From: rick@cs.arizona.edu (Rick Schlichting)
Newsgroups: comp.research.japan
Subject: Kahaner Report:  Japanese tech ideology & aircraft industry (1 of 2)
Date: 26 Aug 92 21:44:39 GMT


  [Dr. David Kahaner is a numerical analyst on sabbatical to the 
   Office of Naval Research-Asia (ONR Asia) in Tokyo from NIST.  The 
   following is the professional opinion of David Kahaner and in no 
   way has the blessing of the US Government or any agency of it.  All 
   information is dated and of limited life time.  This disclaimer should 
   be noted on ANY attribution.]

  [Copies of previous reports written by Kahaner can be obtained using
   anonymous FTP from host cs.arizona.edu, directory japan/kahaner.reports.]

To: Distribution
From: 
 David K. Kahaner
 US Office of Naval Research Asia
 (From outside US):  23-17, 7-chome, Roppongi, Minato-ku, Tokyo 106 Japan
 (From within  US):  Unit 45002, APO AP 96337-0007
  Tel: +81 3 3401-8924, Fax: +81 3 3403-9670
  Email: kahaner@cs.titech.ac.jp
Re: Japanese technology ideology & aircraft industry (1 of 2).
24 August 1992
This file is named "mitjp921.a"

ABSTRACT. Japanese technology ideology illustrated via the Japanese
aircraft industry. (Friedman & Samuels extracts, part 1 of 2).

The text below is extracted from the paper
"How to Succeed without really flying: The Japanese Aircraft Industry and
Japan's Technology Ideology", by
 
David B. Friedman & Richard J. Samuels

This material was prepared for the conference "Japan and the US in
Pacific Asia", 1-3 April 1992, San Diego CA. It was produced as a report
from the MIT Japan Program (MITJP 92-01) and sections are reproduced
here with permission. The second author
        Prof Richard J. Samuels
        Dept of Political Science & Director MIT Japan Program
        MIT
        Cambridge Mass 02139
         Tel: (617) 253-2449, Fax: (617) 258-7432

spent the 1991-92 academic year at the Mitsubishi Research Institute in
Tokyo researching the report. Samuels has excellent Japanese
speaking/reading skills and has visited Japan many times over more than
two decades.

The printed report is organized into an introduction and four main
sections. The Introduction describes briefly the structure and the key
ideas of Japanese ideology that the authors propose, indigenization,
diffusion, and nurturing. Part I develops these three in more detail.
Parts II and III illustrate the concepts with specific application to
the aircraft industry. Part IV is a conclusion. In my electronic
distribution I have decided to omit Parts II and III for brevity. My
distribution is divided into two files, "mitjp921.a" contains the
Introduction and Part IV (Conclusions), and "mitjp921.b" contains Part
I. For ease of reading I have also omitted the reference citations, of
which there are more than 150. I am distributing these extracts from
Friedman and Samuels report because I feel that it is exceptionally well
researched and thoughtful. Also, because it amplifies and corroborates a
short, earlier report of mine on some of the same topics [consumers, 26
May 1992].

For printed copies of this report, please contact Samuels at the
address above.

           HOW TO SUCCEED WITHOUT REALLY FLYING:
              THE JAPANESE AIRCRAFT INDUSTRY
             AND JAPAN'S TECHNOLOGY IDEOLOGY
                    (extracts)
                     
           David B. Friedman & Richard J. Samuels
            		MIT, 1992

                      INTRODUCTION

                         Since the end of World War II the United States
has spent billions of dollars more on military research and development
(R&D) than Japan.  Even today, despite an American recession  and
sustained  increases  in  Japan's  military  expenditures,  Japanese
annual  defense  R&D spending -- less than Y 100 billion -- is dwarfed
by U.S. spending of more than Y 5 trillion.  In Japan, official defense
R&D is just 5 percent of all government R&D, while in the United States
government expenditures account for more than 60 percent. But despite
the enormous postwar American efforts to foster defense technologies,  a
massive  disparity  in  nominal  spending,  and  the fact that Japan
does not design or build military equipment for export, Japanese
commercial manufacturers now exhibit defense production capabilities
that match or exceed American capabilities in many areas.

                         This has been possible, we argue, in large part
because Japanese views about technology and national security sharply
diverge from comparable American beliefs.  Both Japan and the U.S., like
most other nations, have  vigorously  attempted  to  foster  indigenous
defense  technologies.  But there is considerable variation in the way
each nation has achieved this objective and the ideology that informed
the effort.

                         It is this divergence between U.S. and Japanese
defense technology strategies deriving from fundamentally different
ideas  about  the  economy  and  national  security  that  concerns  us
here.  U.S. technology strategy has focused on making huge public
outlays to specialized defense laboratories and contracting firms,
justified by the  military  calculations  of  national  security.  While
postwar  American  defense  planners  recognized  that  technologies
developed  for  the  military  might diffuse into the commercial
economy, and many "spin-offs" -- such as jet engines or new materials --
did occur, no special effort was made to marry commercial and defense
industrial capabilities.  Indeed, American defense prime contractors
developed design, manufacturing and business practices, or responded to
secrecy and classification requirements in ways that increasingly
impeded effective exchanges of commercial and defense technology.  While
many U.S. subcontractors mixed  military  and  commercial  technologies
more  freely  than  the  primes,  they lacked the stability and
resources necessary to expand into new civilian markets.  Over time,
"spin-away"  rather  than  "spin-off" may  more  accurately  describe
the  relationship  between  U.S.  military and civilian manufacturing.

                       In contrast, Japan's has made little distinction
between  military  and  civilian  technology.  Japan has focused instead
on three principles: (i)  obtaining  and  indigenizing  foreign  civilian
and military design, development, and manufacturing capabilities; (ii)
diffusing  these  capabilities  as widely as possible throughout the
economy-, and (iii) nurturing and sustaining the primes and
subcontractors to which  commercial  and  military  technologies  could
be  diffused  and  from  which indigenous development could be
generated.  Differences between military and civilian technologies were
less important than differences between domestic capabilities and
foreign dependence; making things that "go bang in the night" was  not
as  crucial  as  nurturing  the  more fundamental ability to  design
and  make  "things"  period.  Whether  these  "things"  --  machinery,
electronics, aircraft, vehicles, etc. -- were for military or commercial
end use, the know-how enabling their production was  diffused
aggressively  throughout  the  Japanese  economy  as  a  matter of
security ideology, national policy, and private practice.  In  the
process,  defense  technology  was valued as much for its ability to
elevate the fundamental capacities of the  economy  than  as  a  means
for actually producing military hardware.

                       Crucial to implementing Japan's  technology  and
security  ideology  are  formal  and  informal linkages and bargains --
which  we  call  a  system  of  protocols  --  that  integrate  Japan's
industrial technology community.  Technology  protocols,  such  as
informal  industry  cooperation  practices, regional and national
subcontractor  associations,  R&D  consortia,  semi-public  industry
research groups, or vertical  and  horizontal  industrial  "cooperation"
associations,  overlap  and  bind  Japanese producers in ways that
create and preserve opportunities for firms to build alliances within the
economy.  These alliances -- metaphorically, sets of 'open door'
opportunities, or technology highways -- stimulate competition while  at
the  same  time  providing  competitors  with  access  to crucial
manufacturing know-how.  They  enable  Japanese  firms  to  build  and
combine  their  skills with comparative ease  to  produce  even  the
most  complex  products,  including  military  equipment.  Unlike in the
States, Japanese defense production  is  simply  one  of  many
technology  linkages  that firms maintain within the domestic economy.
Japan's defense prime contractors are far less specialized than  their
American  counterparts,  and  subcontractors  more  readily  combine
defense and commercial production in a wider range of industrial
undertakings.  As a consequence, defense and commercial technologies
inter-diffuse --  they  "spin-on"  and  "spin-off" to  each  other with
comparative ease in Japan.

                       In this paper, we illustrate the industrial
consequences of Japan's  technology  and  security ideology with the
case of the aircraft industry.  Aerospace provides an ideal case for
illustrating  the unique character of Japan's technology and security
ideology because it is  central  to  any  nation's defense industry and
a crucial commercial sector.  In both the U.S. and Japan, for instance,
aerospace has received the lion's share  of  monetary  R&D  expenditures.
Aircraft  production  in  both nations has been heavily geared towards
defense;  four-fifths  of  Japan's  output  and  and  two-thirds of
American aircraft production  has  been  for  the  military.  Commercial
aircraft  development  in Japan has been a major goal of industrialists
and policy makers alike,  and  cherished  within  the  U.S.  as one of
the industries in which America dominates global competition.

                      But despite these similarities, the Japanese and
American aircraft  industrial  strategies  and structures  have
strikingly diverged.  As  we  shall  see,  U.S.  prime  contractors  and
subcontractors heavily specialize in aircraft production.  At the prime
level, this specialization has proceeded  to  the point where there is a
sharp, practically impenetrable barrier between  civilian  and  military
aircraft operations even within the same firm.  American aircraft
industry subcontractors more readily combine their commercial and
defense capabilities, but generally do not diversify into non-aerospace
fields.

                        Japanese aircraft prime and subcontractors,
however, are overwhelmingly dedicated to non-aerospace commercial
production.  The industry is, in effect, embedded in the civilian
economy as a whole.  Japan's aerospace capabilities result from the
combination of skills possessed by companies whose  primary  business
and  technology  strategies  are  oriented  towards other industries.
The disjuncture between commercial and military, aircraft and
non-aircraft production characteristic of primes and subcontractors in
America  never  emerged.  Instead,  even aerospace producers in Japan at
the prime level, and especially the country's  subcontractors,  have
been able to "spin-on" to military applications many of the fruits of
their  commercial  investments, and "spin-off" defense skills for
civilian purposes.  In this fashion, Japan has built a thriving, if
still comparatively small aerospace sector, and it has used aircraft
industry technologies to  enhance commercial and military capabilities
throughout the economy.  In short, judged  by  the  criteria  of Japan's
technology and security ideology, the aircraft industry has "succeeded
without really flying."

                       Part I of this paper outlines the three basic
tenants of that ideology: indigenization, diffusion, and nurturing.  It
shows that Japan has embraced and  promulgated  a  vision  of  national
security that elevates local control, national learning and sustained
development over the more conventional procurement criteria of cost,
performance, and delivery  schedules  that  dominates  in America.  Part
II suggests that the Japanese aircraft industry arguably has flourished
when measured in conventional terms of sales, output, profits  and
growth,  despite  common  perceptions to the contrary.  Part III contends
that even if the caliber of Japan's aerospace capabilities is debatable
in conventional terms, the industry is a success under the very criteria
that inform Japanese industrial thinking.  Finally, in Part IV we
conclude that since differences  in  technology ideologies can lead to
divergent standards for industrial achievement, different industrial
development trajectories, and political and economic conflict,  America
faces  significant  conceptual and policy challenges in the near future
if it is to maintain its technological dynamism.

[For Part I, see file "mitjp921.b". Parts II and III are not included in
this distribution.]
                     IV. CONCLUSIONS


                1. Ideology Matters

                        As we discussed above, defense and aircraft are
but  additional  lanes  on  a  very  busy Japanese technology highway.
Despite often vigorous postwar debates about how to build and maintain
these lanes, it long ago became clear that commercial and dual-use
technologies are racing ahead of purely military applications in Japan
and  in  the  United  States.  Some  may  argue  that Japan's
achievements in this regard are accidental or that Japan  enjoyed  a
"free  ride"  on  U.S.  security guarantees during the Cold War.  Still
others may  credit  Japan's  strategic  vision  in fostering a dual-use
economy.

                        But none of these "explanations," we believe,
sufficiently account for the institutional and strategic choices Japan
made in generating its dual use capabilities.  Other nations, enjoying
similar security alliances with the United States and in similar
strategic circumstances, have evolved quite different dual-use
capabilities.  It is also difficult to credit accident with an
industrial outcome that is so strikingly consistent with Japan's
fundamental set  of  beliefs  about  security  and  the  inter-diffusion
of technology.  Finally, while Japan's particular defense industry
strategies have in fact varied widely over the last century, it has
nevertheless sought, if often in an ineffective and halting manner, to
realize the touchstones of Japan's technology and security ideology:
indigenization, diffusion, and nurturance.

                        The Japanese experience therefore shows that
beliefs about national security and technology affect decisions about
industrial structure and the way a nation evaluates its comparative
global strengths and weaknesses.  Japan, we believe, values industries
differently than does America.  Japan's security and technology ideology
fosters a national consensus so basic that it is now unquestioned by
virtually all industrial and political actors -- that industries have
importance beyond the goods they produce.  Acting  on  this  belief,
the  Japanese  are  driven  to procure or develop skills and knowledge
that they may lack for their domestic economy so that non-production
benefits -- especially learning and diffusion -- can be realized at home.
Industrial policy in Japan is guided by the effort to maintain the
nation's knowledge and technology base rather than to produce a specific
product to which  a  domestic  firm might  affix  a  name-plate.

                        The U.S., in contrast, does not value
industries  in  this  way.  Companies  displace  one another in
competition for markets or contracts, leading to  wholesale  capacity
losses,  or  even complete  domestic  skill  displacement  from  the
American  economy  that  Japan  would   never tolerate.  While many
argue that the production consequences of these losses are, in fact,
beneficial if overall prices fail, this position ignores the potential
long-term loss that may result from  the knowledge diffusion, skill
development, and commercialization that will not occur.  As we have seen
in the aircraft industry, Japan is willing to pay (and pay dearly) for
the same technical knowledge that the U.S. is willing to transfer abroad
because it values  the  ancillary  industrial results of that knowledge
as much, or more than, the ability to make specific goods.

                        There is, moreover, a vast gulf between U.S. and
Japanese thinking about the importance of maintaining industry support
mechanisms to nurture competent firms to which technology has been
transferred and diffused.  While Japan exerts significant efforts to
assure that opportunities to form alliances, compete and exploit learning
in different ways are  preserved  by  reducing  fratricidal and
exogenous market shocks, America believes  that  whole  regions,
sectors  and  industries  can  be "given-up" in the hope that new
industries  will  emerge.  But,  compared  to  firms  nurtured  in
systems like Japan which consistently build skills and  networks  over
time,  U.S.  producers  may  be successively weakened as they experience
unshielded  market  shocks  that  are  not  shared  by  their overseas
competitors.

                        The ideological divergence between U.S.  and
Japanese  technology  and  security  thinking  is particularly apparent
in the post Cold War era.  As the U.S.  defense  base  contracts, losing
certain skills forever and failing to exploit commercial opportunities
or develop spin-ons, the Japanese increasingly build dual use
capabilities and purchase what  the  Americans  are  now  content  to
discard.  This is as true in defense as it is in other sectors.  Japan
maintains and secures  across  the board manufacturing and design
technologies from abroad in a bottom-up strategy, the U.S. is now
contemplating cutting all but top R&D functions in the defense industry
on the theory that manufacturing skills are generally fungible.

                        Consequently,  where  American  ideology  drives
firms  and  policy makers  to  seek   the cheapest components regardless
of  the  structural  or  domestic  economic  consequences,  their
counterparts in Japan -- operating under a different set of beliefs --
are motivated  by  a  concern  to obtain, diffuse and nurture the
broadest possible spectrum of skills.  This striking variation  in  basic
principles and resulting industrial choices between  America  and  its
principal  economic  competitor ought, we believe, to give U.S.
policy makers pause.  If Japan is to be our  guide,  the  U.S.  may  be
measuring the value of industries improperly and undervaluing the
knowledge production and diffusion benefits domestic manufacturing
networks generate.  If  so,  a  public  policy  concern  is  to ensure
that indigenous production networks -- in defense as in other sectors --
are not  sacrificed  in the operation of current American industrial
strategic thinking.  Instead, it may be necessary to intervene to
protect the nation's manufacturing networks,  foster  more  effective
collaboration among both prime contractors and their suppliers,  and
seek  much  more  substantial  access  to foreign manufacturing
networks, especially in Japan.

                2. A Dual Use Defense Industry Possible, if Not Essential

                        The postwar instability of domestic  demand  and
the  political  impossibility  of  developing arms exports markets has
led the Japanese defense industry to  describe  itself  ruefully  as
"neither dead nor alive" (ikasanu yoo ni,  kurosanu  yoo  ni).  By some
measures  this  assessment  may  be correct. Although the defense
industry's share of total industrial production  in  Japan  has
increased slightly since 1970, it is still less than one percent of
total industrial production. In sales, the defense industry in Japan is
on the scale of the nation's sushi shops or bakeries.

                        But these measures greatly understate both
latent Japanese defense capabilities and the country's achievements  in
"embedding"  a  military  production  sector  within  the  commercial
economy.  By relying on the skills of  its  commercial  producers  to
obtain  and  master  defense-use technologies, as we described in the
case of aircraft, Japan has  generated  dramatic  absolute  growth in
its military sector.  One percent of 1970 Japanese GNP is  not  the
same  as  one  percent  of  1990 Japanese GNP.  In any case, if Japanese
defense spending is recalculated according to NATO standards (including
pensions, aid, and other items that the Japanese exclude in order  to
stay  under the nominal one-percent ceiling) Japan actually spends two
percent of its massive GNP on defense. Despite the  formal  ceiling  on
defense  expenditures  that  obtained  until  1986,  defense spending was
either the first or second fastest growing  item  in  the  national
budget  throughout  the 1980s -- a decade during  which  the  total
budget  more  than  doubled.  Since  the  mid-1960s  defense spending
expanded between 5-8  percent  each  year,  and  actual  JDA  spending
has  risen  from  Y 300 billion to more than Y 4 trillion. By 1984 Japan
had the fourth largest  naval  fleet  in  the  world, and by the late
1980s its defense budget was third in  the  world.  Thus,  Japan  has
built  a  formidable defense capability in spite of severe domestic
political and international handicaps.

                        More  importantly,  unlike  U.S.  economic
policy makers,  the  Japanese  have  never   believed that silicon chips
and  potato  chips  are  the  same.  Differences  between  sushi  and
sidewinders, and between bread and ballistic missiles are profound in
Japanese  thinking,  but  not  for  the  obvious reason that some build
while others destroy.  As we have described in the case of aircraft, the
Japanese are convinced that advanced technology has a strategic value
beyond its immediate application.  Guided by this belief, the Japanese
try to assess how industries contribute to the national standard of
living in general.  This has been true in  defense  as  well  as
commercial  sectors, where  Japanese  procurement  decisions  have  been
shaped  as  much  by  considerations  of   fostering domestic networks
and skills than by concerns for military readiness.

                        The result has been the creation of a defense
sector that appears  particularly  suited  for  the post Cold War world.
It might once have been arguable that Japan's defense industry choices
were unsuccessful:  Japan  could  hardly  have  defended  itself  from
potential  enemies  such  as  the former USSR or even China without the
equipment that the U.S. produced.  But the view that Japan possesses a
dysfunctional defense industry is losing  favor  as  the  Cold  War
ends,  and  clear, long-term military needs are being replaced by fuzzy,
highly  variable  security  options  and  threats.  In such a world, the
capability to mix and match specific design or production skills to meet
military challenges, or to sustain cutting edge technologies without
bankrupting  the  public  treasury, are becoming more valued than the
ability to stamp out hundreds of guns, tanks or fighters in publicly
supported defense firms.  Analysts are beginning to acknowledge that the
absence of specially aircraft makers, to cite one key element of the
defense industry, is an  advantage  for  Japan.  A recent report
prepared for the International Aircraft Development  Fund  argues  that
the  ability  of Japanese manufacturers  to  apply  and  diffuse
advanced  technologies  across  a  range  of  businesses within the same
firm "deepens the capabilities of the company and provides Japanese
aircraft related firms strength beyond what is visible."

                        Part of what is "invisible," we suspect, is the
growing  confidence  of  the  Japanese  to  meet national defense needs,
and to compete with other nations  by  exploiting  the  military
capacities  its commercial firms maintain.  After decades of
indigenizing, diffusing and nurturing, Japanese defense production, like
Japanese  defense  technology,  is  largely  indistinguishable from
Japanese industry as a whole.  As a result, Japan is starting to
appreciate  that  its  best  commercial  producers could easily become
the  best  military  producers  as  well.  The  chairmen  of  Honda  and
Sony  each became honorary chairmen of the Japan Defense Technology
Association in 1982.  As lbuka Masaru, the chairman of  Sony  (and  a
former  Naval  Air  Arsenal  researcher)  claimed  when  asked by the
head of the Japan Defense  Technology  Association  what  targets should
be  set  in  order  for Japan to achieve an autonomous defense
technology base, "(It does not matter what the targets are) for as long
as targets are set for us, we can build anything at all."

                       Japanese defense capabilities show that top
quality military manufacturing can occur in networks of commercial
firms, a capability that is now the goal of the U.S. as defense firms
contract and attempt to convert to other purposes.  But to have an
indigenous defense production base embedded in the commercial economy
like the Japanese, a full spectrum commercial capability is essential.
U.S. thinking, however, does not seem to recognize this fact.  Instead,
proposals center on top-down, institutional answers, such as maintaining
a large defense prime contractor with an affiliated R&D lab in each
major defense "field." The relationship of such entities to up and
downstream producers in the economy rarely appears in the American
policy debate.  But without a complementary effort to build and sustain
lower-tier, sophisticated manufacturing networks in the United States,
it will be difficult, if not impossible to embed American defense
capabilities in the commercial economy as the Japanese have done.  Each
of the pieces of up and downstream production must mesh into a seamless
network from which defense capabilities precipitate.

                       Security, the Japanese experience suggests, means
more than bombs or missiles.  It also means knowledge, and a diverse top
to bottom manufacturing economy is, in effect, a huge knowledge
generator for the whole society.  There is a direct relationship between
a nation's economic capabilities and its technology and military
security.  America may now be compelled to recognize this relationship
much more explicitly in the post Cold War environment.

                3. Strategic Use of Partners

                       Japanese firms and the Japanese government have
defined their relationships with both domestic and foreign partners in
strategic terms, consistent with the security and technology ideology we
have described above.

                       Domestic firms have evolved a system of protocols
that ensure stability and shared risk.  "Winners" do not "take all," nor
do losers come away empty-handed.  Relationships among prime contractors
and between prime and subcontractors are exceptionally stable and -- by
U.S.  standards -- exceptionally interdependent.  Prime contractors rely
more than ever on the innovations of their subcontractors, and each
exists in a complex network of alliances.  The final assembly by prime
contractors of components and equipment supplied by vendors and
subcontractors masks extensive materiel, supply, and fabrication
relationships.  As we discussed above, prime defense contractors
directly are responsible for only a fraction of Japan's arms and aircraft
production.

                       The indigenization of both prime and subcontractor
capabilities in Japan has been a phased and seemingly erratic process.
But while the defense industry was buffeted by clear policy shifts first
toward and then away from domestic development, it was unquestionably
buttressed and stabilized by a consistent techno-national ideology.  Even
if Japan would not develop certain weapons systems due to political and
fiscal constraints such as the PX-L antisubmarine warfare plane that
fell victim to Lockheed bribery in the 1970s it has taken every
opportunity to maximize learning from licensing.  As Japan shifted from
military-led to commercial-led technological development, it also
transformed itself from a technologically backward buyer to a
technologically advanced developer of weapons systems and components.

                       At the same time, U.S. firms often  obtained
more  significant  revenues  from  licensing  than from selling actual
military  products.  The  willingness  to  pay  such  premiums  must  be
understood as part of Japanese industry's strategic use of  foreign
partners.  Aircraft  and  defense  technology transfers have been
basically inbound for decades.  Foreign partners are selected, not to
supply cheap parts, but because they are willing to supply expensive
knowledge.  "International cooperation," the euphemism for foreign
licensing, has never been an end in  itself;  in  the  twentieth
century, as in the nineteenth century, it has been a  convenient  means
of  learning  the  manufacturing processes that underlay the design and
production of desired products.  Foreign licensing has always been a
second choice to domestic development, and  it  has  served  to  close
gaps  in  Japanese manufacturing technology while enhancing domestic
capabilities in military as well as civilian areas.  The Japanese
strategic use of foreign partners is a major challenge for conventional
American practices as well.

                 4. Reciprocity, Not Protection

                         Building an  indigenous  "full  spectrum"
commercial  economy  that  will  also  sustain  U.S.  defense
capabilities is not simply a domestic problem.  Rather, as the growing
foreign interpenetration of American supply networks demonstrates, it
is  also  a  matter  of  regulating  the flow and effects of overseas
products and technology into the country.  This may involve two
seemingly opposite goals.  First, to provide the kind of  support  and
nurturing  that  has  stimulated long-term, stable skill development in
countries like  Japan,  U.S.  firms  may  have  to  be  shielded  in some
fashion from  external  shocks  --  including  foreign  competition  --
while  domestic  networks are rebuilt.  At the same  time,  however,  to
obtain  access  and  indigenize  technology  from  abroad, America must
avoid naked protectionism that would alienate its foreign partners.  In
short, the U.S. will have to develop its own version of the subtle blend
of  strategic  cooperation  and  domestic technological nurturing the
Japanese have practiced for decades.

                         The threat that American industrial reversals
will foster  crude  protectionism  is  especially troublesome.
Protectionism only ensures  that  as  Japan's  technology  highways
(and  those  of  other rapidly developing economies) become even more
fully articulated, American access will be increasingly difficult and
costly.  Further, the day has  long  passed  when  the  United  States
could expect to control or dominate world technology by retarding the
flow of skill and know-how abroad.  To do so now would be politically
costly  and  would  likely  fail.  Nor  should  America  want to be
isolated from overseas technologies, an  outcome  that  would  only
ensure  the  nation's  eventual obsolescence and generate even more
profound commercial and defense consequences.

                         Instead, the task is to develop a rough parity
with other nations  in  domestic  full  spectrum indigenization
diffusion and nurturing capabilities.  There are  several  policy
levers  for  achieving this goal.  One is to spur U.S. firms to partner
strategically with foreign producers to obtain technology flow-backs --
that is, to obtain and then diffuse technology in the United  States
just  as Japanese and  other  nations'  producers  have  done  with
American  know-how  in  the  past.  Another is to recognize the express
connections  between  technology,  knowledge  and  national  security
and leverage America's substantial international contribution to
international stability -- especially in the Pacific Rim -- for
reciprocal access to manufacturing networks abroad.  If global power
increasingly turns on industrial capabilities, the U.S. will lose its
capacity to bargain in  the  world  if fails to link itself more
effectively with foreign economies in ways that assure that  state  of
the  art technologies flow into its domestic economy and are exploited.

                       The Japanese clearly understand the subtleties
involved in maintaining an open economy while seeking national
advantage.  They recognize that their bargaining power with other
nations requires nurturing and indigenizing advanced technological
capabilities.  Restrictions of access to technology routinely
accelerates Japanese efforts in both respects:

                       "The United States has recently begun to to
increase its restrictions on technology transfer, and there has
developed an increased severity of the environment hemming in the
Japanese aircraft industry.  We cannot expect the sorts of easy
technology transfer we have experienced until now.  So, it has become an
indispensable premise that above all else we achieve world levels of
autonomous technology by undertaking international joint
development." (Nihon Kikai...Kikin, 1991, p2)

To the Japanese, building future options for accessing international
networks while also localizing industrial capabilities is as essential a
security task as manufacturing fighters or tanks.

                       Nurturing without becoming predatory and
indigenizing without protectionism is a delicate and difficult task, one
made more challenging by the need to insist on reciprocal treatment and
access to technology networks -- manufacturing associations, consortia,
and regional networks -- in countries like Japan that are historically
uncomfortable with sharing.  Indeed, as the FS-X controversy may
foreshadow, when a country like Japan equates security with
technological autonomy, and then is forced to "share," reciprocity could
well be the issue on which U.S.-Japan relations will flounder.

                       Nevertheless, the stakes involved may require
that the U.S. continue to press at every level for reciprocity and
access -- while pursing the necessary domestic initiatives -- so that at
the least a stable balance of technology diffusion and indigenous
capabilities with other dominant nations can be achieved.  In the post
Cold War era, technology differentials will continue to affect each
nation's defense capabilities.  But more than in the past, a nation's
defense skills will depend on the strength of its commercial economy.
If differentials in commercial capabilities are allowed to widen,
enriching manufacturing networks in one nation while they atrophy in
another, will result in unacceptable national security implications.  The
crucial task for the United States and Japan is to restructure their
historical roles regarding bilateral technology diffusion while
maintaining grounds for collaboration rather than conflict.  Difficult
though this goal might appear in an age of escalating trans-Pacific
recriminations, the likely alternatives appear much less attractive.

[See file "mitjp921.b" for Part I of this report.]

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