The President's National Security Strategy of Engagement and Enlargement of 1995 highlights the three central goals of this Administration's security strategy:

• To sustain our security with military capability
• To bolster America's economic revitalization
• To promote democracy abroad.

Critical to effectively achieving each of these goals is a strong and dynamic technology base. Since World War II, U.S. military superiority has been based on our technological advantage. The technological superiority of U.S. military forces helped bring about the collapse of the Soviet Union and was key to swift victory in the Persian Gulf War. The technological vitality of the United States has also been central to our economic leadership. It is estimated that technological advances have contributed to as much as half of our nation's economic expansion over the past five decades. And technological progress, particularly advances in communication, have contributed to the strengthening of democracies internationally.

This White Paper addresses the role of science and technology in meeting the joint objectives of economic security and national security.

The policy challenge

The collapse of the Soviet Union and the end of the Cold War have not brought an end to the need for a strong U.S. military and U.S. leadership. Instead of a potential confrontation with a global nuclear power, we find ourselves facing challenges that are different but no less complex. These new challenges increase the need for a fast, flexible, mobile and well-trained national defense capability.

Security also stems from world leadership in our economy, as noted in the National Security Strategy:

"A central goal of our nation's national security strategy is to promote America's prosperity through efforts both at home and abroad. Our economic and security interests are increasingly inseparable. Our prosperity at home depends on engaging actively abroad. The strength of our diplomacy, our ability to maintain an unrivaled military, the attractiveness of our values abroad--all these depend in part on the strength of our economy."

Over the past several decades the American economy has experienced a wrenching transformation. Since World War II other nations have rebuilt their industries, made improvements in technology, upgraded their education systems and adopted new and innovative management practices. Thirty years ago the U.S. economy accounted for well over a third of the world's total and was the leader in most manufacturing industries. By 1994, this figure had fallen to about a fifth of the world economy, with industries in Europe and Asia now fierce competitors. With the end of the Cold War, globalization of markets and technological rapprochement, foreign competition has put unprecedented pressure on American industry. Advanced technology has been at the heart of America's competitive advantage and it is critical to sustain technological capabilities here to make it attractive for companies to do business here.

The technology base that propels the economy is in turn increasingly critical for national defense. In a number of important technologies, the defense industry is no longer in a position of technological leadership with respect to the commercial sector. For example, the new technologies that are most critical to our military advantage--software, computers, semiconductors, telecommunications, advanced materials and manufacturing technologies--all are being driven by fast-growing and changing commercial demand, not by military demand. In the past, it was more common to think of technologies as "spinning off" from military development to civilian markets. Technologies today are in growing numbers "spinning on" from civilian labs and commercial products to military uses. These dynamic commercial markets must be tapped to provide for a more sophisticated defense at a lower cost to the government.

Best exploiting the technology base for both economic and defense needs is thus a growing demand of policy, and is increasingly important in the face of tight government budgets. The need to reduce the size of the government's deficit means that every dollar invested by the government must bring a maximum return to the public and leveraged to the extent possible with the capabilities of the private sector. Because the private sector spends considerably more than government for civilian R&D, 74% versus 26% in 1993, government must necessarily play a supporting role.

Administration policy

The Administration's policies to promote a technology base that will support both economic and national security comprise six priorities.

• Creating a climate that fosters private sector innovation and commercialization
• Supporting industry-led technology development partnerships
• Facilitating the rapid deployment of civilian technologies
• Building a 21st century infrastructure
• Maintaining strong support for basic science
• Leveraging commercial and dual-use technologies and markets to meet defense needs.

Each of these policy priorities is summarized below, followed by a more detailed description of our dual-use technology policy, which recognizes and exploits the interdependence between civilian and military technologies.

Creating a climate that fosters private sector innovation and commercialization. A broad range of factors affect the ability of U.S. companies to develop technology, turn innovations into products and services, and bring them to global markets. Continued emphasis on debt reduction is essential to free up capital for private sector investment in research and development, plant and equipment, and new or expanding businesses. Other measures include tax policies that encourage innovation, including extension of the research and experimentation tax credit; reform of regulatory barriers to innovation, while safeguarding the environmental and health goals that are the object of regulation; reducing outdated Cold War export controls; opening world markets to U.S. goods overseas; and strengthening intellectual property protection.

Support for industry-led technology development partnerships. The accelerating pace of technological advance, ever shorter product cycles, and rapid worldwide diffusion of technologies mean that many companies are finding it harder to afford investment in risky or longer-term research and development than in the past. For example, in the electronics industry, the lifetime of a personal computer model is less than two years, forcing firms to manage three generations of the technology at once, and squeezing out resources for longer-term technology base R&D. In the semiconductor industry, new plant investments can exceed one billion dollars, with the next generation running two or three times that much, again drawing resources away from the longer-term R&D that would form the base for future industries. Overall, we find that industries are devoting 80 - 90% of their R&D resources to short-term product development and process improvement. We are thus seeing a gap in the innovation system, in funding for mid- and long-range R&D, which threatens to dry up the wells of new technology from which our companies must draw in the future to remain competitive.

Individual companies can be particularly reluctant to move forward with research and development projects, when a substantial fraction of the total return may not be captured by the individual investing company. Government risk-sharing can provide a bridge that mitigates underinvestment in research and development and supports broad diffusion to society of the benefits of R&D. The social rate of return to R&D investments, where the benefits accrue to many firms and to consumers in the form of less costly and higher quality products, is about twice as high as the average private rate of return to investment for individual firms.

The problem of capturing private returns on pre-commercial research and development investments is especially great in widely dispersed and fragmented industries such as building and construction. And where the benefits of technology advance include public benefits--to the environment, public health, or national defense--the arguments for government risk-sharing are especially strong. If government fails to support advances in pre-commercial technologies for these purposes, at least on a cost shared basis, it is likely that they will not get done...or will be done by international competitors.

The Administration has re-designed government partnership programs to make sure that they are:

• market-driven, with industry leading the joint research agenda
• cost-shared, with the private sector putting up half or more of the money, as a test to make sure the technological risk is worth taking
• competitive, merit-based, and peer-reviewed, and
• evaluated periodically and rigorously to make sure that the projects have the intended effect.

Facilitating the rapid deployment of civilian technologies. Stimulating the development of technologies is only part of successful innovation. Another essential aspect is to make sure that all U.S. industry, including the small and medium sized firms that are the foundation of American manufacturing, get access to efficient, up-to-date production methods. The Manufacturing Extension Partnership operated by NIST in the Department of Commerce is a grassroots effort to provide such information and training to improve the competitiveness of the nation s 370,000 smaller manufacturers. Currently, the network includes 44 centers and the goal is to create a national network of 100 centers able to meet the needs of America s smaller manufacturers.

The fullest use of technologies developed by our public laboratories is also a continuing challenge. If our public R&D investments are to continue to pay the kinds of economic dividends we have enjoyed in the past, government must improve on the management of its own technology-related assets. We must narrow the time gap of technology transfer by bringing technology creators and users closer together. One such mechanism is the cooperative research and development agreement (CRADA) between companies and federal labs which creates market pull on the Federal research enterprise.

Building a 21st century infrastructure. Development of the National Information Infrastructure (NII) and the emerging Global Information Infrastructure (GII) is a top priority. Our nation leads the world in developing and applying information technology that can revolutionize the way we live, learn, and work. Because of the strategic value of these technologies and their potential for fostering economic growth, nations around the globe are investing heavily in the development and deployment of computer systems and telecommunications networks. Our vision for federal investment in information technology is to accelerate the evolution of existing technology and to nurture innovation that will enable its universal, accessible, and affordable application to enhance America's economic and national security in the 21st century.

Also of prime importance to economic growth in the next century is a renewed efficient transportation system. Our highway, air, and rail systems have given Americans the benefits of flexibility, low cost, and personal freedom, but they are in urgent need of renewal. A coordinated public and private research and development effort should meet these objectives for our future transportation needs: physical infrastructure, information infrastructure for transportation, and next-generation transportation vehicles.

Support for basic science. America's future demands an expanding knowledge base, which requires investment in our people, institutions, and ideas and sharing broadly with our global partners. Science lies at the heart of that investment--it is an endless and sustainable resource with extraordinary dividends. Today s investments in basic science build a foundation for commercial products and services of the future. The nation's commitment to world leadership is science, engineering, and mathematics created the worlds' leading scientific enterprise, whether measured in terms of discoveries, citations, awards and prizes, advanced education, or contributions to industrial and informational innovation. Our scientific strength is a treasure we must sustain and build on for the future.

The federal government has long played a vital role in ensuring American leadership in science, mathematics and engineering, and investment in basic science continues to be an essential component of our innovation portfolio. Therefore, the President s FY 96 Budget increases support for basic research by 3.5 percent.

Leveraging commercial and dual-use technologies and markets to meet defense needs. Increasingly, commercial industry is the source of the new technologies essential to maintaining our military edge; currently, defense access to these technologies is limited. Moreover, greater integration of the commercial and defense sectors is necessary to ensure the affordability, as well as the performance, of modern weapon systems. The Administration's "dual-use technology strategy," described in greater detail below, is designed to address these challenges.

Education. Complementing the six technology policy initiatives is the Administration's commitment to sustaining a high quality system of education. Few enterprises touch the lives of as many people as to those concerned with education and training. High-quality education and training benefit the individual whose knowledge and skills are upgraded, the business seeking a competitive edge, and the Nation in increasing overall productivity and competitiveness in the global marketplace. It is essential that all Americans have access to the education and training they need and that the teaching and learning enterprise itself becomes a high-performance activity. The Administration has developed a research and development initiative aimed at using the power of modern information technology to achieve the Administration's lifelong learning goals--including the Goals 2000 and School-to-Work programs.

Dual-Use Technology Policy

Dual-use technology policy reflects the recognition that as a nation, we can no longer afford to maintain two distinct industrial bases. We must move toward a single, cutting-edge national technology and industrial base that will serve military as well as commercial needs. This "dual-use technology strategy" will allow the Pentagon to exploit the rapid rate of innovation and market-driven efficiencies of commercial industry to meet defense needs: By drawing on commercial technology and capabilities wherever possible--along with the superior systems design and integration skills of U.S. prime contractors--the military can do its job more effectively and at lower cost. As an additional benefit, a dual-use strategy will allow the Department of Defense's (DoD's) continuing investments in technology to contribute more to our nation's commercial performance and economic growth.

By using components, subsystems and technologies developed by commercial industry wherever possible, DoD should be able to attain three compatible objectives.

• Access to leading-edge technology. A dual-use strategy will provide access to leading-edge technology and allow the military to introduce the commercial sector's continuous stream of innovations and updates during both the development and the deployment of new weapons. This will shorten development time and increase the pace at which technological improvements are incorporated into new weapons.

• Affordability. Greater reliance on commercial capabilities will reduce the military's costs for procuring leading-edge technology. Commercial components, technologies and subsystems in many instances meet DoD's functional needs at significantly lower costs than technology that is military-driven and customized.

• Ability to rebuild. A dual-use strategy will make it easier to build back military capabilities to a higher level, if need be. Close integration with the private sector is imperative if our nation is to be equipped to quickly gear up its capabilities.

"Dual use" in this context does not refer simply to DoD purchase of commercial off- the-shelf parts and equipment. Rather, it involves a fundamental shift toward dual-use R&D, equipment and operations. Generic technology must be consciously pushed to satisfy both civil and military needs--for lower costs and higher quality, as well as increased performance. Moreover, future weapon systems must be consciously designed to use state- of-the-art commercial parts and subsystems and to be built in integrated facilities.

To be sure, the commercial sector does not develop all military technology: conventional munitions and nuclear attack submarines have no commercial counterpart. But a great many defense needs can be served better and less expensively by commercial firms, facilities and technologies. Moreover, as flexible manufacturing systems are developed and more widely adopted, it will increasingly be possible to produce in a single plant both low- volume military equipment and equivalent high-volume commercial equipment.

- Strategy: Acquisition Reform Plus Investment in Dual-Use Technology

Fundamental reform of the defense acquisition system is the essential foundation for DoD's dual-use technology strategy. At the Administration's urging, Congress passed the landmark "Federal Acquisition Streamlining Act of 1994," which will significantly improve the way the government buys $200 billion worth of goods and services a year, from software to jet aircraft. Most important, the Act makes it easier for the Defense Department (and other federal agencies) to buy commercial products and services, including state-of-the-art products that are not yet on the market.

To complement congressional reforms, Defense Secretary Perry in June 1994 announced a dramatic reversal of the Pentagon's longstanding policy toward "milspecs"--the 31,000 specifications and standards that prescribe how military items are to be made and tested, down to the most minute detail. Secretary Perry instructed the military services to use commercial (or performance-based) specifications and standards in lieu of milspecs "unless no practical alternative exists."

Acquisition reform also will help defense firms diversify into commercial markets: Many of our military contractors can compete successfully in the global marketplace, but not if they must carry the weight of all the red tape and special requirements placed on them by the government. Lifting this burden will help preserve high-paying jobs and will enhance the performance of our industrial base, which strengthens our national security and our economy.

Building on the foundation of acquisition reform, three "pillars" support DoD's new dual-use strategy by altering the department's approach to investment in technology.

First the Pentagon is bolstering its support for dual-use R&D, to exploit the potential of advanced commercial technologies to meet defense needs. DoD's Advanced Research Projects Agency (ARPA) is targeting investment in focused "thrust areas"--computer and software, electronics, sensors, simulation and manufacturing--to ensure that commercial firms in this country can supply the superior technologies that will maintain our military advantage.

The second pillar in DoD's dual-use strategy is integration of defense and commercial production to enable industry to "dual produce". The Pentagon is pursuing this goal in two ways. It is supporting efforts to transition existing defense technologies to commercial applications, in order to make those technologies more affordable and accessible to the military. At the same time, DoD is helping U.S. manufacturing firms become more flexible, so that the custom products the military needs can be produced alongside commercial versions of the same product.

As its third pillar, the Defense Department is investing in initiatives that encourage "insertion" of commercial technologies and products int he development, production and support of military systems. Although acquisition reform eliminates regulatory barriers to buying commercial, Pentagon program managers and defense contractors still face costs and risks to adopting commercial products and technologies. To offset these costs and risks, the Defense Department is actively identifying and promoting opportunities for commercial insertion. For example, DoD is working with an industry task force to identify environments in which commercial integrated circuits (ICs) packaged in plastic can be substituted for military ICs packaged in high-cost ceramics. For some applications, commercial ICs cost only a fraction as much as their milspec counterparts with no loss in performance.

- In Summary

Since World War II, U.S. military superiority has been based on our technological advantage, and technology will be even more important in the unpredictable security environment we now face. For technology to be an effective bulwark, however, we must abandon our reliance on a separate and increasingly isolated defense industrial base. We must recognize that commercial industry, not the military, is the driving force behind many advanced technologies today.

Examples of partnerships and initiatives

The government is partnering with industry in a variety of industry-led research and development initiatives, including microelectronics, electronics manufacturing, aeronautics, and biotechnology. Many of these initiatives combine goals of competitiveness, economic growth, and job creation with public benefits of environmental protection, improved health and safety, and less dependence on foreign sources of energy.

A key point regarding public-private partnerships is that they have evolved to address the new global realities and are designed for specific purposes. The following are examples of initiatives that use government-industry partnerships to meet distinct policy challenges.

Advanced Technology Program (ATP). The National Institute of Standards and Technology s ATP works with industry to develop high risk but highly promising technologies. These partnerships enable novel or greatly improved technologies and services for the world market, with research and production in the United States. Government provides the catalyst, but industry conceives, partially funds, and executes ATP projects. On average, ATP award recipients pay more than half the total costs of the research and development, and all awards are made through a competitive merit-based selection process. Cost sharing helps ensure that companies have a vested interest in the success of the project and timely commercialization, and competitive selection guards against political interference.

Partnership for Next Generation Vehicles (PNGV). This initiative is one of the federal government's premiere ventures into cooperative civilian technology development. In it, we are tackling a technological challenge as tough as putting a man on the moon--that is, to develop within 10 years a car with 3 times the efficiency of today's automobiles with no sacrifice in cost, comfort, or safety. If the project succeeds, the payoff to the public will be huge in terms of less dependence on foreign oil and lower emissions of greenhouse gases. The project also holds the promise of an extremely attractive car for world markets in the 21st century and a thriving U.S. auto industry to produce them. The government and industry are working closely on a cost-shared basis to break highly challenging technological bottlenecks where the benefits are as much societal as commercial. PNGV's research priorities are 1) development of advanced manufacturing techniques that make it easier to get new automobiles and auto components into the market place quickly; 2) use of new technologies for near-term improvements in auto efficiency, safety, and emissions; and 3) research leading to production prototypes of vehicles, including exploration in such advanced technologies as fuel cells and ultracapacitors.

The Building and Construction Initiative. Construction is one of the nation's largest industries, with employment of 6 million and a total yearly value of close to $800 billion, yet U.S. building technology lags behind that of foreign countries and the incidence of injury in construction work is among the highest of all industries. The federal government's goal is to develop better construction technologies to improve the competitive performance of the U.S. industry, raise the life cycle performance of buildings, and protect public safety and the environment. The initiative responds to a high level of industry interest and combines government and industry goals. Seven areas of research have been identified as important contributors to achieving the goals: information and decision technologies; automation of design, construction, and operation; high performance materials, components, and systems; environmental quality; risk reduction technologies; performance standards systems; and human factors.

Technology Reinvestment Project (TRP). The mission of the TRP is to leverage commercial technology and commercial markets to meet defense needs. The TRP awards funds, on a cost-shared basis, to industry-led projects to create new dual-use technologies. These projects are of two types, corresponding to Pillars 1 and 2 of DoD's dual-use technology strategy. The first type of project advances the commercial development of key technologies that are critical to the military. Because commercial demand will eventually make these technologies more affordable to the military, DoD benefits by accelerating the development of the technology while simultaneously ensuring that it meets defense requirements. The second type of project promotes the transitioning of defense technologies to commercial applications in cases where that will make those technologies more affordable and/or accessible to DoD. To date, the TRP has awarded $820 million in cost-shared grants to some 250 projects involving 1,900 firms, universities and others, leveraging nearly $2 billion in R&D.

Flat Panel Display Initiative. Success on the battlefield of the future will hinge on the ability to collect, collate, analyze and disseminate a torrent of information. Flat panel displays, now seen chiefly in laptop computers, will be the primary means by which the combatant will dip from this river of data. In F-15 cockpit simulations, flat panel displays are seen to raise the pilot s kill ratios by 30 percent. Flat panel displays also have the potential for providing on-demand presentation of high-resolution imagery and mapping data to individual soldiers in the field. To capitalize on this potential, the military needs early access to the latest generation display technologies, and needs it while these technologies are still in development. We need responsive suppliers who will customize commercially derived technology to produce displays that operate in both desert and Arctic temperature, are readable in sunlight as well as night combat, offer extremely high resolutions, integrate specialized information processing capabilities, and are available in nonstandard sizes. And it all must be affordable.

Cooperative Research and Development Agreements (CRADAs). CRADAs are cost-shared projects between industry and government laboratories. This nation's federal laboratory system is a rich repository of technological capability. CRADAs are a means of leveraging this capability to strengthen the economy. In CRADAs, the federal labs contribute expertise and technology but do not provide funds to the non-federal party.

By the end of 1994, 11 agencies had a total of more than 2,000 CRADAs valued at over $1.4 billion.

International Technology Initiatives. Recognizing that leading-edge technology is now increasingly developed overseas, the United States must also take advantage of opportunities to understand and access foreign scientific knowledge and innovations to enhance domestic economic growth and the competitiveness of U.S. firms. The U.S. Government can assist private industry by providing information on foreign technical expertise through programs such as the Japan Technology Program which translates Japanese-language grey S&T literature and makes it widely available.

Government can also facilitate international industry-led cooperative efforts to develop and commercialize advanced technology. For example, the U.S.-Israel Science and Technology Grant Program provides this targeted type of assistance to U.S. firms engaged in joint venture with Israeli firms to develop and commercialize high-risk technologies that benefit both countries. Programs such as the Manufacturing Technology Fellowship Program and the Intelligent Manufacturing Systems Initiative expose U.S. engineers and firms to the best foreign manufacturing practices and improve communication with foreign firms who may become customers, suppliers, or partners.

In an increasingly interconnected world technology policy, economic policy and trade policy are converging. Access to foreign markets ensures the scale economies needed to justify investment in risky technologies, and provides access to foreign technology. The U.S. Government can assist U.S. industry internationally by working to remove impediments to technology cooperation and trade. We must promote internationally-recognized standards for technology development and testing and the protection of intellectual property rights. The United States must continue to press on intellectual property issues that inhibit technology development and international joint ventures in international fora such as the World Trade Organization.

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