Bobby Inman Interview (Competitiveness): Conversations with History: Institute of International Studies, UC Berkeley

National Security and International Competitiveness: Conversation with
 Admiral Bobby R. Inman, U.S.N. (Retired), President of Microelectronics and Computer Technology Corporation, former Deputy Director of the Central Intelligence Agency and former Director of the National Security Agency; 3/25/86 by Harry Kreisler

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Balancing Military and Economic Policies

[Do you recommend more] political analysis, more economic analysis, and not as much military analysis?

I'm not arguing for less attention to the military sphere simply because I don't believe, in the world that waits for us out there, that our military worries are going to get less. We may be able to bring a breadth of global stability that keeps those problems contained as momentary blips on the screen. We cannot afford to ignore them. In fact, that is our tendency, to shift from one problem to another and totally ignore one. What we have to bring into the process is a much clearer understanding of the impact of international trade on our own economy and on the need to use all the vehicles that are available to us to open markets.

I used to describe myself as a "free-trader." I now have changed that first word to "fair-trader." I believe, even as we open this great market to the products from other countries, we must insist that we have equitable access to markets in those countries ourselves. We've not tended to do that in a very skillful way in the past. We've tended to simply license new technology for a good price and not use that as a lever to also get market access. There are some notable exceptions: Texas Instruments' early entry into the Japanese market still remains one of the models that could be used, but seldom is.

It sounds like you are suggesting a mercantilist strategy. Is that fair?

I believe deeply in the free marketplace, and in letting market forces work. But I also recognize that you have to provide some cushion, some umbrella, for transition. No industry remains the same for indeterminate periods of time. Over time, the products that are being marketed will begin to lose their attractiveness at the marketplace. Or new whole processes will come along that will make them out of date. And so there will be times when you need to help the transition. You do that by thoughtful tax policy. You do that by encouraging investment. You encourage steel to automate the production of steel to be more competitive in the international marketplace, instead of instead giving the incentives to U.S. Steel to go buy oil companies as a way, rather than modernizing, to stay competitive in the international market place.

I don't believe that the United States should set out for a single industrial policy, developed and executed by a single government agency. We're a very diverse society. In Japan, with its very homogenous society, it's entirely acceptable to have a Ministry of International Trade and Industry that decides who will be the winners and who will be the losers. I don't believe that would be accepted for a moment in this country.

I have great memories of my thirty-one years of government service. I worked with an awful lot of very competent public servants. But I know of no pool of talent in the U.S. government that I would be willing to entrust to make the decisions about where should we invest and where should we not invest. So, yes I'm a strong believer in letting the forces of the marketplace work, but in providing umbrellas, training, re-training programs, investment incentives to encourage our continued focus on how we are to compete in an international marketplace, not just a domestic one.

Does our free-enterprise ideology, even the minimal strategies that you're addressing, put blinders on us in the same way that anti-communism did for our national security, interfering with the thoughtfulness of our process? Is there an inordinate fear of interfering with the free enterprise system?

There's a general judgment that where governments have set out to try to regulate it or to control it, the end results are usually very unsatisfactory. They work only if you have a very homogenous society that will be very responsive to that direction and support it consistently for a very long time frame.

We tend to talk about Japan as "Japan, Inc." Well, in fact, Japan isn't a single entity. There are three major centers. There are the large industrial enterprises, career employment, cradle-to-death security. About a third of the society is involved in that part. Very homogenous. There's another third that's made up of one of the world's most antiquated agricultural systems. The third element, the so-called small business sector, is very chaotic. There isn't an agreement of all those Japanese sectors. It's the alliance of the agricultural sector and the industrial side that has provided political stability since 1952. That has permitted them to sustain a consistent policy.

Look how many times we've shifted parties in elections in this country over that time frame, largely for domestic reasons. If you had had government trying to direct investment over that time frame, I believe you would have had chaos in the economic system. It would have performed much less well than it has now. So I don't think it's ideology of the free enterprise system that gets in the way. It's a different set of problems.

Because it was a domestic marketplace, we were concerned primarily about regulating competition in products at that domestic market. And for good reason: we'd seen rapacious conduct in the late 1890s to early 1900s in that area. But we didn't begin to adjust as the reality of an international marketplace began to occur. We have the broadest base anywhere in the world to create new technology but we've never put great premiums on the speed with which we take that technology to the marketplace. A lot of that's capital formation, how it's attracted. The Japanese haven't had that same base for creating technology, so they've put the premium on the speed with which you use it, the quality control and the manufacturing, skill in marketing at an international marketplace. We clearly have to adjust that process here, but I'm not persuaded you do that by trying to have government organizations do the job.

In this issue, does our way of having the Pentagon fund research become a problem at some point? How do we draw that line?

Let's look at the historical record carefully, because the end result of that is to say that the investment in research isn't the problem. The problem is the speed with which the research becomes available for commercial use. If you look back to the period 1945 to 1960, the broadest investment in research came from the Department of Defense. The U.S. Naval Research and its counterparts were the primary source of grants for graduate studies for scientists and engineers. They were the primary source of funds for new equipment for universities. [They were] looking to broaden the base for research, expecting that somewhere down the way there would be military application, but accepting that commercial uses might well turn out to be at least as dominant. And indeed, out of that military research investment came synthetic fibers, computers, a wide range of products.

The cycle from investment in research to product was four to five years. Then in 1961 we set out with a new standard: Is it cost effective? To try to develop perfect procurement process, that was the goal. Not speed, not timeliness. We also cut back on the investment in research for about eighteen years. There's now been a surge back. But over those same years, in this search for perfect procurement process, we stretched the cycle from research from twelve or thirteen years, and we have lost most of the commercial advantage from that investment.

We often say that the Japanese have a great advantage because they put only one percent of their investment in defense -- they don't put much of the rest of it in research. They've gone abroad to buy the research. So what we've done is to hamstring our ability to effectively derive competitive advantage at the international marketplace through timeliness.

If you want to cure the problem, the problem isn't cured by deciding not to invest in defense research, it's to get rid of those artificial barriers that say defense can only invest in a specific weapons system. Let them broaden the base of graduate students in universities, so that instead of having many of the seats filled by foreign students -- you don't discriminate against them, you simply make grants available to U.S. students -- you attract a larger portion to stay in the university environment. And you say for defense, a six-year ceiling on the procurement cycle. We'll accept that there will be some mistakes, but we want speed and efficiency. And we want a flow-through of the technologies that emerge from defense investment for the earliest commercial exploitation. That would do more for the U.S. long-term competitive advantage than anything else we could possibly do at this point in time.

If you were to try to shift the research and simply cut off the defense investment, first you would begin to atrophy over time the competency of your military establishment, but where would you go to invest it elsewhere? What's the organization that you would use to try to broadly invest across the society, by the government, to accelerate the frontiers of science? We had a system that clearly worked from 1945 to 1960. We walked away from it looking for a perfect procurement process. We should now accept that it was a mistake, it didn't work, and go back to one where we put the premium on speed and efficiency, not on a phantom search for perfection.

What are the obstacles in the Pentagon to what you're proposing?

There are bureaucracies that have grown up to execute the existing system. They're going to see this proposal as a direct challenge to their jobs, and you probably would move out thousands of people in the process. I also believe in putting in accountability. Just as a commanding officer in a ship that goes aground sees his prospects of flag rank disappear, I would have the project manager for a program with large cost overruns in exactly the same condition. Accountability, but also rewards for success in it. But the key is that you're looking for speed. Accept the fact that a person may have some small problems in the process, but if they have moved the technology through to use rapidly and it's become available for commercialization, then reward that process. This will only come about by congressional action. It's going to take legislation to do it. It'll be painful to bring it about. The Packard Commission is a good start, but they didn't go nearly far enough. They didn't focus on the heart of the problem, which is the need for speed in the use of technology.

And how are you going build a political alliance to do this?

Very difficult.

Yes. And I guess the problem on the other side is the alliance between the elements that you've been discussing and a protectionist sentiment?

People are afraid to change. Just as many industries would much prefer trade legislation to protect them, many of those who are involved in the defense process don't want change because they know of the certain profits that will go by continuing in the current process. But this road deprives us of the competitive advantage at the commercial marketplace. It takes twice as long to get technology in use in the military sphere. We've worried so much over these last several years, publicly, about Soviet accession of U.S. technology to build their own military forces. We've wrung our hands over how they've narrowed the gap. Well, a lot of that narrowing of the gap has come from our own stretching out of this process instead of focusing on speed and efficiency as what we need.

What about a problem like export controls? Isn't this a case where there is an ethos in the Pentagon to say, "This is top secret"?

It goes a little beyond that, and it's a natural instinct. In the years when I had some responsibility to facilitate exchange agreements with our allies, [I learned that] a good program manager never wants to release the technology he's produced until the next technology is ready to go. That's his job. And so you ought to expect that if you leave that decision to that individual. He's always going to say, "Don't export it, don't let it go." You have to find a balance. Where are the elements that represent interoperability with alliances in the military sphere? Where are the separate interests that represent commercial development of new markets? You have to make trade-offs. Again, you cannot have a fortress U.S. approach to try to simply lock up technology. So you have to push them. You have to say, "take risks!" And that risk-taking judgment has to be made at a higher level. You need clear policy developed at the NSC level that strikes the balance, and then you execute controls that reflect that balance. But a balance that understands that international trade is a long-term element of international security.

Let's take a specific case -- Star Wars. Here is a new strategic program which is being sold as an effort to meet the challenge of the next technological revolution, in addition to the strategic needs. What is your evaluation of the program? How good are the spin-offs going to be in terms of the domestic uses?

I've not looked at it closely, so my judgments will be shallow, we should acknowledge at the outset. The Soviets have sustained a very viable research program in antiballistic missiles from the signing of the treaty back in the sixties, and the treaty authorized that. The Soviets have done some superb work in some fields of technology. They lag very critically in others. One of their greatest lags is in information-handling technology -- computers.

As one looks at ballistic missile defenses, in fact defenses in general, against large numbers of targets, the most critical problem isn't the kind of weapon you might use to deal with it, it's the ability to detect by a variety of sensors thousands of objects in a half second, to correlate those detections, to discriminate between warheads and decoys in maybe another second, and then with enormous speed, to target thousands of objects in yet another second. Nothing in the way of current information handling technology can come close to doing that. Ten years from now? Possibly. That's why one does an accelerated investment program, both to see what gains might be achievable for you in being able to shift away from total reliance on offensive systems, and also to make sure you're not surprised by gains the Soviets might achieve.

When you look at spinoffs, the only thing you have that you can credibly bank on is the space program, the great rush to put a man on the moon and the early shift in the fifties for moving toward nuclear forces. Clearly, the movement to nuclear propulsion in ships served as the impetus that developed nuclear power generation technology. There are a lot of people who would rather not have had it, but it was the critical element in making the technology available to commercially viable products.

So many things came out of the space program. You don't get a dollar-for-dollar ratio. If you put $2.2 billion in SDI this year, you can't count on $2.2 billion worth of commercially viable products or technologies used in other military areas. But you can probably count on about $1.5 billion. And over the long term, when you're also considering the security hedge, that's probably a pretty good investment. I would personally be opposed to a decision to proceed with a demonstration SDI system because that would be based on existing technology. It would be automatically flawed, and I don't see that as something that's viable.

We do have to pursue these emerging technologies to see what opportunities they offer. If we find out ten years from now, or fifteen years from now, that it still would only permit us to build a system that said, "Oops, there goes Baltimore and San Francisco," that's not a viable strategy. But it might be better than that. It might be one where you don't hold those cities at risk, and then it would take us on an entirely different track on looking at how does one define national security. Whatever that outcome, there will likely be major gains in various fields of technology, a great many of them of use in conventional military forces, that will evolve out of some level of investment. So, from my point of view, what we all have to watch for is to make sure we don't get early decisions to proceed to implement technology or systems that are inadequate for the defenses one would need.

But the research investment I do not see as threatening. I see it as expensive, but over the long term likely [having] usable technology for a variety of commercial and other military applications.

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