Economic Security

The Policy Challenge

Over the past several decades, the U.S. economy has experienced a profound transformation. Thirty years ago the U.S. economy accounted for well over a third of the world's total, and U.S. companies were leaders in most manufacturing industries. By 1994 the U.S. contribution had fallen to about a fifth of the world economy, with industries in Europe and Asia now fierce competitors. 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. With the end of the Cold War, the globalization of markets, and rapid technological progress worldwide, foreign competition has put unprecedented pressure on American industry. Advanced technology has been at the heart of America's competitive advantage, and today technological leadership means the difference between success and failure in the new global economy.

The technology base that propels the economy is in turn increasingly crucial for national defense. In a number of important technologies, the defense industry no longer leads 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-are being driven by fast-growing and changing commercial 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 military defense at a lower cost to the taxpayer.

Through engagement abroad, U.S. leadership in commercial technology also strengthens the stability of strategic nations, working to prevent conflict before it occurs. A combination of competition and cooperation in science and technology with these economies promotes their stability, enhances integration with the global economy, and contributes to growth in the United States.

Fully exploiting the technology base to meet economic, defense, and global stability goals is thus a growing demand of policy and is increasingly important in the face of tight Federal budgets. The need to reduce the size of the Federal deficit means that every dollar invested by the government must bring a maximum return to the public and leverage to the greatest extent possible the capabilities of the private sector.

This chapter describes Administration policies in science and technology that are designed to bolster the nation's long-term economic security through both domestic economic growth and international trade.


Now, more than ever, science and technology are critical to our nation's future. It is the belief of this Administration that technology is the engine of economic growth, and science is the fuel that stokes this engine. From the steam engine to the airplane, from electrical power to the transistor, from the telephone to the microchip-scientific discovery combined with technological innovation have dramatically changed our lives, the workplace, and our economy. In the process, entirely new industries and new high-wage jobs have been created. However, international and domestic changes bring continuing challenges to sustaining U.S. leadership.

Science and technology are cornerstones of the Administration's strategy for economic security. To address the new global challenges, the Administration is pursuing a strategy designed to equip American companies and workers to compete and win in the international economy. Elements of this strategy are the following:

    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.

    Supporting education in science and technology.

    Leveraging dual-use technologies for commercial markets.

    Promoting international economic development and trade through international collaboration.

Each of these policy priorities is summarized below.

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; and reducing outdated Cold War export controls.

Export Control Reform
for Infectious Diseases

The end of the Cold War, the outbreak of regional conflicts, and the emergence of countries that have repeatedly provided support for acts of international terrorism have led the Administration to fundamentally reevaluate U.S. export control policies. With the demise of the Soviet Union and the Warsaw Pact, the United States is involved in negotiations to establish a new multilateral export control regime to succeed the Coordinating Committee for Multilateral Export Controls (COCOM), which ceased to exist after March 31, 1994. The COCOM successor regime is aimed at controlling exports of sensitive dual-use items and conventional weapons on a worldwide basis, with special focus on certain countries of concern and countries located in geographic areas where the military balance could easily be altered or destabilized.

Although the Administration has addressed the shifting focus of U.S. export controls from their previous emphasis on the strategic concerns of the Cold War to a more balanced consideration of proliferation concerns and regional stability interests, it has not failed to recognize that export controls can have a significant effect on domestic businesses and industries, the well-being of which is critical to U.S. economic security. One of the most important objectives listed in the September 1993 report to Congress by the Trade Policy Coordinating Committee (TPCC) was the Administration's determination to "ensure that U.S. economic interests play a key role in decisions on export controls." Accordingly, the TPCC report announced a number of measures designed to lessen the negative economic impact of export controls on U.S. businesses, consistent with our national security interests. The measures included liberalizing controls on telecommunications equipment and computers. For example, the performance threshold above which prior written permission is required to export computers was raised from 195 to 1,000 MTOPS (million theoretical operations per second) for most destinations. These recommendations have removed over $32 billion worth of exports from the requirement of advance approval.

The Administration has addressed economic security issues vis a vis the export control system in other significant ways. In April 1994, it acted to reduce the economic burden of export controls by establishing a new General License, GLX, which authorized exports without prior written permission of a wide range of dual-use commodities to civil end users in the People's Republic of China, Russia, and other newly independent countries of the former Soviet Union and Eastern Europe. Export control liberalization has also provided the former Soviet Union and China with the telecommunications equipment they need, enhancing business with the United States. The Administration is continuing further reform of the export control system through its ongoing efforts to streamline the export license review process and to resolve longstanding problems with the commodity jurisdiction process. For example, the number of licenses required fell from 25,000 in 1993 to fewer than 15,000 in 1994, with a further drop expected this year. The Administration has also, in consultation with industry, issued the first comprehensive rewrite of the dual-use export control regulations since they were first implemented. Successful completion of these initiatives will significantly reduce the burden of export controls and will enhance overall efforts to bolster U.S. economic activity.