The Place of the Defense Industry in National Systems of Innovation Judith Reppy, ed. CORNELL UNIVERSITY PEACE STUDIES PROGRAM OCCASIONAL PAPER #25 ©April 2000 i © 2000 Cornell University Peace Studies Program. All rights reserved. ISSN 1075-4857 The Place of the Defense Industry in National Systems of Innovation Judith Reppy, ed. The Peace Studies Program was established at Cornell in 1970 as an interdisciplinary program concerned with problems of peace and war, arms control and disarmament, and more generally, instances of collective violence. Its broad objectives are to support graduate and post-doctoral study, research, teaching and cross-campus interactions in these fields. Copies of Occasional Papers may be ordered from: Peace Studies Program 130 Uris Hall Cornell University Ithaca, NY 14853-7601 ii TABLE OF CONTENTS PREFACE ...................................................................v I. COMPETING INSTITUTIONAL PARADIGMS Conceptualizing the Role of Defense Industries in National Systems of Innovation ..........1 Judith Reppy The Defense Industry as a Paradigmatic Case of “Actually Existing Globalization” .........13 John Lovering Should We Welcome a Transnational Defense Industry? ..............................24 Ann Markusen II. THE PLACE OF THE DEFENSE INDUSTRY IN ADVANCED INDUSTRIAL ECONOMICS U.S. Defense Industry in the Post-Cold War: Economic Pressures and Security Dilemmas ...47 Kenneth Flamm The Place of the French Arms Industry in its National System of Innovation and in the Governmental Technology Policy ..........................................71 Claude Serfati The Place of the UK Defense Industry in its National Innovation System: Co-evolution of National, Sectoral and Technological Systems ................................96 Andrew D. James Ideas, Identity and the Limits of European Defense Technology Cooperation .............125 Eugene Cobble III. THE PLACE OF THE DEFENSE INDUSTRY IN TRANSITIONAL AND INDUSTRIALIZING ECONOMIES The Russian National System of Innovation .......................................153 Judith Sedaitis The Defense Sector as a Window into China’s National System of Innovation ............168 Corinna-Barbara Francis The Changing Role of the Defense Industry in Israel’s Industrial and Technological Development .........................................................194 Dov Dvir and Asher Tishler iii Economic Restructuring, National Strategies, and the Defense Industry in Newly Industrializing States .............................................217 Etel Solingen CONTRUBUTORS..........................................................227 iv PREFACE Military research and development programs are a substantial component of many countries’ public spending for new technology, but their contribution to innovation processes remains a con- tested issue. Whereas the debate used to center around the question of whether military R&D pro- grams provided useful spin off to the civilian technology base and enhanced economic growth or, conversely, exacted a net cost in terms of missed opportunities, the end of the cold war and the changes associated with globalization have recast the terms of the argument. The lines between mili- tary and civilian technology have been blurred by the increased importance of information technolo- gies—an area in which the military lags behind the civilian sector—and by changes in government policies that aim to increase procurement from civilian sources. In most of the major arms-producing countries, mergers between defense firms have produced a sharp reduction in the number of major contractors. Globalization, variously defined, has opened up the borders of national defense indus- tries to cross-country flows of information and weapons technology that go far beyond the tradition- al exchanges embodied in state-to-state arms transfers. These changes co-exist with (and are, in part, a reaction to) secular trends in the complexity and costs of weapons systems, as well as declining defense budgets. One way of talking about these issues is to consider the place of defense industries in national systems of innovation (NSI), where the national system is taken to be the totality of institu- tions and practices that interact to produce and diffuse new technology. What is the effect of govern- ment funding and regulations on the production of new technology? How do defense firms relate to their major customer or to civilian-oriented firms in their industrial sector? What is the nature of the transnational links and technology flows among defense firms and markets? How have the changes outlined above affected the patterns established in the past? The value of the NSI approach is that it focuses attention on the networks or systems that are involved in innovative activities and at the same time problematizes the boundaries of those systems and the roles of their constituent players. The papers collected here are the product of a workshop on “The Place of the Defense Indus- try in National Systems of Innovation,” held on October 16-18, 1998 at Cornell University in Ithaca, New York. The workshop brought together specialists in defense industry issues from the United v States and Europe to discuss the changes taking place in the industry and to debate the utility of the NSI approach in a world in which globalizing trends may be undermining the basis for such an ap- proach. The authors chart various national responses to the changes affecting the defense industry and military technology programs, and they reach different conclusions about the ability of the state to retain control over defense technologies. One obvious source of these differences lies in the va- lence assigned to the military sector, something that varies with a country’s role in the international system and its individual history, as Claude Serfati’s chapter on France and Etel Solingen’s on new- ly industrializing states make clear. Variation in the degree to which different states have embraced market liberalization and in the strategies followed by individual firms in response to market changes also affect the emerging configurations of state power over the industry. The case studies range from advanced industrial economies of Europe and the United States to examples of transition economies (Russia) and industrializing countries (China). Opinions at the workshop differed on whether globalization has already spread to the defense sector, is certain to do so in the near future, or will be blocked in leading countries by the state’s interest in maintaining a strong, nationally- based defense industry. The rich discussion and debate during the workshop are reflected in the arguments presented in the following chapters. The authors benefitted from that discussion—particularly the contributions of our named discussants, Susan Christopherson, Rachel Weber, and Adam Segal—in revising their papers for publication. We have grouped the chapters under three main themes: Competing Institu- tional Paradigms; Case Studies of Advanced Industrial States; Examples from Transition and Indus- trializing Economies. The workshop was sponsored by Cornell’s Peace Studies Program, with funding from an institutional grant to the Program from the John D. and Catherine T. MacArthur Foundation. Judith Reppy and Susan Christopherson organized the workshop, with help from Rachel Weber. Elaine Scott and Sandra Kisner provided essential administrative support for the workshop, and Sandra Kisner contributed significantly to the editorial task of producing this publication. vi I. COMPETING INSTITUTIONAL PARADIGMS Conceptualizing the Role of Defense Industries in National Systems of Innovation Judith Reppy Background The concept of national systems of innovation first emerged in the work of a network of scholars based at the Science Policy Research Unit (SPRU) at the University of Sussex, notably Chris Freeman’s studies of Japan’s system of innovation (Freeman 1987) and in related work by Bengt-Åke Lundvall and his colleagues at the University of Åalborg in Denmark. Now, more than a decade later, the concept has become well established as a leading paradigm for analyzing innova- tion processes; it has also come under attack for being both too broad and insufficiently theorized (e.g., Radosevic 1998). In this essay I summarize briefly the main elements of a national system of innovation approach and discuss its utility in analyzing the role of the defense industry in innovation. The NSI Approach A national system of innovation (NSI) can be defined as “the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies” (Freeman 1987, 1). This definition takes for granted that the network is bounded by national borders, an assumption that may or may not be warranted. Other noteworthy features of the definition are the systems approach, here expressed as a network; the emphasis on institutions; and the inclusive definition of innovation to include technology transfer and diffusion. Each of these fea- tures is problematic in some applications, but the definition nevertheless captures the essential features of the NSI approach.1 1 See Edquist (1997), “Introduction” for an extended discussion of variants to the Freeman defini- tion. 1 2 NSI approaches gained popularity in the late 1980s in the context of rising “techno-national- ism” in western countries, a phenomenon that was, itself, a reaction to the increased competition in world markets for high technology