and NTT (ibid.: 55). This network is also constantly changing, both in terms of the technology agreements and in terms of equity ownership.

In 1986 these international links have increased further with twenty-seven agreements between Japanese and Western companies (Business Week, 20 April 1987, p.62). The main one took place between Motorola, the US company leader in logic chips, and Toshiba, the Japanese leader in memory chips; they plan to exchange technology and open a joint factory in Japan. Other links were established between American Micro Devices and Sony; LSI Logic and Toshiba; Boeing and NEC; Siemens, Toshiba and General Electric (ibid.).

In this international restructuring of semiconductor R&D and production, the crisis of the US industry should not be overlooked. While in 1980 fifteen US firms were profitably producing a very large share of world chips, in 1987 only three were left; they had total losses of about $800 million in 1986 and since 1981 65,000 workers lost their jobs in the industry (Reich 1987: 65).

The situation in Europe is equally difficult. In 1985 European semiconductors represented only 13 per cent of logic and memory chips and 6 per cent of microprocessors (The Economist, 22 February 1986). Half of the European market is controlled by US and Japanese producers, and the European capacity in specialized productions is declining (ibid.).

The confusion on the European scene is stressed by Ypsilanti, who pointed out that 'the requirements of European firms do not necessarily coincide with an industrial strategy for a "unified" European semiconductor industry. This is true not only in the case of semiconductors, but also in other branches of the electronic industry (computers, telecommunications)' (Ypsilanti 1985: 59).

The strategy of European firms has focused on establishing new direct links with US companies, in a variety of ways, from direct investment, acquisitions of firms and joint ventures, to licensing agreements, second sourcing and co-operative research. Among the major European companies, Philips bought Signetics, Siemens acquired five small US firms and Thomson invested in Mostek (ibid.: 59-60; Business Week, 20 April 1987, p.63). Growing links are also developed within Europe, with the $1 billion project of Siemens and Philips for the next generation of memory chips, and the merger between Thomson and Italy's SGS.

The free-wheeling internationalization of the semiconductor industry has now halted. In July 1986 the US and Japanese governments reached an agreement on market shares and prices that led, for the first time, to a 10 per cent increase in semiconductor prices (The Economist, 6 September 1986). In February 1987 a report by the US Defense Science Board criticized the 'unacceptable' reliance of US military on foreign semiconductors and proposed a $2 billion programme to support American producers. Estimates by Reich suggest that about 40 per cent of the value of advanced electronic equipment in US military systems now comes from Japan, and at the present trend, the share will reach 55 per cent in 1991 (Reich 1987: 64).

Then, in March 1987, the US government prevented the takeover of Fairchild by Fujitsu that was announced in October 1986. Fairchild, a US company owned by a French family, was almost bankrupt and in search of a buyer, but a large share of its production consisted of military chips for the Defense Department. Its sale to the Japanese was considered a threat to 'national security', and the US government intervened, sending a clear signal on the limits that the internationalization of the industry should not trespass. Furthermore, citing the Japanese failure to comply with the market-sharing agreement, the US government imposed unprecedented trade sanctions against Japanese electronic goods, opening a 'trade war' across the Pacific. Few months later, the Fairchild case ended with its acquisition by the US company National Semiconductor (Time, 14 September 1987, p.37).

The intervention of the US government in support of the domestic chip producers gave new weight to the project of the Semiconductor Industry Association, the US trade group, for creating a Semiconductor Manufacturing Technology Corporation (Sematech) along the lines of the Microelectronics and Computer Technology Corporation (MCC) described in the previous section. All large US manufacturers of semiconductors would join in a major programme for developing the manufacturing system of the next generation of chips. The $1 billion needed for the project may come from the new funds the US Defense Department is prepared to spend in support of American semiconductor firms, and an initial funding of $100 million a year was approved by Congress early in 1987 (Business Week, 20 April 1987, p.63).

This project would dramatically expand inter-firm co-operation in the US, that is presently limited to the Semiconductor Research Corporation, a non-profit consortium of thirteen companies funding, with $35 million a year, university research on advanced integrated circuits (The Economist, 23 August 1986, p.13; see also Pianta 1988).

The lessons are that a new phase is now opening for the semiconductor industry; a much greater role will be played by inter-firm co-operation and by the state, not only in Japan and Europe, but especially in the United States, in controlling and subsidizing the industry, negotiating market shares and directing technological strategies, in an industry where the corporations' strategies had led to rapid internationalization.

4.6. The case of telecommunications

The case of telecommunications is a major example of the pervasive nature of new technologies and of their impact on the whole spectrum of economic activities, shaping a new organization of production, new products, services and activities. With the new telecommunications technologies, information flows can be transmitted at greater speed and lower cost among offices, factories and homes, in a process marked by the convergence of microelectronics, computing and telecommunications.

Voice, data and images can be transmitted by the same medium - namely the telephone system - and the information can be processed and transmitted, stored and reproduced in a variety of different forms. New systems of electronic switching (space-division switching and the more advanced time-division switching) and the Integrated Service Digital Networks (ISDN) have been developed, and major progress is being made in the use of fibre optic communications (Dang Nguyen 1985: 100). New services are offered, such as videotext, teletext, telefax, electronic mail, teleconferencing and mobile telephones. A network of telecommunications becomes in this way a key infrastructure for the application and development of new technologies.

This process, by its very nature, is an international one, raising new problems for the standards, the opening and the control of telecommunications networks that traditionally have been strongly regulated by national governments. In telecommunications, therefore, government decisions have a direct impact of the industry outlook and are often a necessary condition for its development and innovation.

For reasons of economic rationality, as well as of 'national security,' in most countries the telecommunications system developed as a natural monopoly and has been either directly managed (in Europe), or firmly regulated (in the US) by the state. This has meant a strict control over the type of service offered, and the possibility of a direct industrial policy, through the procurement of national telecommunications agencies. Even the recent wave of privatization has not introduced significant elements of competition in the telecommunications market.

Telecommunications is also a rapidly growing industry. The projections to 1989 show an 80 per cent increase on 1984 sales in the US and a 70 per cent growth in Western Europe, both in the private and the public markets (The Economist, 23 November 1985, p.8). Such a rapid expansion of the telecommunications market is producing in all countries a deep reorganization of the traditional relations between the national agencies, the national producers and the major multinational corporations in the field. Many firms are trying to enter foreign markets and to establish new partnerships with other companies. The result is the concentration of the industry, the opening of national markets, that in the past were relatively closed, and new positions of power by a few large corporations (Dang Nguyen 1985: 97).

In the telecommunications equipment industry the traditional form of penetration in foreign markets was to establish a branch plant or to buy a local company, as in all countries with a national industry, it obtained a preference on foreign imports. A new pattern of alliances and acquisitions between firms has now developed, in particular across the Atlantic. In 1986 the French group CGE-CIT-Alcatel acquired the European subsidiaries of ITT for $1.5 billion, resulting in a company of a size that is second only to AT&T (Fortune, 13 October 1987, p.28).

Previous agreements included the links between the American GTE and the Italian companies Telettra and Italtel; Plessey of Britain acquired Stromberg; GEC acquired Dick; British Telecom tried to acquire the Canadian Mitel (Hills 1985: 4).

AT&T and IBM, however, are the two major companies guiding this reorganization of the industry, and the convergence of telecommunications and computing. Both aim at the leadership of the integrated activity of elaboration and transmission of information, even if they come from opposite areas and currently have less than 10 per cent of their sales in the area they want to enter. Both have acquired companies and activities in their new field of interest, as IBM acquired Rolm and proposed to buy a share of MCI, the long-distance telecommunication company in competition with AT&T. IBM also made agreements with the Italian telecommunication holding STET and with its industrial automation companies. On the other hand, AT&T acquired a 25 per cent share in Olivetti, established a joint venture with Philips and is negotiating similar agreements in France and with British Telecom. In this way, IBM and AT&T 'seem to have chosen Europe as one of their battlefields' (Dang Nguyen 1985: 123).

The conflict is on technical standards as well as on market shares. The standard for the new integrated system that IBM has developed is the System Network Architecture (SNA), while the Open System Interconnection (OSI) has been chosen by the International Bureau of Standards and accepted by AT&T (ibid.: 24).

Such a restructuring of the telecommunications sector was opened in the early 1980s by the divesture of the AT&T-Bell system in the US. In the place of a private monopoly regulated by the state, a set of regional telephone companies have been established for local communications, putting AT&T in competition with other companies in the long-distance business, while returning to AT&T the right to operate abroad.

The effects of such a strategy of deregulation have been contradictory. On the one hand, it increased the international orientation of US companies; on the other hand, it opened up the American market, as the US regional companies increased their purchases of foreign equipment. The result has been documented in a hearing in the US Congress by Jack McDonnell, vice-president of the Information and Telecommunications Technologies group of the US Electronics Industries Association. He argued that

in 1984, US imports of telecommunications equipment were over 3.3 billion dollars, while exports totalled 1.9 billion dollars, giving us a negative balance of 1.4 billion dollars, a 68% increase over our 0.8 billion deficit in 1983, the year our balance of trade first turned negative. In trade terms, 1984 was the worst year in our industry's history, and there is every indication that 1985 will be significantly worse.
(US House of Representatives 1985: 695, Hearings of 31 July 1985)

The troubles of the US telecommunications industry have come not only from the deregulation policy of the US government but also from the restrictions over technology transfers, discussed in section 4.8. The same spokesperson for US industry complained that 'while other countries subsidize exports with preferential financing, the US government applies export controls' (ibid.: 702).

A second contradiction of the US strategies is here emerging, between the growth of national industry and the restrictions on the flows of technology. This represents a dramatic reversal of the traditional US policy, that has always argued for 'free information flows.' In 1983 a report to the US Senate on the international telecommunications policy criticized the 'anti-competitive measures' introduced by foreign governments to contain the penetration of US products. It defined the US objectives as assuring 'the free flow of information worldwide,' guaranteeing that 'the necessary growth of the national security, public service and commercial interests of the United States occurs in a manner commensurate with our leadership role in the world,' and finally it demanded a 'a free and competitive marketplace' with international organizations that offer open access to the international telecommunications infrastructures (US Senate 1983: 11).

The report recognized the resistance by other governments and admitted that 'the United States connot unilaterally mandate competition in international telecommunications services. Attempts to do so will meet with frustration and may invite responses in this and other fields inimical to US interests' (ibid.: 24). On the technical standards, the report suggested 'a more formal policy regarding the evolution of ISDN to assure greater US influence in the international process of developing network configuration and standards' (ibid.: 19).

New technologies, technical standards, network organization and new services are the instruments by which large corporations and the US government try to maintain control over the telecommunications system, expanding both the oligopolistic power of the US giant corporations, and the institutional model of deregulation and privatization. The European response has been weak and divided, due also to the institutional inertia of the public telecommunications monopolies. Britain took the road of privatization, but without introducing real competition in the sector. France maintained a policy of strong direction by the government. Germany tried to combine greater competition with maintaining the public monopoly. At the European level, the main initiatives are the RACE programme (Research and Development in Advanced Communications in Europe), that, with an $18 million budget should lead to an advanced and integrated telecommunication network in Europe by the end of the century (Hills 1985: 9). Other European initiatives in this field are part of the Esprit programme and of Eureka (see section 4.9). What is missing in Europe, beyond the specific projects, is a comprehensive strategy that can be adequate to confront the US advantage in R&D and its political and technological pressure, in a key sector of the new technologies.

4.7. The international technological strategies of governments

In recent years, technological policies in advanced capitalist countries have become increasingly important as an area for government intervention and as a strategy for innovation in the economy. While the specific policies that have been adopted are the most diverse, in their institutional forms, sectors of intervention and logic of operation, they all share a common nature and rationale that is rooted, according to a recent OECD report, in the rapid pace of technological advance, in the wide applicability of new technologies and in 'the growing strategic role of technology in international competition and trade,' a role that 'promises to significantly alter the economies of all countries and modify international relations in various ways' (Brainard and Madden 1985: 7).

The forms of technology policy

In Europe and Japan there is a long history of government policies for the technological development of the national economy. In the US, on the contrary, the 'free market' ideology has left the government without any officially recognized role for the technological advance of non-military sectors. The Reagan administration explained this position in its first 'Science and Technology Report' to the Congress in 1981: 'the administration is committed to the view that the collective judgement of innovators, entrepreneurs and consumers, made in a free market environment is generally superior to any form of centralized programming' (quoted in ibid.: 15). Such a view did not prevent the US government from pursuing a very active technological policy that included spending more than 2.5 per cent of the federal budget in 1985 on R&D, and developing major initiatives in most high-technology sectors.

The way technology policies are developed and implemented within countries and their domestic context is not addressed here. The focus is rather on the international dimension of technological strategies and on their effects on the relations between economies and states. In this area, even theorists of the 'free market' are ready to abandon their principles as soon as the flows of technology start to move in an undesired direction. Robert Gilpin, a committed supporter of the view that only markets can make efficient technological decisions, argued that 'one rationale for government control over the diffusion of technology is that the present rate at which new technology is transferred from innovators to competitors is too rapid' (Gilpin 1982: 397), and this hurts the US at a time when the erosion of its technological advantage over other countries 'has intensified competition in a number of high-technology areas and has enhanced the importance of technological leads in export markets' (ibid.).

Behind the 'free market' rhetoric and the emphasis on 'national security,' the US is practicing an active technology policy and 'while it is true that the US has nothing explicitly labeled "industrial policy," military and defense expenditure is a critically important force in technology development in the United States' (Flamm 1984: 35).

The technological effort undertaken under military projects can result in activities similar to the technological policies of the other advanced countries in civilian areas. The OECD study compared the main R&D programmes of the US and Japan and found many areas where both the US Defense Department and the Japanese Ministry for International Trade and Industry (MITI) were directing and funding major research projects.

In computers, both MITI and the Defense Department have projects for 'fifth-generation computers' (see section 4.4; Brainard and Madden 1985:59). In Very Large Scale Integrated Circuits (VLSI), one-third of the development costs in Japan has been funded by MITI, while in the US the Defense Department has a $300 million project (ibid.).

In fibre optics the projects are almost equivalent, with MITI spending $30 million a year and the Defense Department spending $40 million. Likewise, in manufacturing, they both have $200 million programmes, MITI for industrial robots and flexible manufacturing and the Defense Department for industrial automation (ibid., 60).

The similarities are too strong to be casual, even though other areas exist where the directions of US and Japanese programmes radically diverge, and still others where co-operation among US firms has replaced government intervention, as we have seen in section 4.4. (see also Pianta 1988). The similarities, however, do not include the institutional arrangements and the basic criteria for the development of projects even in the same technological areas. The military nature of US research is of critical importance in this regard, with its priority of 'national security' objectives, its disregard for costs and its secrecy. This results in significantly different technological and economic outcomes, as we have seen in section 4.3.

A major common element in the success of some US military programmes and the MITI-sponsored research in Japan, according to Richard Nelson, is that 'both programmes involved a large protected home market' that was 'large enough so that several domestic firms could compete' (Nelson 1984a: 68). The development of new technologies has been encouraged by the decision of the state to assume the risks, and pay much of their development cost; the government has also played a role in coordinating the activities of firms, setting standards for products and processes, creating markets of an adequate size at an early stage of product development.

European governments have tried to learn these lessons from the US and Japan combining increasing public support for R&D with an active industrial policy. Britain and France have maintained a large role of military research, that shares many characteristics of the US case. Technological initiatives are also increasingly European-wide, with many programmes sponsored by the EEC (see below; see also Ergas 1986).

Other important elements for the success of national technological strategies, especially in Europe, have been the public funding and direction of innovation in an industrial network that emphasizes the upstream and downstream linkages. This is the model of the industrial 'filiere,' grouping all the industries and sector involved in a particular production process. In such a model, in the initial phase of development the upstream firms maintain control of the technology; then the control moves downward, as the range of applications increase and the final stages of production become critical (Sharp 1985: 277). State intervention has to follow this shift in the 'filieres' that are strategic for the national technological development.

The US technological strategies

The technology policies of the US, Europe and Japan have to be considered in the context of the changing positions of the more advanced countries. Technological leadership has been a permanent feature of the US hegemony. Back in 1961 a report of the Federal Council for Science and Technology argued that 'not only our domestic strength rely on a vigorous technological base; our nations's role as a leader in the international scene will increasingly be determined by the accomplishments of our scientists and engineers' (quoted in US House of Representatives 1977: 11).

Today the US position has deeply changed. Even a neo-conservative view such as that of Stephen Merrill, of the Center for Strategic and International Studies at Georgetown University, pointed out that 'the United States no longer has a commanding edge in the development and commercialization of all major industrial technologies' (Merrill 1985: 66), even if 'the US military represents the world's largest protected market for high technology goods, and US support for defense-related R&D dwarfs other government's investments' (ibid.: 73). In such a view, the new US interests are maintaining an advantage in a few key sectors, keeping open international trade and preserving the unity of the Atlantic alliance from the risk of emerging technological rivalries.

Such a perspective has directed, since the beginning, the policies of the Reagan administration. The president's science adviser, George Keyworth, made it clear, early in 1982, that the objective of US science policy could not be pre-eminence in all fields: 'there are a number of good reasons why we cannot expect to be preeminent in all scientific fields, nor is it necessarily desirable. The idea that we can't be first across the spectrum of science and technology is not simply a function of our current economic situation' (quoted in Barfield 1982: 43). After a positive judgement on the competitiveness of Europe and Japan, Keyworth argued that

there are certain areas of science and technology that are more pertinent to other countries than to us. It is in these areas that others will attempt to be world leaders. But there are other areas where the US is leader and must remain so. This realization does not represent either a defeatist attitude or a lack of confidence in American scientists and engineers. Rather, it is a recognition of the realities of today's competitive world.
(ibid.: 44)

It is remarkable that while official US policy comes to terms with the 'realities of today's competitive world,' many US economic policy proposals continue to insist on the need to recover a technological leadership as a means for maintaining economic strength and political power. A 1983 report of the US Senate Finance Committee on 'International competition in advanced technology: decisions for America,' recommended that 'advance technology development and trade must be considered as among the highest priorities of the nation' (National Research Council 1983: 15). It stressed also that open international markets are necessary 'both to preserve the US position as a major source of innovation and to ease growing tensions among the industrialized allies... Nowhere is our national welfare more interwoven with that of our allies than in the fields of science co-operation and high technology trade (ibid.: 12).

This is an area where the change in the US-European relations has shown for the first time the US weakness; the report noted also that for the US 'vulnerability could develop because of successful aggressive policies of our allies... which together endanger US major technology industries and fundamental advanced technology capacity deemed essential to economic wellbeing and military security. Where such broad national resources are in jeopardy, the United States must take action' (ibid.: 13). Such 'actions' would include negotiations with trade partners as well as 'unilateral actions as a step of last resort' (ibid.: 17).

The same argument has been made in 1986 by a report of the US National Security Council; after stressing the importance of microelectronics for industries such as autos, computers, automation, telecommunications, defence and aerospace, it concluded that

If the United States loses competitive advantage in these industries, its productivity, living standards, and growth will suffer severely. Moreover these industries are dominated by a few nations and firms so that competitive advantage brings significant economic profits and political influence. Thus if the United States becomes a net importer and a technically inferior producer, it would also become a less independent, less influential and less secure nation.
(Quoted in Reich 1987: 65)

The connection between economic and military pressures in US technology policy is here explicit. This can be considered the American expression of the growing 'technological nationalism' described by the OECD report as an attempt 'to substitute competition between countries for competition between companies' (Brianard and Madden 1985: 68).

This time the threats to the US leadership come from its closest political allies. Nelson has stressed that what is new in the current context is that

the technological threats we see may come more from our allies than from the Soviet Union and may appear in the form of commercial products rather than that of weaponry... If the Japanese can build a fifth-generation computer before an American firm can, confidence that we are at the top of the field for military application surely will be undermined... For all these reasons, our policies in support of high-technology industries will continue to be intertwined with national security objectives.
(Nelson 1984a: 79)

Such a connection shows that the framework for the analysis of technological strategies has to be the US international hegemony and its decline. Behind the current debate on economic competitiveness and technological advantage, this is the real issue at stake, and it is no surprise to find an increasingly strong role of the state in directing the national technological strategies. This results also in the growing conflicts over technology among the more advanced countries; accusations of unfair trade practices in high technology, protectionist bias and excessive public support for national fines are increasingly exchanged between Washington, Tokyo and the European capitals. The OECD report has warned that 'without greater international consensus as to acceptable practice, the disputes, and the retaliatory actions that may precipitate, could well grow in future as more and more countries pursue the new technologies' (Brainard and Madden 1985: 12).

But the growing technological conflicts within the West are themselves prisoners of political and military relations. Bix has stressed the contradiction that follows from these processes: 'US hegemony appears to be threatened by any capitalist state intent on closing the technology gap. Conversely any state running that race locked into a nuclear, anti-Soviet alliance with the United States is liable to have its internal industrial strategy distorted and shackled by its alliance commitments' (Bix 1985: 30).

The European response

Facing the US technological decline and the emerging Japanese power, the European response has been uncertain and divided, in spite of much talk about common action. The importance of controlling strategic technologies has been emphasized by the French president Francois Mitterrand; opening the national Research and Technology Celebration in 1982, he argued that 'for going out of the crisis, research represents one of the essential keys, perhaps the key to renewal. Only a gigantic research effort will allow France to take its place among the few nations able to control their technology and, in the end, to preserve their independence' (Le Monde dossiers et documents 127, November 1985).

France is perhaps the best example of a country pursuing a very active technological policy, including trade protection, public funding for R&D, guaranteed government procurement and support for firms selected as 'national champions' in each of the advanced technologies. The other European countries share some of these policies, in a variety of domestic settings that result from national institutions, economic conditions and traditional relations between government agencies, firms and research centres (see Ergas 1986).

The most important aspect of the European technological strategies has been the growing co-operation within the EEC in a wide range of areas, including resources, energy, information technology and telecommunications, biotechnologies, new materials and 'quality of life' issues. The 1987-91 'Framework Programme' of the EEC Commission that includes all these European innovative activities has requested a budget of about 10,000 ECUs (European Currency Units), representing less than 5 per cent of the total R&D expenditure of the member states (Commission of the European Communities, 1986). The major projects sponsored by the EEC include the Esprit programme in information technology, that recently was extended with Esprit II; RACE (Research in Advanced Communications) in telecommunications (ibid.). Another important European-wide initiative that however is not managed by the EEC, is the Eureka programme developed as a response to the US Strategic Defence initiative, that will be examined in section 4.9. (see Pianta 1988).

In spite of these efforts, the European performance has shown that the opportunities opened by the US technological decline were not seized. In many areas of the new technologies Europe has still to consolidate its position and to find an original direction for its innovation. In this perspective, Patel and Pavitt recommended greater R&D efforts by European firms, suggesting a 6 per cent annual rate of increase, to bring it into line with the US and Japanese commitment. Such an effort would also require a more growth-oriented policy in Europe, allowing firms to naturally expand their innovative activities (Patel and Pavitt 1985: 72). In the case of electronics, where the European performance is lagging behind the US and Japan, they suggested a strategy focusing on advanced applications in various sectors that can lead to new competitive advantages and the development of markets of similar dimensions to the American and Japanese ones (ibid.).

Another study, by Margaret Sharp, has tried to separate in the European 'delay,' a scientific and technological factor and a management-engineering factor, arguing that now as in the postwar period, 'where Europe lags most noticeably is in the commercialization and use of new technologies - in other words, as before, the gap is one of management, not technology per se' (Sharp 1985: 291). The management system of military and civilian R&D in the US has not, however, proved to be particularly efficient, in the light of its past technological performances, and it can hardly be pointed out as a model for Europe. The current European problems seem rather related to the size of available resources and to the degree of integration of its economy, in comparison to the cases of the US and Japan.

However, besides the specific policies for technological advance, a major problem for Europe appears to be the definition of a long-term strategy for innovation, leading to an original technological 'style.' The task for Europe is therefore to move from the previous experience of 'catching up' with the US model, to a new autonomous way of advancing the technological frontier of present knowledge.

Again, the political and military constraints of transatlantic relations emerge here. So far the European technological and economic structure has been closely bound to Atlantic relations, in what Mary Kaldor called 'the Atlantic technology culture.' While in the years of US hegemony this 'gave the US an inbuilt competitive advantage,' the US relative decline and the new position of Europe and Japan have now transformed Atlantic relations into 'a fetter on the emergence of a new technology paradigm, based on the spread of electronic technologies and geographically centred on Japan and Western Europe' (Kaldor 1983c: 7-8).

From the conflicts that are opened by such a transformation, different outcomes may result: a restoration of US leadership or growth in the autonomy of Europe. On this fundamental divide, Europe itself is divided: one can identify two ongoing conflicts; one between American and European élites for shares of the declining markets and thinking of the fourth Kondratiev, and one within European society between the Atlanticist élites and those who favour alternative thinking about state priorities which could amount to a partiality for the new technological paradigm, within a more progressive political framework. (Kaldor 1983c: 7-8)

The emergence of international conflicts and domestic divides on the issue of technological development stresses once again the key role played by new technologies in shaping the new international division of labour and hierarchy of states, as well as the domestic power relations. The decline of the US leadership has led to a set of strategies that have attempted to revive it. Two of these policies are analysed in the following sections: the introduction of strict controls over the international transfer of technology and the US Strategic Defence Initiative.

4.8 The case of US controls of technology transfer

At the beginning of the 1980s, in the climate of a new 'Cold War', the US government set the goal of restricting the access of the Soviet Union and the countries of the Eastern bloc to Western advanced technology, civilian as well as military, arguing that it was a source of economic and military strength for the Soviet bloc. The analysis of the East-West political context that led to the US strategy of technology transfer controls is beyond the scope of this section; the focus is rather on the role that such a technological strategy has had within the West, in particular on US-European relations.

Restrictions to technology flows are not new in US policy, but it is only with the Reagan administration that it prevailed over the traditional pressure for open flows of know-how and investment. The first major regulation of the issue dates back to 1949, in the midst of the Cold War. In 1969, in years of détente, it was replaced by the Export Administration Act, which allowed the government to restrict the export of goods and technology if the president determined that is against the 'national interest' (Hawkins and Gladwin 1981: 228).

Another step came when the Carter administration introduced two laws accepting the recommendations of the 1976 report of the Defense Science Board to the Defense Department, known as the 'Bucy Report' after the chairman of the task force, J. Fred Bucy, at the time executive vice-president of Texas Instruments. The report stressed that 'control of design and manufacturing know how is absolutely vital to the maintenance of US technological superiority' (quoted in Gilpin 1982: 404).

While the report argued for a liberal policy of export of finished products, it introduced the concept of 'critical technologies' to be identified by the Defense Department, giving to the military for the first time a direct role in the control over exports. The report also suggested that the US allies should be 'prohibited from receiving further strategic know how' if they violated the US restrictions on re-export of US technology to the Soviet block, thus introducing the principle of the extra-territorial application of US law (ibid.).

Until the Reagan presidency, these rules were not applied strictly and did not have a major impact on international technology flows. The effort to innovate to remain ahead was given a greater priority that the attempt to prevent the 'leaks' of technology towards the Soviet Union. Even the director of the 'Strategic Technology and Munitions Control' of the US Defense Department noted in 1978 that

it is unrealistic to expect that a system of export restrictions can prevent the USSR from eventually acquiring any level of technology that the West has developed. Inadvertent leakage, clandestine acquisition, and indigenous development will combine to assure that this eventually takes place. The process cannot be halted; it can only be retarded. Thus the true measure of the effectiveness of controls over technology is how long the catch-up process takes. On that basis, the present system scores well, for in a number of critical technologies, the United States has consistently maintained a lead of two to five years over the USSR and in some cases the margin is even wider.
(Quoted in Hawkins and Gladwin 1981: 230)

With the Reagan administration, the enforcement of controls on technology transfer became a major issue of US policy and an area of increasing international confrontation, not only between the US and the USSR but also between the US and Europe. The first show-down came in 1982 with the case of the construction of the 'Siberian pipeline', a civilian project whose only strategic aspect was that it allowed Europe to buy natural gas from the USSR. The US government not only forbade US firms to supply parts for the project but it extended the prohibition to four European companies that had already signed contracts with the USSR for the delivery of electric engines that incorporated US technology. The Reagan administration invoked the extra-territorial authority of US law over the resale of US technology, and when the European firms refused to obey its orders, it banned them from further access to US technology.

The result has been a serious crisis in the US - European relations; former US secretary of state George Ball wrote that the US policy was 'marked by hypocrisy, self-deception and an astonishing ignorance of past experience... Its greatest costs will be political, the weakening of the alliance, the erosion of our leadership, the growing doubts among our friends as to our motives and judgement' (quoted in Garten 1985: 551).

It is important to stress the way in which the US sanctions against European firms have been introduced. In the case of the French subsidiary of the US company Dresser, 'all Dresser had to do to comply with Reagan's embargo was to change the entry key to a computer in Pittsburg on August 26, 1982, the day the sanctions took effect. That effectively barred Dresser's French subsidiary from access to the technology it needs to complete orders it has on the books and to compete for new ones' (Business Week, October 1982).

Since then, the number of similar cases has rapidly grown, with US pressure becoming explicit whenever European firms tried to export to the Eastern bloc machine tools, telephone switching equipment or personal computers, even if they were produced with mostly European technology. The more recent case, in June 1987, was that of Toshiba, which had supplied - in violation of US rules - the USSR with machinery that can be used to produce less noisy submarines. The US reaction has been extremely strong, with talks in Congress of banning all Toshiba exports to the US (The Economist, 27 June 1987, p.66; 11 July 1987, p.72).

While the selection of the 'prohibited' technologies has mainly come from the US Defense Department, a key role in enforcing the restrictions has been played by COCOM, the Coordinating Committee on Multilateral Export Controls, that includes all the NATO countries (with the exception of Iceland) and Japan. COCOM's blacklist reproduces, in a shorter form, the US Defense Department's list, including, besides military technologies, computers, software, robots, silicon and materials technology. These restrictions have been 'voluntarily' accepted also by the neutral countries of Europe, Austria, Sweden, Switzerland, under the threat of a halt on flows of technology from the US (The Washington Post, 6 March 1986).

The strategy of technology transfer control, however, has imposed heavy costs on the US economy. A 1986 report to the Joint Economic Committee of the US Congress pointed out that about 20 per cent of all US exports of high-technology products need a 'validating license' from the government, increasing costs and delays in a variety of ways (Finan et al. 1986: 36). The report noted that

Combined, these factors manifest themselves in competitive disadvantages for US firms, for example, by directly inhibiting some firms from exporting (beyond legitimate restrictions imposed for national security purposes) or discouraging foreign customers from relying on a US vendor or contributing to an erosion of foreign sales distribution networks.
(ibid.: 37)

A similar conclusion was reached by a 1987 report of the National Academy of Sciences. While recognizing that export controls are both a 'necessary and appropriate mechanism', it stressed the 'increasingly corrosive effect' they had on US - European relations. The 600 pages of US regulations in this matter, according to the report, 'are not generally perceived as rational, credible and predictable' by many nations and corporations (National Academy of Sciences 1987). The consequences for the US economy are that in 1986 $62 billion of exports, 40 per cent of all US exports of non-military manufacturing goods, needed a prior approval; 52 per cent of the US exporters surveyed in the report said that they lost sales due to these requirements (ibid.). The result has been a slowdown in US exports of high-technology products, just as imports were booming, leading to a trade deficit in this area for the first time in 1986 (ibid.). This evidence has not prevented further US restrictions on technology flows. In 1986 the Federal Technology and Transfer Act was introduced, requiring the US national laboratories to give priority to US firms in the licensing of their inventions (Reich 1987: 66).

The impact on the international economy of such a US strategy has been serious. A OECD report argued that

such controls on high technologies, and products based on them, could hamper their commercial development and applications. They can also adversely affect trade in these products and constrain the flows and transfers of technologies. They may, in addition, inhibit the normal international exchanges of scientific information. Problems of this kind could well grow in future as the dual-purpose technologies are increasingly applied in civil sectors.
(Brainard and Madden 1985: 10)

The US policy has also raised strong political criticism. A 1985 report of the OECD Committee for Scientific and Technology Policy noted that 'while it is clearly recognized that national strategic controls are legitimate and essential in many areas of advanced technologies, a number of OECD countries have expressed continuing concern with controls on advanced technologies that have both military and commercial applications' (quoted in ibid.: 61).

In a less diplomatic way, the same criticism has been voiced by the British conservative Norman Tebbit, a former trade secretary who, addressing a business audience in Washington, criticized the US for 'your claims to be able to impose your laws on people in other countries, inside their homes and businesses' (quoted in Buchan 1984: 2). The suspicion that the 'national security' argument conceals a policy to maintain US technological leadership has been voiced by many European politicians and business leaders. In West Germany, Horst Ehmke, expert on East-West problem of the Social Democratic Party, argued that 'the restrictive COCOM policy pursued by the United States is supported by a whole range of new developments and measures which are diametrically opposed to European economic interests and which will ultimately have a generally negative effect on the economic development of the West and the United States' (quoted in Lucas 1985: 46).

The size of the European opposition to such a US strategy, ranging from companies to governments, from conservatives to the left, and the seriousness of the OECD worries, prove how controversial the US strategy to use technology as a weapon in international relations has been. It also shows that far from resulting in a renewed US hegemony, this strategy has discredited the US leadership and deepened the divisions across the Atlantic.

4.9. The case of the US Strategic Defence Initiative

The US research programme for the Strategic Defence Initiative (SDI), known as 'Star Wars,' is the single most important case of the US technological strategy for a renewed international leadership. Launched by the speech of President Reagan on 23 March 1983, SDI is now a six-year (1984 - 90), $33 billion programme (Pike 1985a: 4). It is aimed to research, develop and test a new generation of high-technology weapons to be deployed in space and on earth, to defend the US from Soviet nuclear missiles. A final decision on the deployment is to be taken in the early 1990s.

The nature of a strategic defence system is still unclear. The initial mission of SDI was to provide a 'shield' over the whole American territory, but a 1985 report of the US Congress Office of Technology Assessment concluded that 'a strategic defense which could assure the survival of all or nearly all US cities in the face of unconstrained Soviet nuclear offensive forces does not appear feasible' (quoted in Kistiakowsky 1986: 10).

A 'reduced' version of SDI has then emerged, with the objective of defending selected areas, mainly the US missile sites. Rather than replacing the system of deterrence based on the 'Mutual Assured Destruction' (MAD) principle, and making nuclear weapons, in President Reagan's words, 'impotent and obsolete,' SDI has become a programme to 'enhance' nuclear deterrence, adding some defence to the traditional offensive forces. This brings also the US closer to a 'first strike' capability.

A discussion on the problems of feasibility of SDI, its strategic impact and political consequences, is beyond the scope of this section (see Union of Concerned Scientists 1984; E. P. Thompson 1985; Office of Technology Assessment 1985; Parnas 1985; Waller et al. 1986; Jasani 1986; Tirman 1986). The analysis here focuses on the economic and technological effects of Star Wars and on the consequences on US - European relations.

SDI economics

SDI is the largest single research programme ever developed by a Western government. It is managed by the US Defense Department through the SDI Organization (SDIO). Its funds have steadily increased from $1 billion in 1984, for the already-existing anti-missile programmes, to $1.6 billion in fiscal year 1985, $3 billion in 1986, $3.5 billion in 1987 and $3.9 billion in 1988, against the US administration's request of $5.7 billion. Table 4.6 shows the distribution of the requested funding in the five major areas of research: surveillance, acquisition, tracking and kill assessment (absorbing almost 30 percent of the funds); directed-energy weapons (about 30 per cent); kinetic energy weapons (about 20 per cent); systems concepts and battle management (less than 10 per cent); survivability, lethality and key-support technology (about 10 per cent).

The original SDI programme envisaged an expenditure of $33 billion for the 1984-90 period, and a total of $90 billion in the 1984-94 decade (Pike 1985a: 4). Past experience shows how normal time delays and cost overruns are in military research projects. If SDI encounters the same problems as other US high-technology military projects, it may become, according to John Pike, of the Federation of American Scientists, 'a 20 year, 225 billion dollar programme' which by 1990 will absorb one quarter of all R&D funds of the US Defense Department (ibid.: 4, 12).

Before the 1990s SDI is unlikely to lead to actual production and deployment. Estimates on the costs to produce and put in place a strategic defence system vary but are always enormous. SDIO director, General James Abrahamson, told the Appropriations Committee of the US Senate, on 15 May 1984, that a complete system of strategic defence may cost between $400 billion and $800 billion (DeGrasse and Dagget 1984: p.17). The magazine Aviation Week and Space Technology put the total cost at $ 1 trillion, with the system operational by the year 2000 (Aviation Week and Space Technology, 2 April 1984). According to estimates by former military officials and other analysts, 'the total cost could reach anywhere from 500 billion to 2 trillion dollars with still more needed to maintain and modernize it' (Kaplan 1986).

Table 4.6: Strategic defense funding ($million)

Programme	FY 1985	FY 1986	FY 1987	FY 1988
SDI Organization
Surveillance, acquisition, tracking & kill assessment	545.950	X56.956	1,262.413	1,558.279
Directed-energy weapons	337.599	844.401	1,614.955	1,582.037
Kinetic energy weapons	255.950	595.802	991.214	1,217.226
Systems concepts & battle management	100.280	227.339	462.206	563.998
Survivability, lethality & key support technology	108.400	221.002	454.367	523.654
Management HQ, SDI	9.120	13.122	17.411	18.118
Total	1,397.299	2,759.222	4,802.566	5,463.312
Department of Energy
SDI-related programmes	224	228	603

Source: Waller et al. 1986: 15

As an example of the amount of funds SDI may absorb, let us consider the simple problem of launching into space the hardware for the system. A congressional report to Senator Proxmire and others noted that the costs to bring a pound of material into orbit are between 1,500 and 3,000 dollars; the report argued that 'the Phase I architecture studies predicted that anywhere from 20 to 200 million pounds of SDI material would have to be put in space. That would conceivably mean 600 to 5,000 shuttle flights whose launch costs could run anywhere from 30 to 600 billion dollars at today's prices' (Waller et al. 1986: 56).

At the end of 1987, $12 to $14 billion have been appropriated for SDI research contracts with firms, laboratories and universities. Studies from the Council on Economic Priorities (CEP), in New York, have documented the distribution of the first $7 billion spent up to 1986. Table 4.7 shows the twenty companies that received the largest SDI contracts in the period 1983 6. Together, they received $5.4 billion, three-quarters of total expenditures. Lockheed, General Motors (through its Hughes division), the Lawrence Livermore National Laboratories, Boeing and TRW are the first five recipients; all of them are already major Pentagon contractors.

SDI contracts are also strongly concentrated on a geographical basis: 83 per cent of them has gone to five states: California (with 44 per cent of all SDI expenditure), New Mexico (with the Los Alamos and Sandia National Laboratories), Massachusetts (with the MIT Lincoln Laboratory), Alabama (with the Army Strategic Defence Command) and Washington (with Boeing) (The Economist, 15 November 1986, p.23; Council on Economic Priorities 1987).

Major contracts for missile defence have gone to the same companies that produce US nuclear weapons: the MX missile (Rockwell, TRW, Avco, Martin Marietta), the B-1 bomber (Rockwell, Avco, Boeing, LTV), the Pershing (Martin Marietta), the Trident (Lockheed), cruise missiles (Boeing, Litton) (Hartung et al. 1985: 24). It is hard to imagine how companies with a major interest in the production of nuclear (attack) weapons could be the agent of a strategic transformations that would make such weapons 'obsolete.' Rather, such a concentration of current SDI research in the institutions and companies of the US 'military-industrial complex' is further evidence that Star Wars is essentially an extension into space of the arms race.

In fact, SDI can hardly be presented as a radical departure from previous military research; the same companies have been developing some anti-missile work for years. As John Pike noted:

many of the projects in the SDI are not new weapons, but have in fact been under development for many years, although for applications other than missile defense. However, these systems were far too advanced for these other applications and had failed to receive approval for actual development. In a sense, SDI has become a technological orphanage. By incorporating these projects into Star Wars, with its formidable operational requirements, these systems have gained a new lease of life
(Pike 1985b: 12)

Table 4. 7 The top 20 SDI contractors. FY 1983-86 (thousands US dollars)

COMPANY	$ VALUE OF CONTRACTS FY 1983-FY 1986	% OF TOTAL CONTRACTS FY 1983-FY 1986
Lockheed*	720,961	9.8%
General Motors	612,698	8.4
DOE Lawrence Livermore Nat'l Lab*	375,433	5.1
Boeing	373,697	5.1
TRW	373,117	5.1
EG&G*	360,300	4.9
McDonnell Douglas	338,224	4.6
MIT Lincoln Lab	327,542	4.5
DOE Los Alamos Nat'l Lab*	285,588	3.9
General Electric	260,797	3.6
DOE Sandia Nat'l Lab*	226,530	3.1
Rockwell Int'l	197,405	2.7
Teledyne Inc.	181,145	2.5
Gencorp Inc.	175,455	2.4
SDI Institute	125,000	1.7
Textron	120,331	1.6
LTV Corp.	105,657	1.4
Flow General	90,226	1.2
Raytheon Co.	81,819	1. I
Martin Marietta	77,781	1.1
TOTAL	$5,409.706	73.8%

*Data is from FY 1983-June 1986. Since the last four months of FY 1986 are not included in the estimates, final figures may differ from those listed here. Figures also include $549 million in FY 1987 priced contract options that have yet to be exercised. Of this, Lockheed is to receive $34 million, Lawrence Livermore $140 million, EG&G $154 million, Los Alamos $123 million and Sandia $99 million. These values will increase significantly after Congress determines SDI appropriations. Source: Council on Economic Priorities 1987.

Under these conditions, SDI appears as a highly profitable operation for the major US military industries that, as Senator William Proxmire pointed out, 'look at SDI as an insurance policy that will maintain their prosperity for the next two decades' (quoted in Sanger 1985).

Military industries, however, are not the only beneficiaries of SDI contracts; US universities are increasingly involved in Star Wars research. The Massachusetts Institute of Technology, with its off-campus Lincoln Laboratory, in 1985 alone received contracts for $60 million. In 1986, on-campus SDI research in US universities has been funded with $200 million. Utah State University received $8 million; the University of Texas, $6 million; Georgia Tech (affiliated to the University of Georgia), $5.2 million; Johns Hopkins, $4.8 million; Stanford University, $3.3 million (The Economist, 15 November 1986, p.23).

To encourage SDI research in universities and in small laboratories, SDIO set up a separate agency, Innovative Science and Technology (IST), funded with 5 per cent of the total SDI budget. In 1985 IST gave $28 million to universities and in 1986 the amount rose to $100 million. So far, $62 million dollars have been assigned to six research consortia, including twenty-nine universities in sixteen states, working in the areas of non-nuclear space power, optical computing, electronic circuits, high speed electronic systems, composite materials and chemical lasers (CEP Newsletter, January 1986).

With such large funds, SDIO has been able to attract a very large number of academic researchers; by the fall of 1985 SDIO had already received 2,600 applications from individuals and universities (ibid.). For many academics, in fact, SDI represents one of the few available sources for new funds, as public support for basic research has been cut and the share of university research funded by the Defense Department has increased from 10 per cent in 1980 to 16 per cent in 1985. Together with SDI funds, new restrictions are entering US universities. Although most of current SDI research is not classified, a University of Texas electromagnetic 'rail gun' project is classified (The Economist, 15 November 1986) and restrictions are the rule in off-campus laboratories. Security clearances are also requested for the professors and graduate students involved in SDI research (Kistiakowsky 1986: 11).

In spite of this increasing dependence on military funds, the US academic world has remained largely opposed to Star Wars. A Cornell University study on 451 physicists, engineers, chemists and mathematicians in the National Academy of Sciences showed that 80 per cent are opposed to SDI and only 10 per cent support the current research programme (Kaplan 1986). Furthermore, 60 per cent of those polled think that funds for SDI should remain below $1.5 billion a year, about the same amount that was already spent on missile defence projects before the launch of Star Wars in 1983 (ibid.).

Opposition to SDI research in universities has also been explicit: 'some 6,700 scientists and engineers signed a pledge not to accept SDI money: these include more than half the faculty members in 110 university physics and engineering departments. Another 1,600 researchers at government and industrial laboratories appealed to Congress last June to reduce SDI financing because of a lack of technical scrutiny' (The Economist, 15 November 1986, p.23).

The budget appropriations, the pattern of contracts and the estimates on the cost of Star Wars provide the framework for an analysis of the economic effects of SDI (see also Pianta 1987a). In economic terms, Star Wars represents an increase of military spending in areas highly research- and capital-intensive. The number of new jobs generated in all sectors of the US economy by $1 million of military expenditure is estimated at about fourteen, both by the 'Defense Economic Impact Modeling System' used by DeGrasse and Dagget (1984: 56-7) and by a study by Bluestone and Havens (1986).

The former analysis estimated that in 1984 SDI may have contributed to the creation of 28,000 jobs and that the $5.4 billion requested by the administration for 1987 may lead to 11(1,000 jobs DeGrasse and Dagget 1984: 56-7).

The latter study, already reviewed in section 3.5, analysed the employment effect of the $35 billion increase in US total defence expenditure between 1981 and 1985. The total appropriations requested by the Defense Department for SDI in the 1984 90 period, $33 billion, are of the same magnitude, but the R&D nature of SDI expenditure and the lower share of wages and salaries in the value added would reduce the number of jobs created for each million dollars of expenditure. It follows that the expenditure for Star Wars is likely to have a smaller effect on economic growth and on employment than that produced in the first half of the 1980s by a similar amount spent in other military programmes. Moreover, the effect will be substantially smaller than that of an alternative civilian programme to rebuild US infrastructures and expand public services, as a simulation by Bluestone and Havens has shown (Bluestone and Havens 1986: 1). With increasing problems in financing public expenditures, SDI does not appear as a particularly efficient way of expanding the US economy and creating new employment.

The new jobs offered by SDI research are largely for scientists and engineers that in the US are already substantially absorbed by military production; it has been estimated that SDI 'could require roughly 4% of all new engineers between 1984 and 1987. During that period, the Defense Department will likely take up a third of all new engineers' (DeGrasse and Dagget 1984: 3). Thus, in this area of highly qualified work, the net employment effect of SDI is likely to be even smaller, while the competition for attracting the best scientists and technicians will intensify, with the result of diverting even more highly qualified workers from civilian activities.

SDI research requires also a high capital investment by private companies. Robert Reich, of Harvard, estimated that SDI will control 'roughly 20% of US high technology venture capital over the next four years. The problem is that never before on this scale have we entrusted so much technological development to the Pentagon in such a short time' Quoted in CEP Newsletter, January 1986, p.6).

SDI technology

The technological results of Star Wars are highly controversial. On the one hand its supporters claim that the new SDI technologies - electronics, lasers, materials - will lead to radical innovations in all fields, with a major impact on the whole economy. On the other hand, SDI is a classic example of development of new military technologies, diverting resources from civilian innovation and distorting the pattern of technological change (see section 4.3).

The CEP study noted that 'in 1984, SDI funding represented about 1% of the nation's total R&D expenditures. But 1986 it will exceed 3%, even assuming continued rapid growth of total R&D' (DeGrasse and Dagget 1984: 1-2). As a share of the Defense Department Research, Development, Test and Evaluation budget, SDI will grow from 3.7 per cent in 1984 to 15.7 per cent in 1989 (ibid.).

Such greater concentration of US research into the highly specific and exotic projects of Star Wars is likely to limit its impact on the civil economy. Ann Markusen argued that 'there is little chance that the Strategic Defense Initiative will provide many commercial spin-offs' (Markusen 1986: 506). The growing divergence between the criteria and requirement for the development of military and civilian technologies is a major constraint for civilian spin-offs. As John Pike argued, in a testimony before a congressional committee:

Star Wars computers must be able to survive the effects of nuclear explosions, and so the SDI is putting money into research on radiation-hardened gallium-arsenide computer chips. But banks and insurance companies don't need computers that can continue working during World War 111. Directed energy systems can also have industrial and medical uses. But the military needs weapons with power outputs of many millions of Watts that will operate for a few minutes, whereas civilian tools must operate for months or years at powers of only a few Watts.
(Pike 1985b: 10)

According to Nathan Rosenberg, SDI 'represents a highly inefficient way of organising support for the civilian economy' (Rosenberg 1986: 30).

The commercial impact of SDI research is reduced also by the secrecy surrounding the programme and by the strict control that the US Department of Defense is imposing on all uses of the results of Star Wars research (see Stowsky 1986: 701).

The burden of the institutions and traditional practices of US military research is a major problem for SDI research. This has been stressed even by an official report, the Eastport Study, reviewing the prospects for SDI:

it will be necessary to propagate a different culture of system development that will exploit the emerging technologies... The endless demands of project schedules, the lack of capable staff, the lack of capital equipment, the 'not invented here' syndrome, the conservatism in procurement decisions, and bureaucracy have created a culture that resists change and takes only naive risks. SDIO must create a new culture that can adapt to changes more effectively.
(Quoted in Waller et al. 1985: 59)

The roots of the problem are in the technological 'style' of the US military, described in section 4.3, that is increasingly an obstacle not only to the civilian use of military-originated technology but also to the development of SDI technology itself. The congressional report to Senator Proxmire noted that

in order to make the tens of thousands of SDI missiles and satellites affordable, SDI officials say that 'Henry Ford production methods' will have to be introduced into the way these vehicles are produced. The aerospace and defense industry will have to undergo fundamental changes in their methods of production so a missile will cost hundreds of thousands of dollars instead of millions, and a satellite will cost millions of dollars instead of hundreds of millions.
(Waller et al. 1986: 53)

The problems SDIO officials have with the traditional procurement practices that are making Star Wars unaffordably expensive may press the introduction of 'Fordist' methods in the production of aerospace and military hardware. While this might have been the best way of rationalizing production and cutting costs a few decades ago, following the example of commercial manufacturing, it is doubtful that a 'high-tech military Fordism' may solve the problems of mass production of space weapons, especially when commercial industry has already gone through the crisis of standardized mass production systems and is moving now towards more flexible forms of production. The idea of a 'Star Wars assembly line' looks like the misleading solution to a wrong problem.

The exotic areas of research, the extreme performance requirements and the direction of SDI-sponsored innovation suggest that SDI is likely to have very little civilian spin-off. Rather, its major technological consequence may be on the direction of progress at the technological frontier, influencing the allocation of innovative resources, the selection of sectors and the 'style' of new technologies. In this way Star Wars becomes important as a technological strategy aiming to set the ground for the international competition among advanced industrial countries, chosing the areas where the US is in the better position vis-à-vis Europe and Japan: military-oriented high technology. While Star Wars as a military programme aims to re-establish US military superiority on the Soviet Union, Star Wars as a technological strategy aims to re-establish US control over the direction of technical progress.

SDI and Europe

The US strategy for setting the ground for the new technological competition in high technology is the necessary context for the controversy over the European participation in SDI. In March 1985 US Defense Secretary Caspar Weinberger asked the NATO countries, and Israel' Japan, South Korea and Australia, to join SDI research.

In December 1985 the director of the SDI Organization, James Abrahamson, explained before a House subcommittee that the offer to the US allies was made because "we believe that their involvement will certainly lead to a more in-depth understanding of the program and the technical basis for defense as well as its military basis. This understanding will be a vital underpinning of a future decision to proceed into development' (Abrahamson 1985: 14). This shows the basic political aim of the US offer; the promise of sharing the marvels of Star Wars technology stirs a concrete interest of European firms and governments, and creates domestic constituencies across the Atlantic with a vested interest in SDI. This involvement facilitates the European acceptance of a programme with such dramatic political and strategic consequences in East-West and US-European relations.

The European cooptation in Star Wars was especially needed after the widespread criticisms that the SDI programme has received across the Atlantic. In Britain, the closest US ally in Western Europe, the foreign secretary, Geoffrey Howe, in a speech on 15 March 1985, argued that 'there would be no advantage in creating a new Maginot line of the twenty-first century, liable to be outflanked by relatively simpler and demonstrably cheaper countermeasures... The allies must ask whether the enormous funds to be devoted to such systems might be better employed on other forms of deterrence' (quoted in de Montbrial 1986: 510).

In its testimony before a US House subcommittee, Samuel Wells, associated director of the Woodrow Wilson International Centre in Washington, noted that 'the vast majority of political leaders, government officials, strategic analysist and scientific specialists have significant reservations about the way in which SDI was introduced, its impact on the stability of the strategic balance and its implications for other economic and security issues' (Wells 1985: 1). He listed the 'total lack of consultation', the impact of SDI on deterrence, in whose name European governments were still deploying the Euromissiles, the costs and the strategic implications of SDI as major areas of European concern.

Wells concluded that 'finally, the Europeans are concerned that SDI will give the US a significant economic advantage by stimulating a massive American development of new technology that under our current policies on technology transfer would limit the commercial exploitation of technology developed in the US and even that developed in Europe under contract with SDI' (ibid.: 2). Abrahamson himself left little doubt on this; he stated in his testimony that the role of the allies in SDI research should be 'consistent with US law, security interests in protecting sensitive technology' (Abrahamson 1985: 16).

The conditions demanded by Europe for joining SDI research have insisted on the possibility of fair partnership, free flows of technology and opportunity for European firms to have a sizeable share of the contracts. In political terms, Europe stressed the need to respect the ABM treaty and to preserve NATO unity and a common security framework (see Lucas 1986).

The combination of US political pressure and the promise of technological gains for Europe has led a few countries to join the US programme. By 1986 'memorandums of understanding' on SDI participation were signed by Britain, West Germany, Israel, Japan and Italy. However, the Netherlands, Denmark, Canada and Australia (all but the latter with conservative governments) made clear that they had no intention of joining Star Wars.

Many European industries have been trying to obtain the much-promised SDI contracts that, however, have been much smaller than the claims of both US and European governments. By 1986 Britain had received $40 million for Star Wars research. Nine contracts have been assigned to private firms, for $15.5 million; $10 million went to the British Ministry of Defence for the European architecture study, 85 per cent of which has been subcontracted to eighteen private companies; a further $10 million has been spent on laser research at a government laboratory (The Economist, 15 November 1986).

West Germany received $30 million; 21 million went to Dornier and $4 million to Messerschmitt-Bolkow-Blohm. Israel received contracts for $10 million, France $3.4 million (without signing any official agreement with the US), Italy $2.2 million.

In December 1986, seven contracts, worth $2 million each, were awarded to consortia of different firms, for studying the architecture of a European strategic defence. The seven groups include fifty-one companies, twenty-nine of which are European. The groups are headed by Messerschmitt-Bolkow-Blohm of Germany; Aerospatiale and Thomson of France; Snia BPD, a Fiat subsidiary, of Italy; and by four US companies: LTV; Science Applications International; RCA; Lockheed and Hughes, a division of General Motors (Cushman 1986).

The total value of the European contracts for Star Wars for the five years up to 1990 is expected to be no more than $300 million, 1 per cent of total SDI expenditures (Pike 1985b: 3 4; The Economist, 15 November 1986).

In spite of the negligible share of Star Wars research to be performed in Europe, the SDIO has apparently succeeded in involving some of the major European high-technology industries in its research programme. With limited resources for R&D and innovation, participation in Star Wars will mean a reduced European effort to develop new commercial technologies in other fields. Furthermore, accepting the terms set by the US for participation in SDI research - secrecy, control of the results by the US Department of Defense, specific requirements and criteria for development - will result in some sort of integration of European companies and institutions into the 'style' of American military technology.

Eureka and the European strategy

The launch of SDI and the US offer to join in the research programme has stimulated a new European awareness on the need for high-technology programmes. In his testimony, Samuel Wells reported that early in 1985, a study by the French Foreign Ministry Centre for Analysis and Planning found that

SDI would exacerbate Europe's technological backwardness because it would draw off top talent and would likely constrain or prevent the commercial application in Europe of technologies developed under SDI contracts. The best response to the challenge posed by SDI, the study concluded, was European co-operation in a project of high technology development linked to promising consumer markets
(Wells 1985:6)

As E. P. Thompson noted:

Seen in this light, the aim of SDI is not to 'enhance deterrence,' but to enhance the competitiveness and technological supremacy of United States industry. It is a means of organizing research and development to the decisive advantage of the USA into the twenty-first century, so that both economic and security controls would ensure a one-way traffic.
(Thompson 1985: 119)

From this awareness a French proposal of a European high technology programme in civilian sectors emerged; 'Eureka' (European Coordinating Agency) was launched by the French president, Francois Mitterrand, three weeks after the US proposal in March 1985 to join in SDI research. Started as the 'European response' to SDI, Eureka is an open invitation to a high-technology club, which has as his mission the support of research projects in high-technology by European firms. Besides the twelve EEC countries, also Norway, Sweden, Switzerland, Austria and later Finland and Turkey are part of some research projects (see Pianta 1988). The original proposal listed five areas of research:

1. 'Euromatique' includes large vectorial computers, highly parallel computer architecture, multiprocessor synchronous architecture, mass memory, software engineering, symbolic machines, multilingual information, industrial management, new microprocessors, memory and gallium arsenide chips.

2. 'Eurobot' includes factory automation, agricultural robots, security robots, high-power industrial lasers.

3. 'Eurocom' relates to communications, with data-processing networks, digital switches, wideband communication between data processing and office automation systems, broadband transmission.

4. 'Eurobiot' includes researches in biotechnologies and artificial insemination.

5. 'Euromat' includes industrial materials, turbines and high-speed trains (Electronics, 22 July 1985, p.30).

The projects are managed by a small secretariat, that is independent from the EEC Commission, that is already in charge of a number of other high-technology programmes. The funding is provided by the participating industries and is matched by the governments of their countries on a project-by-project basis. France launched the programme with a commitment of F.1 billion; West Germany offered DM1 billion for 1986 and promised DM10 million in a six-year period.

A large number of contracts has so far been awarded in Eureka, and most of the European high-technology firms have been involved, but the technological outcome is still to be seen.

The image of Eureka as the European civilian response to SDI, however, has quickly faded. Some of the Eureka projects, particularly in high-speed computers, semiconductors and lasers, can have military outcomes, and in a few cases have even come to look similar to some SDI research, even though this aspect is usually ignored in the current discussion on Eureka. Passed are the times of the opposition between Star Wars and Eureka; now many European governments and companies have agreed to participate in both (see Pianta 1988).

Such an attitude is epitomized by the Christian Democrat chancellor of West Germany, Helmut Kohl, who shortly before signing the agreement on SDI with the US in September 1985, gave his support also to Eureka, arguing that 'the common security interests of Europe and the US also demand a comparable state of the respective economic and technological developments. If we want to strengthen the European pillar of the transatlantic bridge, it also presupposes that we must increase the technological and industrial efficiency in Europe' (quoted in Wells 1985: 7).

Without entering into the details of the evolution of the European debate (see Lucas 1986), there is now a general agreement among governments and corporations that participation in SDI and Eureka are not 'incompatible.' Rather than confronting SDI with alternative priorities and another direction of technological change, Eureka has become a set of projects in some way complementary to Star Wars.

Nevertheless, the initial response of the US to Eureka has been highly suspicious. Wells noted that

the United States will not achieve its stated objectives if we continue at one and the same time to ask for greater European defense expenditure, pursue a tough policy on technology transfer, insist on political support for SDI, and resist steps for European defense and economic co-operation as we have in our opposition to the revival of the West European Union and our coolness toward Eureka.
(Wells 1985: 17)

In his view the choice is between 'more autonomous allies or reluctant and somewhat rebellious clients in Europe' (ibid.).

The issue of European participation in SDI and Eureka has explicitly put European governments and corporations before the problem of the direction of technological progress. Two main attitudes have emerged. On the one hand, the traditional Atlanticist view of a large section of European political and economic forces has suggested to join SDI, following as usual the US lead, and stressed the benefits of US political support and of the promised economic and technological gains.

On the other hand, the supporters of a revived European nationalism, well aware of their growing strength, have denounced the danger of US control over European technology, but they fell in the same trap of the reproduction of the US 'style' when they argued for independent European projects in the same high technologies.

Both attitudes in fact are still captive of the framework of Atlantic technological relations: the former has led many countries to surrender to the political pressure from the US, and to join Star Wars; the latter has led to a growing emphasis in Eureka on the same technological ground of the US strategy and SDI. The political power and the technological strategy of the US have succeeded, to a certain extent, in shaping the agenda also in Europe.

The response from Japan, which also formally joined the SDI programme, has shown a much better understanding of the issues at stake: the direction of technological change and the ground of future competition in high technology. The Japanese response to Star Wars has been a high-technology project of a different nature, the 'Human frontier' programme, focusing on biotechnologies, from molecular biology to human biological functions. With $1 million for the feasibility study in 1987, the project is at an early stage - as the Japanese participation in SDI is - and it is difficult to assess its scope and influence on the overall direction of Japanese high technology (Nature, 5 March 1987, p.8; see Pianta 1988).

An alternative direction and 'style' of technological progress is possible also for Europe. The US Star Wars strategy imposes upon Europe heavy political costs, with a renewed dependency on unilateral US policies. In economic terms, Europe is forced to enter the ground of competition most favourable to the declining US economy, embarking on the road of falling productivity and growing dependency on military programmes. In technological terms, the Star Wars strategy will extend to Europe the distortions and inefficiencies of the US military-oriented model of high technology.

This is the road for Europe that results from the US technological policies, with SDI and the controls on technology transfer. The conclusions, in the next chapter, will summarize the US strategy and discuss the alternatives for the future of Europe.