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4.6. The case of telecommunications

The case of telecommunications is a major example of the pervasive nature of new technologies and of their impact on the whole spectrum of economic activities, shaping a new organization of production, new products, services and activities. With the new telecommunications technologies, information flows can be transmitted at greater speed and lower cost among offices, factories and homes, in a process marked by the convergence of microelectronics, computing and telecommunications.

Voice, data and images can be transmitted by the same medium - namely the telephone system - and the information can be processed and transmitted, stored and reproduced in a variety of different forms. New systems of electronic switching (space-division switching and the more advanced time-division switching) and the Integrated Service Digital Networks (ISDN) have been developed, and major progress is being made in the use of fibre optic communications (Dang Nguyen 1985: 100). New services are offered, such as videotext, teletext, telefax, electronic mail, teleconferencing and mobile telephones. A network of telecommunications becomes in this way a key infrastructure for the application and development of new technologies.

This process, by its very nature, is an international one, raising new problems for the standards, the opening and the control of telecommunications networks that traditionally have been strongly regulated by national governments. In telecommunications, therefore, government decisions have a direct impact of the industry outlook and are often a necessary condition for its development and innovation.

For reasons of economic rationality, as well as of 'national security,' in most countries the telecommunications system developed as a natural monopoly and has been either directly managed (in Europe), or firmly regulated (in the US) by the state. This has meant a strict control over the type of service offered, and the possibility of a direct industrial policy, through the procurement of national telecommunications agencies. Even the recent wave of privatization has not introduced significant elements of competition in the telecommunications market.

Telecommunications is also a rapidly growing industry. The projections to 1989 show an 80 per cent increase on 1984 sales in the US and a 70 per cent growth in Western Europe, both in the private and the public markets (The Economist, 23 November 1985, p.8). Such a rapid expansion of the telecommunications market is producing in all countries a deep reorganization of the traditional relations between the national agencies, the national producers and the major multinational corporations in the field. Many firms are trying to enter foreign markets and to establish new partnerships with other companies. The result is the concentration of the industry, the opening of national markets, that in the past were relatively closed, and new positions of power by a few large corporations (Dang Nguyen 1985: 97).

In the telecommunications equipment industry the traditional form of penetration in foreign markets was to establish a branch plant or to buy a local company, as in all countries with a national industry, it obtained a preference on foreign imports. A new pattern of alliances and acquisitions between firms has now developed, in particular across the Atlantic. In 1986 the French group CGE-CIT-Alcatel acquired the European subsidiaries of ITT for $1.5 billion, resulting in a company of a size that is second only to AT&T (Fortune, 13 October 1987, p.28).

Previous agreements included the links between the American GTE and the Italian companies Telettra and Italtel; Plessey of Britain acquired Stromberg; GEC acquired Dick; British Telecom tried to acquire the Canadian Mitel (Hills 1985: 4).

AT&T and IBM, however, are the two major companies guiding this reorganization of the industry, and the convergence of telecommunications and computing. Both aim at the leadership of the integrated activity of elaboration and transmission of information, even if they come from opposite areas and currently have less than 10 per cent of their sales in the area they want to enter. Both have acquired companies and activities in their new field of interest, as IBM acquired Rolm and proposed to buy a share of MCI, the long-distance telecommunication company in competition with AT&T. IBM also made agreements with the Italian telecommunication holding STET and with its industrial automation companies. On the other hand, AT&T acquired a 25 per cent share in Olivetti, established a joint venture with Philips and is negotiating similar agreements in France and with British Telecom. In this way, IBM and AT&T 'seem to have chosen Europe as one of their battlefields' (Dang Nguyen 1985: 123).

The conflict is on technical standards as well as on market shares. The standard for the new integrated system that IBM has developed is the System Network Architecture (SNA), while the Open System Interconnection (OSI) has been chosen by the International Bureau of Standards and accepted by AT&T (ibid.: 24).

Such a restructuring of the telecommunications sector was opened in the early 1980s by the divesture of the AT&T-Bell system in the US. In the place of a private monopoly regulated by the state, a set of regional telephone companies have been established for local communications, putting AT&T in competition with other companies in the long-distance business, while returning to AT&T the right to operate abroad.

The effects of such a strategy of deregulation have been contradictory. On the one hand, it increased the international orientation of US companies; on the other hand, it opened up the American market, as the US regional companies increased their purchases of foreign equipment. The result has been documented in a hearing in the US Congress by Jack McDonnell, vice-president of the Information and Telecommunications Technologies group of the US Electronics Industries Association. He argued that

in 1984, US imports of telecommunications equipment were over 3.3 billion dollars, while exports totalled 1.9 billion dollars, giving us a negative balance of 1.4 billion dollars, a 68% increase over our 0.8 billion deficit in 1983, the year our balance of trade first turned negative. In trade terms, 1984 was the worst year in our industry's history, and there is every indication that 1985 will be significantly worse.

(US House of Representatives 1985: 695, Hearings of 31 July 1985)

The troubles of the US telecommunications industry have come not only from the deregulation policy of the US government but also from the restrictions over technology transfers, discussed in section 4.8. The same spokesperson for US industry complained that 'while other countries subsidize exports with preferential financing, the US government applies export controls' (ibid.: 702).

A second contradiction of the US strategies is here emerging, between the growth of national industry and the restrictions on the flows of technology. This represents a dramatic reversal of the traditional US policy, that has always argued for 'free information flows.' In 1983 a report to the US Senate on the international telecommunications policy criticized the 'anti-competitive measures' introduced by foreign governments to contain the penetration of US products. It defined the US objectives as assuring 'the free flow of information worldwide,' guaranteeing that 'the necessary growth of the national security, public service and commercial interests of the United States occurs in a manner commensurate with our leadership role in the world,' and finally it demanded a 'a free and competitive marketplace' with international organizations that offer open access to the international telecommunications infrastructures (US Senate 1983: 11).

The report recognized the resistance by other governments and admitted that 'the United States connot unilaterally mandate competition in international telecommunications services. Attempts to do so will meet with frustration and may invite responses in this and other fields inimical to US interests' (ibid.: 24). On the technical standards, the report suggested 'a more formal policy regarding the evolution of ISDN to assure greater US influence in the international process of developing network configuration and standards' (ibid.: 19).

New technologies, technical standards, network organization and new services are the instruments by which large corporations and the US government try to maintain control over the telecommunications system, expanding both the oligopolistic power of the US giant corporations, and the institutional model of deregulation and privatization. The European response has been weak and divided, due also to the institutional inertia of the public telecommunications monopolies. Britain took the road of privatization, but without introducing real competition in the sector. France maintained a policy of strong direction by the government. Germany tried to combine greater competition with maintaining the public monopoly. At the European level, the main initiatives are the RACE programme (Research and Development in Advanced Communications in Europe), that, with an $18 million budget should lead to an advanced and integrated telecommunication network in Europe by the end of the century (Hills 1985: 9). Other European initiatives in this field are part of the Esprit programme and of Eureka (see section 4.9). What is missing in Europe, beyond the specific projects, is a comprehensive strategy that can be adequate to confront the US advantage in R&D and its political and technological pressure, in a key sector of the new technologies.

4.7. The international technological strategies of governments

In recent years, technological policies in advanced capitalist countries have become increasingly important as an area for government intervention and as a strategy for innovation in the economy. While the specific policies that have been adopted are the most diverse, in their institutional forms, sectors of intervention and logic of operation, they all share a common nature and rationale that is rooted, according to a recent OECD report, in the rapid pace of technological advance, in the wide applicability of new technologies and in 'the growing strategic role of technology in international competition and trade,' a role that 'promises to significantly alter the economies of all countries and modify international relations in various ways' (Brainard and Madden 1985: 7).

The forms of technology policy

In Europe and Japan there is a long history of government policies for the technological development of the national economy. In the US, on the contrary, the 'free market' ideology has left the government without any officially recognized role for the technological advance of non-military sectors. The Reagan administration explained this position in its first 'Science and Technology Report' to the Congress in 1981: 'the administration is committed to the view that the collective judgement of innovators, entrepreneurs and consumers, made in a free market environment is generally superior to any form of centralized programming' (quoted in ibid.: 15). Such a view did not prevent the US government from pursuing a very active technological policy that included spending more than 2.5 per cent of the federal budget in 1985 on R&D, and developing major initiatives in most high-technology sectors.

The way technology policies are developed and implemented within countries and their domestic context is not addressed here. The focus is rather on the international dimension of technological strategies and on their effects on the relations between economies and states. In this area, even theorists of the 'free market' are ready to abandon their principles as soon as the flows of technology start to move in an undesired direction. Robert Gilpin, a committed supporter of the view that only markets can make efficient technological decisions, argued that 'one rationale for government control over the diffusion of technology is that the present rate at which new technology is transferred from innovators to competitors is too rapid' (Gilpin 1982: 397), and this hurts the US at a time when the erosion of its technological advantage over other countries 'has intensified competition in a number of high-technology areas and has enhanced the importance of technological leads in export markets' (ibid.).

Behind the 'free market' rhetoric and the emphasis on 'national security,' the US is practicing an active technology policy and 'while it is true that the US has nothing explicitly labeled "industrial policy," military and defense expenditure is a critically important force in technology development in the United States' (Flamm 1984: 35).

The technological effort undertaken under military projects can result in activities similar to the technological policies of the other advanced countries in civilian areas. The OECD study compared the main R&D programmes of the US and Japan and found many areas where both the US Defense Department and the Japanese Ministry for International Trade and Industry (MITI) were directing and funding major research projects.

In computers, both MITI and the Defense Department have projects for 'fifth-generation computers' (see section 4.4; Brainard and Madden 1985:59). In Very Large Scale Integrated Circuits (VLSI), one-third of the development costs in Japan has been funded by MITI, while in the US the Defense Department has a $300 million project (ibid.).

In fibre optics the projects are almost equivalent, with MITI spending $30 million a year and the Defense Department spending $40 million. Likewise, in manufacturing, they both have $200 million programmes, MITI for industrial robots and flexible manufacturing and the Defense Department for industrial automation (ibid., 60).

The similarities are too strong to be casual, even though other areas exist where the directions of US and Japanese programmes radically diverge, and still others where co-operation among US firms has replaced government intervention, as we have seen in section 4.4. (see also Pianta 1988). The similarities, however, do not include the institutional arrangements and the basic criteria for the development of projects even in the same technological areas. The military nature of US research is of critical importance in this regard, with its priority of 'national security' objectives, its disregard for costs and its secrecy. This results in significantly different technological and economic outcomes, as we have seen in section 4.3.

A major common element in the success of some US military programmes and the MITI-sponsored research in Japan, according to Richard Nelson, is that 'both programmes involved a large protected home market' that was 'large enough so that several domestic firms could compete' (Nelson 1984a: 68). The development of new technologies has been encouraged by the decision of the state to assume the risks, and pay much of their development cost; the government has also played a role in coordinating the activities of firms, setting standards for products and processes, creating markets of an adequate size at an early stage of product development.

European governments have tried to learn these lessons from the US and Japan combining increasing public support for R&D with an active industrial policy. Britain and France have maintained a large role of military research, that shares many characteristics of the US case. Technological initiatives are also increasingly European-wide, with many programmes sponsored by the EEC (see below; see also Ergas 1986).

Other important elements for the success of national technological strategies, especially in Europe, have been the public funding and direction of innovation in an industrial network that emphasizes the upstream and downstream linkages. This is the model of the industrial 'filiere,' grouping all the industries and sector involved in a particular production process. In such a model, in the initial phase of development the upstream firms maintain control of the technology; then the control moves downward, as the range of applications increase and the final stages of production become critical (Sharp 1985: 277). State intervention has to follow this shift in the 'filieres' that are strategic for the national technological development.

The US technological strategies

The technology policies of the US, Europe and Japan have to be considered in the context of the changing positions of the more advanced countries. Technological leadership has been a permanent feature of the US hegemony. Back in 1961 a report of the Federal Council for Science and Technology argued that 'not only our domestic strength rely on a vigorous technological base; our nations's role as a leader in the international scene will increasingly be determined by the accomplishments of our scientists and engineers' (quoted in US House of Representatives 1977: 11).

Today the US position has deeply changed. Even a neo-conservative view such as that of Stephen Merrill, of the Center for Strategic and International Studies at Georgetown University, pointed out that 'the United States no longer has a commanding edge in the development and commercialization of all major industrial technologies' (Merrill 1985: 66), even if 'the US military represents the world's largest protected market for high technology goods, and US support for defense-related R&D dwarfs other government's investments' (ibid.: 73). In such a view, the new US interests are maintaining an advantage in a few key sectors, keeping open international trade and preserving the unity of the Atlantic alliance from the risk of emerging technological rivalries.

Such a perspective has directed, since the beginning, the policies of the Reagan administration. The president's science adviser, George Keyworth, made it clear, early in 1982, that the objective of US science policy could not be pre-eminence in all fields: 'there are a number of good reasons why we cannot expect to be preeminent in all scientific fields, nor is it necessarily desirable. The idea that we can't be first across the spectrum of science and technology is not simply a function of our current economic situation' (quoted in Barfield 1982: 43). After a positive judgement on the competitiveness of Europe and Japan, Keyworth argued that

there are certain areas of science and technology that are more pertinent to other countries than to us. It is in these areas that others will attempt to be world leaders. But there are other areas where the US is leader and must remain so. This realization does not represent either a defeatist attitude or a lack of confidence in American scientists and engineers. Rather, it is a recognition of the realities of today's competitive world.

(ibid.: 44)

It is remarkable that while official US policy comes to terms with the 'realities of today's competitive world,' many US economic policy proposals continue to insist on the need to recover a technological leadership as a means for maintaining economic strength and political power. A 1983 report of the US Senate Finance Committee on 'International competition in advanced technology: decisions for America,' recommended that 'advance technology development and trade must be considered as among the highest priorities of the nation' (National Research Council 1983: 15). It stressed also that open international markets are necessary 'both to preserve the US position as a major source of innovation and to ease growing tensions among the industrialized allies... Nowhere is our national welfare more interwoven with that of our allies than in the fields of science co-operation and high technology trade (ibid.: 12).

This is an area where the change in the US-European relations has shown for the first time the US weakness; the report noted also that for the US 'vulnerability could develop because of successful aggressive policies of our allies... which together endanger US major technology industries and fundamental advanced technology capacity deemed essential to economic wellbeing and military security. Where such broad national resources are in jeopardy, the United States must take action' (ibid.: 13). Such 'actions' would include negotiations with trade partners as well as 'unilateral actions as a step of last resort' (ibid.: 17).

The same argument has been made in 1986 by a report of the US National Security Council; after stressing the importance of microelectronics for industries such as autos, computers, automation, telecommunications, defence and aerospace, it concluded that

If the United States loses competitive advantage in these industries, its productivity, living standards, and growth will suffer severely. Moreover these industries are dominated by a few nations and firms so that competitive advantage brings significant economic profits and political influence. Thus if the United States becomes a net importer and a technically inferior producer, it would also become a less independent, less influential and less secure nation.

(Quoted in Reich 1987: 65)

The connection between economic and military pressures in US technology policy is here explicit. This can be considered the American expression of the growing 'technological nationalism' described by the OECD report as an attempt 'to substitute competition between countries for competition between companies' (Brianard and Madden 1985: 68).

This time the threats to the US leadership come from its closest political allies. Nelson has stressed that what is new in the current context is that

the technological threats we see may come more from our allies than from the Soviet Union and may appear in the form of commercial products rather than that of weaponry... If the Japanese can build a fifth-generation computer before an American firm can, confidence that we are at the top of the field for military application surely will be undermined... For all these reasons, our policies in support of high-technology industries will continue to be intertwined with national security objectives.

(Nelson 1984a: 79)

Such a connection shows that the framework for the analysis of technological strategies has to be the US international hegemony and its decline. Behind the current debate on economic competitiveness and technological advantage, this is the real issue at stake, and it is no surprise to find an increasingly strong role of the state in directing the national technological strategies. This results also in the growing conflicts over technology among the more advanced countries; accusations of unfair trade practices in high technology, protectionist bias and excessive public support for national fines are increasingly exchanged between Washington, Tokyo and the European capitals. The OECD report has warned that 'without greater international consensus as to acceptable practice, the disputes, and the retaliatory actions that may precipitate, could well grow in future as more and more countries pursue the new technologies' (Brainard and Madden 1985: 12).

But the growing technological conflicts within the West are themselves prisoners of political and military relations. Bix has stressed the contradiction that follows from these processes: 'US hegemony appears to be threatened by any capitalist state intent on closing the technology gap. Conversely any state running that race locked into a nuclear, anti-Soviet alliance with the United States is liable to have its internal industrial strategy distorted and shackled by its alliance commitments' (Bix 1985: 30).

The European response

Facing the US technological decline and the emerging Japanese power, the European response has been uncertain and divided, in spite of much talk about common action. The importance of controlling strategic technologies has been emphasized by the French president Francois Mitterrand; opening the national Research and Technology Celebration in 1982, he argued that 'for going out of the crisis, research represents one of the essential keys, perhaps the key to renewal. Only a gigantic research effort will allow France to take its place among the few nations able to control their technology and, in the end, to preserve their independence' (Le Monde dossiers et documents 127, November 1985).

France is perhaps the best example of a country pursuing a very active technological policy, including trade protection, public funding for R&D, guaranteed government procurement and support for firms selected as 'national champions' in each of the advanced technologies. The other European countries share some of these policies, in a variety of domestic settings that result from national institutions, economic conditions and traditional relations between government agencies, firms and research centres (see Ergas 1986).

The most important aspect of the European technological strategies has been the growing co-operation within the EEC in a wide range of areas, including resources, energy, information technology and telecommunications, biotechnologies, new materials and 'quality of life' issues. The 1987-91 'Framework Programme' of the EEC Commission that includes all these European innovative activities has requested a budget of about 10,000 ECUs (European Currency Units), representing less than 5 per cent of the total R&D expenditure of the member states (Commission of the European Communities, 1986). The major projects sponsored by the EEC include the Esprit programme in information technology, that recently was extended with Esprit II; RACE (Research in Advanced Communications) in telecommunications (ibid.). Another important European-wide initiative that however is not managed by the EEC, is the Eureka programme developed as a response to the US Strategic Defence initiative, that will be examined in section 4.9. (see Pianta 1988).

In spite of these efforts, the European performance has shown that the opportunities opened by the US technological decline were not seized. In many areas of the new technologies Europe has still to consolidate its position and to find an original direction for its innovation. In this perspective, Patel and Pavitt recommended greater R&D efforts by European firms, suggesting a 6 per cent annual rate of increase, to bring it into line with the US and Japanese commitment. Such an effort would also require a more growth-oriented policy in Europe, allowing firms to naturally expand their innovative activities (Patel and Pavitt 1985: 72). In the case of electronics, where the European performance is lagging behind the US and Japan, they suggested a strategy focusing on advanced applications in various sectors that can lead to new competitive advantages and the development of markets of similar dimensions to the American and Japanese ones (ibid.).

Another study, by Margaret Sharp, has tried to separate in the European 'delay,' a scientific and technological factor and a management-engineering factor, arguing that now as in the postwar period, 'where Europe lags most noticeably is in the commercialization and use of new technologies - in other words, as before, the gap is one of management, not technology per se' (Sharp 1985: 291). The management system of military and civilian R&D in the US has not, however, proved to be particularly efficient, in the light of its past technological performances, and it can hardly be pointed out as a model for Europe. The current European problems seem rather related to the size of available resources and to the degree of integration of its economy, in comparison to the cases of the US and Japan.

However, besides the specific policies for technological advance, a major problem for Europe appears to be the definition of a long-term strategy for innovation, leading to an original technological 'style.' The task for Europe is therefore to move from the previous experience of 'catching up' with the US model, to a new autonomous way of advancing the technological frontier of present knowledge.

Again, the political and military constraints of transatlantic relations emerge here. So far the European technological and economic structure has been closely bound to Atlantic relations, in what Mary Kaldor called 'the Atlantic technology culture.' While in the years of US hegemony this 'gave the US an inbuilt competitive advantage,' the US relative decline and the new position of Europe and Japan have now transformed Atlantic relations into 'a fetter on the emergence of a new technology paradigm, based on the spread of electronic technologies and geographically centred on Japan and Western Europe' (Kaldor 1983c: 7-8).

From the conflicts that are opened by such a transformation, different outcomes may result: a restoration of US leadership or growth in the autonomy of Europe. On this fundamental divide, Europe itself is divided:

one can identify two ongoing conflicts; one between American and European élites for shares of the declining markets and thinking of the fourth Kondratiev, and one within European society between the Atlanticist élites and those who favour alternative thinking about state priorities which could amount to a partiality for the new technological paradigm, within a more progressive political framework.

(Kaldor 1983c: 7-8)

The emergence of international conflicts and domestic divides on the issue of technological development stresses once again the key role played by new technologies in shaping the new international division of labour and hierarchy of states, as well as the domestic power relations. The decline of the US leadership has led to a set of strategies that have attempted to revive it. Two of these policies are analysed in the following sections: the introduction of strict controls over the international transfer of technology and the US Strategic Defence Initiative.

4.8 The case of US controls of technology transfer

At the beginning of the 1980s, in the climate of a new 'Cold War', the US government set the goal of restricting the access of the Soviet Union and the countries of the Eastern bloc to Western advanced technology, civilian as well as military, arguing that it was a source of economic and military strength for the Soviet bloc. The analysis of the East-West political context that led to the US strategy of technology transfer controls is beyond the scope of this section; the focus is rather on the role that such a technological strategy has had within the West, in particular on US-European relations.

Restrictions to technology flows are not new in US policy, but it is only with the Reagan administration that it prevailed over the traditional pressure for open flows of know-how and investment. The first major regulation of the issue dates back to 1949, in the midst of the Cold War. In 1969, in years of détente, it was replaced by the Export Administration Act, which allowed the government to restrict the export of goods and technology if the president determined that is against the 'national interest' (Hawkins and Gladwin 1981: 228).

Another step came when the Carter administration introduced two laws accepting the recommendations of the 1976 report of the Defense Science Board to the Defense Department, known as the 'Bucy Report' after the chairman of the task force, J. Fred Bucy, at the time executive vice-president of Texas Instruments. The report stressed that 'control of design and manufacturing know how is absolutely vital to the maintenance of US technological superiority' (quoted in Gilpin 1982: 404).

While the report argued for a liberal policy of export of finished products, it introduced the concept of 'critical technologies' to be identified by the Defense Department, giving to the military for the first time a direct role in the control over exports. The report also suggested that the US allies should be 'prohibited from receiving further strategic know how' if they violated the US restrictions on re-export of US technology to the Soviet block, thus introducing the principle of the extra-territorial application of US law (ibid.).

Until the Reagan presidency, these rules were not applied strictly and did not have a major impact on international technology flows. The effort to innovate to remain ahead was given a greater priority that the attempt to prevent the 'leaks' of technology towards the Soviet Union. Even the director of the 'Strategic Technology and Munitions Control' of the US Defense Department noted in 1978 that

it is unrealistic to expect that a system of export restrictions can prevent the USSR from eventually acquiring any level of technology that the West has developed. Inadvertent leakage, clandestine acquisition, and indigenous development will combine to assure that this eventually takes place. The process cannot be halted; it can only be retarded. Thus the true measure of the effectiveness of controls over technology is how long the catch-up process takes. On that basis, the present system scores well, for in a number of critical technologies, the United States has consistently maintained a lead of two to five years over the USSR and in some cases the margin is even wider.

(Quoted in Hawkins and Gladwin 1981: 230)

With the Reagan administration, the enforcement of controls on technology transfer became a major issue of US policy and an area of increasing international confrontation, not only between the US and the USSR but also between the US and Europe. The first show-down came in 1982 with the case of the construction of the 'Siberian pipeline', a civilian project whose only strategic aspect was that it allowed Europe to buy natural gas from the USSR. The US government not only forbade US firms to supply parts for the project but it extended the prohibition to four European companies that had already signed contracts with the USSR for the delivery of electric engines that incorporated US technology. The Reagan administration invoked the extra-territorial authority of US law over the resale of US technology, and when the European firms refused to obey its orders, it banned them from further access to US technology.

The result has been a serious crisis in the US - European relations; former US secretary of state George Ball wrote that the US policy was 'marked by hypocrisy, self-deception and an astonishing ignorance of past experience... Its greatest costs will be political, the weakening of the alliance, the erosion of our leadership, the growing doubts among our friends as to our motives and judgement' (quoted in Garten 1985: 551).

It is important to stress the way in which the US sanctions against European firms have been introduced. In the case of the French subsidiary of the US company Dresser, 'all Dresser had to do to comply with Reagan's embargo was to change the entry key to a computer in Pittsburg on August 26, 1982, the day the sanctions took effect. That effectively barred Dresser's French subsidiary from access to the technology it needs to complete orders it has on the books and to compete for new ones' (Business Week, October 1982).

Since then, the number of similar cases has rapidly grown, with US pressure becoming explicit whenever European firms tried to export to the Eastern bloc machine tools, telephone switching equipment or personal computers, even if they were produced with mostly European technology. The more recent case, in June 1987, was that of Toshiba, which had supplied - in violation of US rules - the USSR with machinery that can be used to produce less noisy submarines. The US reaction has been extremely strong, with talks in Congress of banning all Toshiba exports to the US (The Economist, 27 June 1987, p.66; 11 July 1987, p.72).

While the selection of the 'prohibited' technologies has mainly come from the US Defense Department, a key role in enforcing the restrictions has been played by COCOM, the Coordinating Committee on Multilateral Export Controls, that includes all the NATO countries (with the exception of Iceland) and Japan. COCOM's blacklist reproduces, in a shorter form, the US Defense Department's list, including, besides military technologies, computers, software, robots, silicon and materials technology. These restrictions have been 'voluntarily' accepted also by the neutral countries of Europe, Austria, Sweden, Switzerland, under the threat of a halt on flows of technology from the US (The Washington Post, 6 March 1986).

The strategy of technology transfer control, however, has imposed heavy costs on the US economy. A 1986 report to the Joint Economic Committee of the US Congress pointed out that about 20 per cent of all US exports of high-technology products need a 'validating license' from the government, increasing costs and delays in a variety of ways (Finan et al. 1986: 36). The report noted that

Combined, these factors manifest themselves in competitive disadvantages for US firms, for example, by directly inhibiting some firms from exporting (beyond legitimate restrictions imposed for national security purposes) or discouraging foreign customers from relying on a US vendor or contributing to an erosion of foreign sales distribution networks.

(ibid.: 37)

A similar conclusion was reached by a 1987 report of the National Academy of Sciences. While recognizing that export controls are both a 'necessary and appropriate mechanism', it stressed the 'increasingly corrosive effect' they had on US - European relations. The 600 pages of US regulations in this matter, according to the report, 'are not generally perceived as rational, credible and predictable' by many nations and corporations (National Academy of Sciences 1987). The consequences for the US economy are that in 1986 $62 billion of exports, 40 per cent of all US exports of non-military manufacturing goods, needed a prior approval; 52 per cent of the US exporters surveyed in the report said that they lost sales due to these requirements (ibid.). The result has been a slowdown in US exports of high-technology products, just as imports were booming, leading to a trade deficit in this area for the first time in 1986 (ibid.). This evidence has not prevented further US restrictions on technology flows. In 1986 the Federal Technology and Transfer Act was introduced, requiring the US national laboratories to give priority to US firms in the licensing of their inventions (Reich 1987: 66).

The impact on the international economy of such a US strategy has been serious. A OECD report argued that

such controls on high technologies, and products based on them, could hamper their commercial development and applications. They can also adversely affect trade in these products and constrain the flows and transfers of technologies. They may, in addition, inhibit the normal international exchanges of scientific information. Problems of this kind could well grow in future as the dual-purpose technologies are increasingly applied in civil sectors.

(Brainard and Madden 1985: 10)

The US policy has also raised strong political criticism. A 1985 report of the OECD Committee for Scientific and Technology Policy noted that 'while it is clearly recognized that national strategic controls are legitimate and essential in many areas of advanced technologies, a number of OECD countries have expressed continuing concern with controls on advanced technologies that have both military and commercial applications' (quoted in ibid.: 61).

In a less diplomatic way, the same criticism has been voiced by the British conservative Norman Tebbit, a former trade secretary who, addressing a business audience in Washington, criticized the US for 'your claims to be able to impose your laws on people in other countries, inside their homes and businesses' (quoted in Buchan 1984: 2). The suspicion that the 'national security' argument conceals a policy to maintain US technological leadership has been voiced by many European politicians and business leaders. In West Germany, Horst Ehmke, expert on East-West problem of the Social Democratic Party, argued that 'the restrictive COCOM policy pursued by the United States is supported by a whole range of new developments and measures which are diametrically opposed to European economic interests and which will ultimately have a generally negative effect on the economic development of the West and the United States' (quoted in Lucas 1985: 46).

The size of the European opposition to such a US strategy, ranging from companies to governments, from conservatives to the left, and the seriousness of the OECD worries, prove how controversial the US strategy to use technology as a weapon in international relations has been. It also shows that far from resulting in a renewed US hegemony, this strategy has discredited the US leadership and deepened the divisions across the Atlantic.

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