openpolitics.com

Defense R&D and Innovation

The digital age produces binary outcomes. Winners tend to win overwhelmingly—in war as well as in business. The Soviet Union crumbled in the late 1980s when American technology bested Soviet military spending, then estimated at a quarter of GDP.

.. America emerged from the Cold War with a degree of military superiority greater than any country in modern history. It also emerged with a technologically driven economy that had no real competitor, with Russia close to ruin after the collapse of Communism and China in an early stage of economic development.

.. The military balance between the West and the Soviet Union shifted several times during the Cold War until the digital revolution gave the United States a definitive edge.

.. Military strength and economic strength often rely upon the same policy foundations.

.. Without aggressive countermeasures, we risk losing it entirely.

.. If the Eisenhower administration had not responded to Sputnik with massive funding for basic research and scientific education, or if John F. Kennedy had not proposed the moon shot after Yuri Gargarin’s first flight into space, or if public funds had not been channeled into private research facilities to meet military needs, or if Ronald Reagan hadn’t undertaken the Strategic Defense Initiative—we would be living in a different world.

.. Russian surface-to-air missiles and artillery as well as guided anti-tank weapons gave the advantage to Soviet-aligned Egypt in the largest air and tank battle since World War II, the 1973 Yom Kippur War

.. Calculating men concluded that Russia would win an air and land war with the United States in Europe, which meant that Russia had the upper hand in the Cold War.

.. Then came the militarization of the microchip. During the Syrian collapse in June 1982

.. In less than a decade, the American military (with some contributions from Israel) reversed what had appeared to be a decisive Soviet advantage in air combat and established overwhelming American superiority.

.. That and the threat of the Strategic Defense Initiative persuaded Russia’s leaders that America would win a conventional war, which set in motion the collapse of Communism.

When DARPA set out to create a communications system with multiple pathways for national security reasons, no-one had the slightest notion that this would create the Internet. When the Defense Department contracted RCA Labs in the 1970s to develop ways to illuminate night-time battlefields, no-one could have foreseen that the semiconductor laser would revolutionize telecommunications. And when the Defense Department commissioned RCA Labs to develop light and energy-efficient information processors to analyze weather data in the cockpits of military aircraft, no-one expected that the outcome would be mass production of inexpensive chips by the CMOS method.³

.. America dominated world economic life to a degree not achieved since the highpoint of the British Empire during the nineteenth century.

.. America dominated world economic life to a degree not achieved since the highpoint of the British Empire during the nineteenth century.

.. Within the shrinking defense R&D budget, a disproportionate share has been squandered on the F-35

.. select Russian and Chinese advances already limit America’s strategic freedom of action. Russia’s S-400 air defense system, for example

.. Russia has already agreed to sell the system to China, which means that China could sweep the skies above Taiwan. China has two weapons systems that may be able to sink American aircraft carriers, the Dong Feng 21 surface-to-ship missile and the Type 039A diesel electric submarine

.. The deployment of the S-400 in Syria, moreover, made short work of American proposals for a no-fly zone in that country.

.. Many military breakthroughs—such as Israel’s Iron Dome missile defense system—depend on the quality of algorithms and the speed of computation rather than on changes in hardware.

.. China has made advances in technologies that represent a strategic threat

.. satellite-killer missiles and hypersonic weapons delivery vehicles

.. there has been a steady accretion of technological advantages that, combined, pose a threat to American strategic superiority over a ten- to twenty-year horizon

.. The Nobel Prize–winning Professor Robert Mundell, the father of supply-side economics, showed (along with other economists) that chronic trade imbalances stem from demographic shifts.

.. As China’s demand for savings tapers off during the next decade, its trade surplus should gradually fall. This trend is consistent with Chinese policy

.. The seven technologies listed below constitute the basic elements of all modern electronics from computers to smart phones; in each case, their manufacture has migrated to Asia because Asian governments adopted the formerly American practice of supporting basic R&D.

.. China now graduates twice as many STEM Ph.D. candidates as the United States does each year.

A New R&D Policy Agenda

The simplest and most direct response would be to require domestic production for all sensitive defense-related goods, including all computers, displays, integrated circuits, sensors, and other high-technology equipment used in defense applications. In other words, for certain important categories of security-related manufactures, the tariff should be infinite.

This is the only reliable way to ensure that American manufacturers will bring production, including critical parts of the supply chain, back to the United States.

.. Targets for future scientific research should include (but of course are not limited to):

1. Defeating the current generation of Russian air defense systems
2. Enhanced use of drones in place of manned aircraft
3. Hardening of satellites against prospective enemy attack
4. Cyber warfare
5. New physical principles in computing (e.g., quantum computing)
6. Quantum communications and encryption
7. Detection of ultra-quiet submarines (the present generation of Chinese diesel-electric boats are practically undetectable, and submarine drones could be used to deliver nuclear weapons to coastal cities)
8. Detection and defeat of the next generation of hypersonic missiles
9. Countermeasures against anti-ship missiles (rail guns, laser cannon)

.. there is a close relationship between federal R&D spending and productivity growth.

.. It is noteworthy that productivity growth tracks federal rather than overall R&D spending. That is because research that leads to fundamental breakthroughs is more likely to be funded for defense and aerospace needs.

..

The challenges to American growth and productivity today are arguably even greater than they were when Jimmy Carter left office in 1981. ..

1. America’s population is aging rapidly: 15% of the total population will be 65 or older in 2015, rising to 20% by 2030.
2. America had little foreign competition as a venue for entrepreneurial startups in the 1980s: the world’s capital and talent had nowhere to go but the United States. Now there are numerous competing venues for technological entrepreneurship.
3. Several rising Asian powers, particularly China, have acted aggressively to close the technology gap with the United States, and they have leapfrogged American manufacturing in a number of key industries.
4. Federal debt was only 30% of GDP in 1979 (not counting unfunded entitlements) but rose to 110% in 2015.
5. Obstacles to growth at the end of the Carter administration—a 70% top marginal tax rate and an inflationary monetary policy—were easier to identify and remedy than contemporary challenges.
6. America’s backlog of productivity-enhancing technologies has shrunk, in large part because defense R&D is half of what is was in the late 1970s relative to GDP.

.. Absent innovation, entrepreneurs will find other things to do, such as designing new financial derivatives.

.. Kennedy’s moon shot and Reagan’s Strategic Defense Initiative had such lasting economic reverberations because they were accompanied by tax cuts and regulatory relief that made it easier for entrepreneurs to capitalize on basic scientific innovations.

.. There is a strong case, however, for using government funds to seed new companies that can develop innovative technologies. In an ideal world, the venture capital community would assume this function. But in the real world, the requirements of defense R&D and production require public funding.

.. the most productive investments are the ones that test the frontiers of physics. These projects enabled us to fight the next war, not the previous one.