AIR WAR COLLEGE

AIR UNIVERSITY

Growing the Space

Industrial Base

Policy Pitfalls and Prospects

ROBERT L. BUTTERWORTH

Visiting Professor of International

Security Studies

Air War College

Maxwell Paper No. 23

MAXWELL AIR FORCE BASE, ALABAMA

SEPTEMBER 2000

AIR UNI V ERSITY
Disclaimer

Opinions, conclusions, and recommendations expressed or implied within are

solely those of the author and do not necessarily represent the views of Air University, the United States Air Force, the Department of Defense, or any other US

government agency. Cleared for public release: distribution unlimited.

ii

This Maxwell Paper, and others in the series, is

available electronically at the Air University Research web site http://research.maxwell.af.mil

under “Research Papers” then “Special Collections.”
Foreword

For more than 50 years, the United States used the inventiveness and productivity of its economy to overmaster

Soviet advantages in numbers and geography. This “asymmetric” strategy—arguably the most sustained and extensive in history—proved triply successful. It brought superior defense and intelligence capabilities, many of which

might remain unchallenged for years to come. It brought

economic advancement, as national security research and

engineering found commercial and civil applications. And,

it brought scientific and technological advancement, demanding and fueling basic and applied research at universities, public corporations, and commercial companies.

These benefits are still eagerly welcomed today, but it is

not clear how they might be continued. Over the past 10

years the technical and industrial base serving US defense

needs has shrunk and congealed, as changing international and budgetary circumstances have brought different

threats, smaller force structures, and much smaller procurement budgets. And, other markets have offered far

greater commercial rewards. Accordingly, the US national

security community has thus been looking for opportunities to participate more fully in commercial processes, and

on occasion to go further, to use public budgets and policies to shape and structure those processes. For example,

Undersecretary of Defense for Acquisition, Technology,

and Logistics Jacques Gansler declared to Congress in

May 2000 that “it is clearly in the national interest (in the

absence of ‘normal’ market forces) for us to create an enabling environment to ensure a competitive, healthy, and

technologically advanced defense industrial base.”

The space industrial sector has been of particular concern given its intimate connection with national security

operations and plans, its broad importance for science and

technology, and its competitive position toward foreign

governments and producers. However, the industry has

been struggling, and without US government actions it

may not have the depth and vitality to provide affordable

solutions to future national security requirements.

iii
What type of government action could improve the situation? This is the question addressed in this paper by Dr.

Robert Butterworth, a consultant on space policy issues

for several years and currently a visiting professor at the

Air War College. He notes that the Defense Department has

long hoped that its needs for space products and services

could be supplied by an industrial base that is sustained

by commercial sales. However, according to Dr. Butterworth’s analysis, that day has not yet arrived—despite

years of targeted purchases, investments, and acquisition

reform. The author proposes a more promising approach

based on a strategic outlook on research, development,

and procurement. While such an approach could prove difficult to sustain, working toward it could reduce the likelihood of more counterproductive policies. In the end, Dr.

Butterworth suggests that space programs are likely to

achieve innovation and cost control in the future as they

did in the past—through active government participation

and managed competition.

As with all Maxwell Papers, this study is provided in the

spirit of academic freedom, open debate, and serious consideration of the issues. We encourage your responses.

DAVID F. MacGHEE, JR.

Major General, USAF

Commandant, Air War College

iv
About the Author

Dr. Robert Butterworth is currently visiting professor of

international security studies at the Air War College. He

earned graduate degrees in political science from the University of California at Berkeley and was promoted and

tenured at Pennsylvania State University. He then moved

to the federal government, working variously in national

security affairs for the US Senate, the Department of Defense, and the White House. For the past 10 years he has

worked in the private sector as a consultant on space and

national security programs.

v
Growing the Space Industrial Base

Policy Pitfalls and Prospects

The Defense Department has long hoped that its needs

for space products and services could be supplied by an

industrial base that is sustained by commercial sales. That

day has not yet arrived, despite years of targeted purchases, investments, and acquisition reform. The beacons

of the past decade’s policy—competition and technology investment—cannot bring it to pass. A more promising approach is found in a strategic outlook on research, development, and procurement. Such an approach probably

cannot be sustained, but working toward it would reduce

the incidence of counterproductive policies. Future programs are likely to achieve innovation and cost control in

the same way that past programs did—through active government participation and managed competition.

The Monopsonist’s Lament

A condition of monopsony exists where a single buyer

dominates a market. Undersecretary of Defense for Acquisition, Technology, and Logistics Jacques Gansler points

out that the defense industrial base today is in an “unusual market condition of a monopsony buyer ‘controlling’

a few oligopoly suppliers.”1 Gansler is not the only defense

leader to have recently expressed monopsony-based concern about the defense-related space industry.2 It faces

three “tough challenges,” according to Gansler: “The demands for higher performance at lower cost; for competition; and for innovation.”3 The 1990s’ melange of industrial policy, corporate mergers, export controls, and

investment opportunities did not seem to be ensuring favorable answers, and the Defense Department’s largest

space supplier seemed to be stumbling badly.4

For most of the past decade, it has been an unquestioned tenet of national policy that defense budgets should

be used to influence industrial developments. The hope,

particularly after the Cold War, has been that defense

goods and services in general, and space activities in particular, will no longer be entirely separate from the rest of

1
the economy at large. Defense needs would therefore be

underwritten in several ways by commercial operations.

Unit prices would be lower, overhead cost allocations

would be lower, and modernization could take advantage

of market-driven and market-financed innovations. Commercial markets and defense programs would be bound

ever more tightly.

There is no doubt that policy can make a big difference:

public policy created the space industrial base and

strongly influenced its development to date. But, can policy make the difference that is desired? Can it make the industry healthy and gain efficiencies through competition?

The answer to the first question is “no,” but the Defense

Department can work to rectify policies that stymie commercial development. With regard to competition, the situation is even less clear, because in this sector there has

never been much of the kind of competition usually associated with commercial consumer markets. For market

and bureaucratic reasons, the future space industrial base

is likely to serve national security needs through a form of

limited competition that is closely guided by government

managers.

The Industrial Base Is Smaller

The 1990s brought a long-expected series of mergers

and acquisitions in the defense aerospace industry. The

end of the Cold War meant that defense budgets were sure

to change in composition and priorities and to grow slowly,

if at all. Companies reviewed their business plans, examined their expectations about competition, considered the

prospects for shifting to commercial markets, and—in

many cases—chose to leave the defense business.

General Dynamics (GD) provided one example: Chief Executive Officer (CEO) Bill Anders determined that commercial activities were not an option for his company. “Most

commercial production does not require the unique skills

of defense production or pay defense wage rates. . . . sword

makers are not good at making affordable plowshares.” In his

view, “the solution in both the public and private sectors of

the defense industrial base is a process I called rationalization. Rationalization means mergers; it means selling

2 SPACE INDUSTRIAL BASE 
and buying businesses; it means joint ventures; it means

shuffling ‘nameplates’ around; it means new, highly focused defense companies; it means the realignment of

public and private sector roles in the production and support of our nation’s weapon systems.”5 Anders concluded

that many defense product lines would never yield returns

that were as high as could be attained by selling those

lines to other companies. As he sold most of GD’s defense

and space operations, its stock soared.

General Electric (GE) followed a different logic but also

left the space market. CEO Jack Welch determined that

certain defense markets were worthwhile only if the company could be the dominant or nearly dominant provider

in them.

A Welch-like strategy led Martin Marietta in the opposite

direction; CEO Norm Augustine determined that his company, the sole provider of certain essential rocket and

satellite products, could become just what Welch proposed—the dominant provider for the national security

space market. Martin Marietta bought the space operations of GE and GD and subsequently merged with Lockheed, another major niche provider. Boeing, previously a

limited player in national security space markets, also

moved to become a dominant provider, acquiring Rockwell’s space operations, the entire McDonnell Douglas

company, and, more recently, the satellite manufacturing

business of Hughes.

These deals consolidated the space industry, and for a

few years they found support from the Defense Department.6 US defense strategy has long depended on scientific

and technological dominance, and the health of the industrial base is a time-honored concern of the department.

Consolidation promised to reduce excess capacity and so

bring lower overhead charges and higher efficiency and

productivity. The government might also save in contract

management expenses if fewer contracting entities and vehicles allowed administrative processes to be made simpler. In fact, the Defense Department is often seen as having fired the starting gun for the consolidation process.

During the spring of 1993, Secretary of Defense Les Aspin

and Deputy Secretary William J. Perry convened a dinner

meeting with the top executives of major defense companies.

BUTTERWORTH 3
Perry told the group that in terms of the government’s

plans and programs, the industry was substantially too

large and that the government would allow it to shrink (a

message that led one participant, Lockheed Martin’s Augustine, to refer to this session as the “last supper”).7

Five years later the pendulum swung back. Consolidation inevitably gave rise to worries about concentration,

and by 1998 the Defense Department took action to stop

Lockheed Martin from acquiring Northrop Grumman.8

Lack of competition was cited as a major worry. The department did not want to become captive to a single supplier for major items like defense electronics. Maintaining

competition, as the Undersecretary for Acquisition, Technology, and Logistics explained recently, “in many programs . . . means carefully considering industrial base

concerns as a key ingredient in shaping the acquisition

strategies. In others, it means taking an industry-wide

look at what current and future modifications, other programs, and research and development (R&D) efforts are

available—or potentially created—to maintain a sufficient

number of competitive firms in all critical areas.”9

Competition no doubt brings lower costs and better

products in many areas. It has not, however, been characteristic of the space industry serving the national security

community, where competition among suppliers has been

limited and episodic. Compared with other defense sectors,

there were relatively few new procurements in launchers

or satellites, and the products were “lumpy,” one-of-a-kind

goods. Companies thus tended to become niche suppliers.

It has been at least 20 years, for example, since operational US launch vehicles competed head-to-head for

launch business; instead, each fit a performance niche

and became the sole US provider for delivering particular

weights to specified orbits. (Recently this situation has

been changing in response to growth in the global launch

market.)

Security controls imposed further limits. During most of

the Cold War, most of the national security space dollars

were in the classified budget. For security reasons membership in the classified industrial base was controlled by

the government, as were the bidding, teaming, and subcontracting opportunities of particular companies. The

4 SPACE INDUSTRIAL BASE 
source selection process also limited the scope of competition. Typically the government required bidders to focus

tightly on specific performance issues, having used studies and requirements reviews to determine specifications.

Competition on broader issues, such as design approaches

or architectures, usually took place between the staffs of

the different government programs, rather than their industrial producers.

After contract award there was even less opportunity for

competing approaches to design, production, and management. Initial procurement decisions usually created a marriage between the company and the government that

lasted for the life of the program. Such marriages actually

characterize defense procurement in other major sectors,

as well. Gansler noted that “once the award is made to a

team, even though two or more major prime contractors

are involved, competition has been effectively eliminated,”10 resulting in a “dramatic shift . . . in relative bargaining power of industry and government.” He explained:

As long as the program remains competitive, the government, being

a monopsony buyer, is in a strong bargaining position and can play

the contractors against each other to extract promises of high performance, low cost, and early delivery. But once the winning development contractor is announced, the . . . sole-source supplier is in

an increasingly powerful position. As time goes on, the government

becomes more and more dependent upon this contractor for a

product that is (or is believed to be) badly needed and for which no

substitute could be developed in less than seven to ten years. From

this point on, the contractor is in a position to go to the government

with “explanations” of “government-introduced” problems that are

increasing costs, causing delivery delays, and so forth, and to bargain for increased prices.11

Nor was there much opportunity in the classified space

world to introduce competition in production. Total lifetime quantities for even longstanding programs might

amount to fewer than 20 units (often far fewer). In principle, bloc changes provided an opportunity to recompete a

program and bring in new approaches. In practice, only

once in the first 30 years did a competing incumbent fail

to win the follow-on contract.

Altogether it might have been expected that the lack of

competition would have stifled innovation across the

board. Yet the record is quite the opposite. Government

and industry teams produced a cornucopia of successful

BUTTERWORTH 5
innovations from concept development through design,

manufacture, launch, operations, and management. This

record was sustained for over 30 years.

Under some circumstances, competition among suppliers can be beneficial. Indeed, where government involvement is limited to traditional oversight and regulation,

competition may be the only hope. As argued in opposition

to Alliant TechSystems’s planned acquisition of Olin, cost

controls and auditing rights are a poor substitute. In general, they “cannot deliver the important non-price benefits

of maintaining competition.”12 Considerations of innovative design and technological advancement are important

at design and development stages, and “in the absence of

competition, it is difficult, if not impossible, to estimate

what type of advancements a competitive marketplace

would have produced.”13

Under other circumstances, competition seems to be

neither sufficient (because there are many ways to compete) nor necessary for meeting the government’s cost and

performance criteria. The record of innovation and performance suggests that, for the space industry, an engaged

and informed government—a “realignment of public and

private sector roles”—is the key to success. Competition itself has little to do with the economic incentives that oppose innovation in the defense business.14 As Gansler

noted, the difficulty arises from the relative inelasticity of

demand in defense work, which means that innovations by

and large cannot stimulate new demand, because the

amount of products to be procured “is a function of the

force structure, not of cost or performance. Thus, technological advances that originate in the civilian sector are

likely to be immediately applied in that sector, with very little thought given by the firm to military application. Only

much later is it likely that a defense-oriented firm might

pick up the idea and perhaps begin to apply it.”15

An Enclave Economy

Along with the innovation and cost control that were

presumed to flow from competition, the Department of Defense (DOD) wanted an industrial base with the capacity to

meet national security needs. It would be particularly helpful

6 SPACE INDUSTRIAL BASE 
if commercial operations could in effect underwrite national security acquisitions. A robust commercial market

could be expected to bring the defense programs better

technologies at lower prices—the benefits presumed to flow

from competition among suppliers and from demand much

broader than government orders. Research and development done for commercial advantage would be available

for defense customers as well, and products and services

would reflect price competition in open markets, which

over the long run, for defense as for other customers,

would reflect lower marginal costs.

The commercial space market has not yet displayed

such vitality on the schedule and with the breadth to help

defense acquisitions very much. Commercial demand can

change more quickly than government programs, and so

forecasts of the commercial market—and thus of industrial

base capacity—are themselves more volatile. During

1997–1999, for example, it had been widely asserted that

demand for launchers would exceed supply over the next

10 years. By the end of 1999, projections were more pessimistic as observers were again reminded that commercial space operations are almost entirely a derivative of

telecommunications markets.16

A second profitable activity could help insulate the

space market from developments in telecommunications.

To date there has been none, but with Space Imaging, Inc.

now in operations there is at long last a market test of the

commercial prospects for high-resolution imagery from

satellites. Even if demand proves strong, however, it is not

expected to support more than a couple of providers.

Could defense policies and budgets foster a bigger commercial industry? No one doubts that DOD’s influence on

the space industry is basic and pervasive, and it has long

been hoped that it could trigger commercial developments

that would grow and become self-sustaining. Under an ideal

scenario, a happy symbiosis might start with a defense

contract to a small company to conduct research and development. If the results are successful, DOD might then

buy the first production units, which would allow the company to improve manufacturing technology and reduce costs

of production. The resulting lower unit costs might allow

the product to attract more users, effectively expanding its

BUTTERWORTH 7
market and bringing in ideas about new applications and

after-market or downstream goods and services. Demand

might continue to rise as users become more familiar with

the technology and it finds widening applications in DOD

and commercial markets. The resulting increase in production could further reduce unit costs, creating a virtuous circle of wider applications, increased demand, reduced production costs, and further market growth. Entry

into international markets could soon follow, with foreign

companies finding themselves chronically behind the pioneer’s pace of enhancement and innovation.17

Defense production has rarely matched this picture.

Technology is advanced, but commercial applications,

when they occur, are usually developed by other companies that are not primarily in the defense business.18 In

fact, DOD’s patronage, while helping to accelerate technology development, has often channeled companies away

from commercial activity. A very different economy then

results. In place of a virtuous circle of increased production, lower costs, wider applications, and increased demand, there develops a vicious cycle of low production and

low demand. Without the scale and diversity of applications offered by commercial markets, advances come

much slower, if at all, in production technology, new revenue, and learning; decisions about alternative approaches are foreclosed earlier; and specification and documentation come to replace market testing. In this

situation, learning is impeded and costs of production increase, bringing reduced demand and hence further decreases in production. Each unit that is produced thus becomes relatively more valuable, and so development comes

to feature “heroic testing” and ever more extensive documentation and specification. These factors, in turn, further

increase unit costs.

The usual result is a narrow and dependent industrial

base. Note that the deficiency here is not just economic. A

vicious cycle causes DOD to pay more for less, but such

fiscal inefficiencies could, in principle, be remedied by

money alone. The greater handicap is the loss of industrial

development—the means that produces better technology

for the government and more wealth for the nation.

8 SPACE INDUSTRIAL BASE 
How can the vicious cycle be overcome and the virtuous

circle be inspired to multiply? Policy researchers have

wrestled for decades with these issues. Innovation has

been of particular concern, because of the strategic importance of superior science and technology. Research and

development programs were funded on a nearly crash

basis after Sputnik, and over the next decade or so the federal government, especially the Defense Department, became the dominant source of funding. Toward the end of

the 1960s, a number of studies tried to determine which

management approaches were more productive.19

Later, during the mid-1980s, attention turned to the

links between defense programs and commercial activities.

At the time, many observers believed that US high-technology industries were being eclipsed by Japan and Germany. Ways in which DOD’s policies and budgets might

enhance the defense industry’s commercial competitiveness were studied extensively, and much of this work

seemed immediately applicable a few years later when the

end of the Cold War portended a major consolidation of the

industrial base. The salient reports featured lists of technologies, or technology areas, in which further investment

would apparently strengthen the economy and the defense

industrial base.20

These studies produced recommendations about research and development, but such programs themselves

do not strengthen the economy or enhance competitiveness unless the vicious cycle is broken and the new technologies gain commercial life. Hence, the keys to quality

industrial development—innovation and efficiency—were

to be found, many argued, in permitting (or creating) commonality between the defense economy and broader commercial markets. “While the industrial base specializing in

defense production will contract, DOD must ensure that it

can draw on the capabilities of a diverse industrial base

that maintains technological leadership and remains efficient and productive. Increased industrial base planning and

more flexible production capabilities will be required.”21

During the 1990s, DOD aggressively set out to attack

the barriers that separated its industrial base from the nation’s broader commercial economy. As Deputy Secretary

John Deutch argued, “First, we can no longer afford the

BUTTERWORTH 9
extra cost of maintaining a defense-unique technology and

industrial base. Second, we find in many fields vital to defense that commercial demand—not defense demand—is

driving technological innovation.”22 Indeed, integrating defense acquisition with the economy at large was adopted as

“the foundation for a 21st-century defense technology

strategy.” This foundation was to be constructed using two

major approaches. One was to reform the defense acquisition

process, which was biased against the use of commercial

processes and products within defense systems. The second was to focus more defense R&D on dual-use products

and processes, emphasizing the need to achieve advances

in high-tech defense systems that are affordable.23

The second approach was something new. Programs to

reform DOD’s acquisition process had proceeded fitfully

for nearly half a century, but the notion of commonality

between the defense and broader commercial sectors had

never been given such emphasis. The Clinton administration directed that some of DOD’s budget for science and

technology be used “to stimulate the transition to a growing, integrated, national industrial capability which provides the most advanced, affordable, military systems and

the most competitive commercial products.”24

This policy was undertaken in the context of a larger

“national strategy for commercial technological advancement as part of a defined national economy policy. To accomplish this, there has been increased direct federal

funding for ‘industry led’ technology programs (with

matching private sector commitments); augmented cooperation between all levels of government, industry, and academia; a move from defense R&D funding toward civilian

R&D support; and a shift of emphasis from basic research

toward development of commercial products and

processes.”25 This effort, the Technology Reinvestment

Program, was every inch an industrial policy—its goal was

not to develop technology but to “stimulate integration of

the defense and commercial industrial bases.”26

As it turned out, this goal was more technically challenging and less politically accepted than had been expected; the program went nowhere and was effectively gutted in 1994.27 The rhetoric returned, however, notably in

then-Deputy Secretary John J. Hamre’s agonizing over the

10 SPACE INDUSTRIAL BASE 
health of the space industrial base. “A ‘hothouse’ industry

will fail,” he warned. “America’s defense companies [must]

focus on becoming competitors on the world stage. The Defense Department is therefore . . . working to remove the

rules, regulations, and accounting restrictions that inhibit

innovation, efficiency, and competition . . . increasingly

turning to off-the-shelf technologies and a commercial-like

acquisition approach.”28

No program has yet been announced to address Hamre’s

concerns. The remedy will require something different

from the earlier industrial policies, and it will have to go

well beyond acquisition reform. Hamre’s illustrations

notwithstanding, it is clear that defense industries are separated from their commercial cousins by more than “rules,

regulations, and counting restrictions.” The defense industrial base effectively consists of an oligopoly serving a

monopsonistic purchaser, selling products that have not

previously been designed and/or for which there is no production experience, at prices for which there is little precedent. Typically the sellers must meet an intense initial demand, following which the market virtually disappears.

They are funded by programs that change unpredictably

and can be canceled suddenly. Their ultimate profitability

might not be known for a decade.29 They grow apart from

commercial companies in dozens of ways, resulting from

several influences

• acquisition laws, regulations, and culture;

• the culture of public sector acquisition organizations;

• the ways in which standards and specifications are

developed and maintained;

• the aspects of military technologies, products, and

services for which there is no commercial counterpart;

• the need to produce orders in commercially uneconomical quantities;

• the emphasis on performance and quality over cost;

• the need to protect classified information;

BUTTERWORTH 11
• the requirement to implement a variety of public policies (buy American, equal employment, depressed

area assistance, prevailing wage, environmental, etc.);

and

• the lack of market-derived information for decisions

about design, cost, and performance.

Salient differences between defense- and commercialoriented companies can be summarized as shown in Table

1.30 These summary descriptions are meant to characterize broad differences in circumstance and orientation; particular situations may differ. For example, commercial

space products are high technology, in the main; and certainly there are commercial markets in which competition

is limited or effectively absent.

12 SPACE INDUSTRIAL BASE 

Table 1

Comparing Commercial with Defense Orientations

Aspect Commercial-Oriented Defense-Oriented

Products Low technology High technology

Market structure

• Demand Competitive Monopsonistic

• Supply Competitive Oligopolistic

Prices Constrained by market Determined or influenced

competition by government

Outputs Constrained by market Determined by governcompetition ment

Financing Security markets Federal government

Burden of risk Borne by the firm Divided between government and the firm

Managerial Relatively wide Severely constrained

discretion

Profits Constrained by market Regulated via contract

competition

Source: Murray Weidenbaum, Small Wars, Big Defense (N.Y.: Oxford University Press, 1992).
An Industry-Strategic Approach Could Help

What is needed is a way to sculpt the capstone of Anders’ prognosis: “the realignment of public and private sector roles in the production and support of our nation’s

weapon systems.” Martin Libicki argued for doing so by

developing an industrial strategy that went beyond industrial policy to ask how defense R&D could “be used to foster not only technology but also the industry that could

sustain the technology. The two are not the same; the latter question must entail market structures and inclinations.”31 This approach would have defense programs supporting industrial development, beginning with R&D and

extending through establishment of products and services

in domestic and international markets.

The strategic approach might proceed in the way

sketched in Figure 1. The process might begin with DOD

funding innovative R&D activities in ways that encourage

broad participation. It might, for example, seek out nontraditional defense suppliers, particularly those that seem

eager and well suited to conduct commercial operations,

and also change bidding procedures to be less restrictive

BUTTERWORTH 13

Source: Martin Libicki, “What Makes Industries Strategic?” (Ft. McNair, Washington, D.C.: McNair Papers, 1989).

Figure 1. Illustrative Industry-Strategic Approach
and burdensome. It might also sequence its requirements

so work could proceed first on elements that promise

higher commercial potential, and specifically, military aspects could be developed later.

Sequencing would also be important during the next

phase, when the innovation has been developed into a

product. The outlook, again, is not just acquisition but acquisition in a way that fosters commercial success. The

strategic aim at this stage is to allow learning-curve

economies to develop, to preempt the low quantity/high

cost vicious cycle. DOD would thus try to structure a procurement approach that allows the company to build scale

in production. Options might include production of spare

parts, upgrades, small initial systems, or components and

subassemblies for backfitting into fielded systems. It might

also be helpful to fund research and development on production technologies, and to allow some flexibility for

tradeoffs in meeting design specifications.

Finally, as the company found success in the domestic

commercial market as well as in supplying DOD, it might

start selling abroad. At this stage defense can help by ensuring that its interests are considered in policy concerning international trade, standards, technology transfer,

and foreign investment.

In effect this approach would foster commonality between defense and commercial industrial bases where it is

possible and sensible to do so. The defense sequence still

begins with requirements that call for high risk (and high

gains) development and ends with the deployment of a system. The commercial sequence still begins with marketbased, short-term requirements and ends with market

share. In between there can be opportunities for common

R&D, for learning-curve production, and for refining designs and operational concepts.32 This strategy will not

work across-the-board, of course; some developments, like

satellite-based telecommunications services, are easier to

integrate than others, as shown in Figure 2.33

But Execution Is Too Hard

As a practical matter, it is not reasonable to expect DOD

to execute a full-blown industrial strategy. To do so the

14 SPACE INDUSTRIAL BASE 
government would need to make accurate predictions

about developments that might result from state-of-the-art

technology and volatile capital venture markets, all with no

particular methodology or insight. Even organizations that

specialize in doing so find that failure is common; Japan’s

Ministry of International Trade and Industry and Wall

Street’s venture capitalists have been successful less than

half the time. But those groups are in the “winner picking”

business for a living—they are endorsed by their backers

and directors; their efforts can be sustained for the unpredictably long time that might be required; and success can

be measured by the present value of fungible dollars.

The difficulty, in fact, runs even deeper, and flows from

the character of DOD as industry’s customer. DOD’s demand for industrial output is defined by a requirements

process that addresses military needs, not economic development, and it has no systematic way to examine tradeoffs and establish priorities for industrial base investment.

Moreover, because the Defense Department is a monopBUTTERWORTH 15

Amenable to Integration

More Less

Fills a similar defense and Has no related commercial

commercial need variant (esp. weapons)

Readily customizable from ––

commercial goods/services

Processes similar to Process is specialized for

commercial processes performed or security reasons

A service. ––

Sourced from a lower tier Sourced from a higher tier,

(subcomponent, commodity) especially at the prime integration

level

Economically viable volume/ Noncommercial volume/uneven

predictable rates rates

Commercial technology leads Defense technology leads 

defense technology commercial technology

Source: Office of Technology Assessment, Building Future Security, 1994, 10.

Figure 2. Integration Potential
sonist, its preferences are not strongly disciplined by market information about supply, alternatives, or cost.34

In the case of flat panel displays (FPD), for example, the

Defense Department set out to build a market of “responsive suppliers who will customize commercially derived

technology to produce displays that [meet military operational needs].”35 Deputy Secretary Deutch explained that

the department “should look to a healthy domestic commercial sector for the capabilities to meet its critical requirements rather than utilizing the traditional defense

model of financing both technology and production using

a dedicated supplier base.”36 Yet at the same time, outside

analysts concluded that it was still unclear whether “military and commercial FPD products share enough of a common technology and manufacturing base that the FPD Initiative will provide benefits to both sectors.”37

Still, there remains a strong attraction to the possibility

of building an industry by priming the pump with selected

investments in technology development; indeed, Administrator Dan Goldin has made doing so a primary mission for

the National Aeronautics and Space Administration

(NASA). Facing stingy budgets and mounting requirements, government programs understandably hope that

commercial space markets will help them do more with

less. A rationalization of the division of labor between public and commercial programs holds out the promise of

making government budgets more efficient. In pursuit of

this goal, technology development managers in NASA and

DOD have been urged to shift resources out of programs

where there is considerable commercial research under

way (such as software for software development) and apply

them to others where the need is more particularly governmental (such as radiation hardening).38 Rationalization

of this type can yield benefits for public programs and private companies alike.

Pursuing these benefits when commercial activity is less

mature, in a kind of anticipatory rationalization, is a speculative activity that seems sure to distort investment patterns in both the public and private sectors.39 The possibility is very seductive: Certain program goals that are too

ambitious for today’s budgets might be affordable tomorrow if commercial markets were to develop in certain ways.

16 SPACE INDUSTRIAL BASE 
Hence the temptation is to use current program funds as

investments that might enable commercial activity that

might in turn create the conditions for rationalizing public

and private budgets and programs in the future.

While often represented simply as technology development or industrial partnering, efforts along these lines

amount to a pure exercise of industrial policy, an effort to

use public funds to direct and shape commercial markets

that are undeveloped or even speculative. This is not necessarily a mistake in principle; there are inefficiencies in

both markets and governments. With regard to space technologies, however, the government is trying to do things in

a way that is particularly difficult for it.

One problem is that the government has difficulty in

knowing what it wants, because “it” is often a congeries of

competing organizations with incommensurate goals. The

national security accounts, for example, are wrestling with

the price of autarky. The demand for the services of the

Cold War inventory has declined in the face of reduced military competition, improved nonspace opportunities for

collecting information, and the inability of space systems

to meet new collection challenges. At the same time, critical military activities increasingly depend on space systems for several functions, including command, control,

communications, navigation, weather, strategic and tactical intelligence, and search and rescue. Most of these

functions can be provided to some extent by commercial

systems as well, and the government can reasonably expect to buy more capability with fewer dollars if it can piggyback on commercial operations.

Commercial operations, however, raise worries about

performance and security—the inability of market-oriented

systems to meet the full range of military requirements,

and the difficulty of controlling access to services and

products in the stream of commerce. Where does “real” security lie? How much regulation of what sort can commercial planning accommodate? How meaningful is the possibility of foreign competition? Questions like these can

trigger difficult and extended policy debates, as seen for

example in the extended wrangling over selective availability for the Global Positioning System, commercial remote

sensing, and space launch partnerships involving foreign

BUTTERWORTH 17
entities. So long as different offices and agencies try to enforce different positions, commercial development is

stymied. A viable business plan requires a more coherent

and stable policy environment.

The government’s current organization, moreover,

makes it more difficult to resolve such problems. The Clinton administration abolished the Space Council and relegated the subject to a jobs portfolio within the Office of Science and Technology Policy’s gosplan-like effort to plan

and manage all research and development programs

across the government. But market developments outstripped this approach: space is no longer exclusively an

issue of science and technology. An office focused on those

subjects would not today be the natural venue for resolving questions about markets and security and investments

and operations. Rationalizing government with commercial

activities, in other words, is more than a process of acquisition reform. It requires strategic direction, the realignment

of goals and resources—serious organizational change.

The second problem is that the government can virtually

never know how to invest in order to reach the desired

market outcomes. The Defense Department has a good

record of developing basic research and technology programs. But to enable future markets, how much should be

spent on what? This problem confronts commercial entities as well, but their close planning horizon and defined

market objectives make it much more tractable in that

venue. Commercial incentives lead companies in the market sector to pay for research that can affect products in

the market in the very near term (36 months in many

cases). Moreover, the commercial efforts start with market

assessments and a business plan, while the government

side typically starts with a desired product and a technology roadmap.

The government’s problem actually runs even deeper,

because the links between today’s basic research and

technology development and tomorrow’s products and

services are generally unexpected, indirect, and visible

only in hindsight. Hence lists of “key” technologies or desired battlefield capabilities are of limited usefulness for

planning research and technology programs. These lists

are fundamentally opinion polls, registering predictions

18 SPACE INDUSTRIAL BASE 
about developments that might result from additional

funding for state-of-the-art technology. Reflecting little investigation or analysis of the research and development

process itself, such predictions can only be hit-or-miss, no

matter how expert and widely shared. Between the systems

of the future and the research of today lie years of uncertainty and change in commercial markets, domestic politics,

international affairs, and science and technology. When

will new materials and processes be discovered, and when

will they be mature enough for applied technology? Will

there be the need, resources, and organizational support

for initiating an acquisition that will employ the technology?

In some recent cases the government’s course has been

even more chancy, because it has linked programs with a

commercial partner. The approach in general has been to

provide government funding for nonrecurring costs in the

hope that the development program would prove successful and the industrial partner would then commercialize

the product. NASA has taken this approach with its X-33

and X-34 reusable launch vehicle programs, and in the

past few years has embraced it as a principal means of developing advanced technology.40

The difficulty for the government program is that industrial contributions will depend on markets and income

statements, and commercialization is a business decision.

The fiduciary responsibility of the corporate partner will

compel timely reviews of the business plan as work progresses and markets change and other opportunities develop. If the company opts to forego commercialization, the

government’s investment may be lost (unless some nonproprietary technology of general applicability has been

developed). If commercialization is successfully pursued,

the government will find out whether it can capture the

benefits it anticipated from enabling the market. Even

then, the public investment might turn out to have been

superfluous. The goals of the Defense Department’s

Evolved Expendable Launch Vehicle (EELV) program, for

example, might have been realized in response to opportunities in the telecommunications market, quite independent of government funding.41

Hence this “shared venture” approach imposes market

risks on top of the technical, budget, and schedule risks of

BUTTERWORTH 19
conventional development approaches. How is government

to assess and manage those? And if more than one company bids to be the “venture partner,” the government

must choose among competing market assessments. How

is it credibly to do that, to make the very type of choice for

which the commercial markets seem particularly efficient?

Other efficiencies are also lost if government participation

serves to blunt competitive incentives.

This type of industrial policy can seem to offer a means

of stretching budgets, but it really amounts to a ticket in a

lottery of which the size, risks, and payoffs are unknown.

Moreover, the ticket’s price will probably increase over time

as normal bureaucratic incentives come into play. Among

other problems, there is simply the matter of market maturity. Empirical information about commercial returns

becomes available only through market activity, and the

government must act without such information if it invests

before the market is tested. Without this information it is not

possible to determine which mix of government and commercial activities would be efficient. This limitation applies

even where technology development is left entirely in private

hands. The Iridium gateway purchased by the Defense Information Systems Agency, for example, might have turned

out to yield several benefits, although in fact it proved to

be a costly loss. The point is that there was no way for the

Defense Department to evaluate the benefits, costs, and

risks at the time that it made the decision to invest.

When the government adopts the role of piece-part technology developer, it effectively vacates its responsibility for

meeting future requirements.42 There is no argument that

the government should not compete with commercial

providers, as NASA did in launch activities during the early

days of the space shuttle program. But there also has been

no argument, somehow, about allowing the prospects for

future national capabilities to ride on the income statements of a commercial enterprise.

The technology piece-part tactics, moreover, have been

implemented in ways that make the vicissitudes of commercial markets even more important. The use of cooperative agreements for “industry-led” development programs

can help to ensure that the government invests in work

that companies think will have relevance to commercial as

20 SPACE INDUSTRIAL BASE 
well as government requirements. But they do not ensure

that the work stays particularly relevant to government requirements. Having installed industry in the driver’s seat

of these programs, it has been difficult for NASA and the

Defense Department to institutionalize them, and the programs typically display episodic shifts in emphasis and frequent revisions and restarts. In addition, their program

funds are easily diverted for the needs of programs more

organically rooted in the government agencies.

Furthermore, this approach keeps the commercial partner from focusing exclusively on solving the technology

puzzles. Instead, it must also ensure that its research

proves right the first time, or nearly so, and that nothing

happens during test and development that could engender

liability issues. These difficulties arise because the government typically participates in these cooperative agreements only to some preset amount, which effectively converts the industry’s effort into a firm-fixed-price

development contract—the same mechanism that so weakened the defense contractor base during the 1980s. For

this kind of contracting approach to make sense, the degree of difficulty in the program must be quite limited;

solving unknowns cannot be accurately priced unless the

character of the unknowns is fairly well known. Or, to

make the point more broadly, if the path to the innovation

and its market importance are understood well enough, its

development will likely be underwritten by private capital.

If government funding is needed, the path and the market

(or both) are likely to be less clear, and a fixed-price development contract would be inappropriate.

This approach further reduces the government’s influence over time because government agencies will find it

more difficult to recruit talent and build experience. Under

the “industry-led” development programs, the government’s personnel have a role that is quite limited and more

advisory than directive: the commercial partner makes decisions about program pace and risk. Over time the government will then have fewer and fewer people with direct

experience in systems development, and the appeal of government work in this sector will diminish.

In summary, the government might do well in seeking to

rationalize its current research and technology programs

BUTTERWORTH 21
in light of ongoing activities in the industrial base. There is

no analytic basis for going further, however, in an attempt to

help rationalize future programs; doing so simply outstrips

the government’s capabilities. Essentially it requires the

government to do a market’s job before the market exists.

Under such conditions, the goal of future efficiency cannot

be efficiently achieved. The issue here is not simply the

volatility of commercial development efforts, where stock

prices can drop 25 percent in one day on the news of hardware failures. It is rather that government programs aim at

developing capabilities in response to defined requirements, while commercial programs aim at developing profitable business lines in response to perceived market opportunities. Commercial companies can do an excellent job

of technology development, but they can act only in response to market circumstances or on contract to the government. If the country really needs an operational system, the government will have to pay for it.

Prospects

Defense money and policies can help industrial development proceed along the path from innovation through

learning curve production to domestic and international

market success, but the government’s contributions cannot be systematic. The practical consequence, as Libicki

noted, is that “in America, industrial strategy creates perspectives, not plans, because its economy is not very well

organized (nor should it be) for top-down control. We lack

the Soviet command structure, the Japanese consensus

process, or the German cartel arrangements. We have, instead, the world’s best-distributed information-processing

network, and we should use it as such.”43

Present circumstances seem ripe for the growth of industry-strategic perspectives. There is agreement between

companies and the government that the industrial base

needs help and that planned procurement budgets will not

improve the situation. There is an experience base of several years during which different approaches to industrial

policy have been tried. There is no compelling external

threat that would preempt efforts to change proven procurement practices. And the current undersecretary for

22 SPACE INDUSTRIAL BASE 
acquisition, technology, and logistics has made industrial

base issues his life-long study, which may make it easier

to sustain the attention needed to develop and implement

new policies.

These elements make possible a number of improvements. The industry-strategic orientation recommends

that the government pursue the Internet model, rather

than centralized direction, as much as possible, forging research and development strategies that encourage decentralization, openness, and participation. The goal is to increase the opportunities available for innovation in

products, processes, applications, and organization. For

example, the Defense Department might try to:

• Expand the solution set, by posing research and development problems of strategic significance but fractionating them into smaller work packages, delaying

as much as possible the time of major contract award.

Doing so can encourage more, and more diverse,

companies to participate, thereby broadening the innovation base, increasing the information flow to the

government, and stimulating competition in concepts

and technologies. Consistent with security procedures, this process should be global in reach. The policy of consolidating support contracts should be reexamined in this light as well.

• Promote learning-curve production, by encouraging early and partial applications of innovations.

Early production might also be increased by funding

requirements for backfitting and spares. Doing so can

reduce costs, increase the range of applicability for

the innovation, and develop information for refining

design and operational concepts.

• Facilitate market growth, domestic and foreign.

Particularly with space systems the intrinsically dualuse nature of the product calls for careful security review, but the industry is also easily damaged by inconstant and unpredictable government policies.

Predictable, timely, dependable government policies

could help the industry grow, maintain its position in

international markets, and provide a richer base for

BUTTERWORTH 23
meeting future national security requirements. With

regard to launch, the Defense Department could revise

space launch and range structures and processes to

better address commercial needs.

• Fund defense needs through the defense budget,

rather than seeking “partnering” arrangements with

industry. The temptation in recent years has been to

create a relationship in which the government pays

for nonrecurring developmental costs in the expectation that the company will then pay for the tooling

and production to sell the innovation commercially.

In practice such arrangements distort incentives and

planning factors for both government and industry,

while the partnership is virtually doomed by the incommensurate decision contexts of the two sides (requirements and public budgets vs. business plans

and markets). NASA’s funding of the X-33 is a recent

case in point, as is the Defense Department’s flat

panel display initiative and its rocket-development

subsidy to encourage Boeing and Lockheed to build

an EELV.

Recent defense policy is in many respects consistent

with these directions. Searching broadly for information

and advice about policies and structures can help counterbalance the inherent centralizing, directive impulses of

the government’s bureaucracy.44 New acquisition tactics,

like those in the “DD21” program reform initiatives, can effectively fractionate procurements and encourage wider

participation in developing options for design, production,

and management. Efforts to competitively source all noninherently governmental work and to attract small, hightechnology, innovative companies might effectively expand

the domain from which defense planners could draw research and development options. Efforts to reduce costs by

using flexible contracting mechanisms and simplified requirements might do the same, as could the interests in

building allied interoperability through shared industrial

structures.

These measures could help improve considerably the

health of the space industry and the prospects for innovation. But there is not very much that defense policy alone

24 SPACE INDUSTRIAL BASE 
can do to develop a strong commercial base for its needs,

and only small changes can be expected from efforts to

blend the military and commercial economies. Integration

is most likely to continue as before, where it makes

sense—at the component or subsystem level, and where

production technology is sufficiently flexible to adjust

specifications on the same manufacturing line. The industry will benefit defense programs in the future as it always

has—with the government providing resources and direction for meeting government needs.

Notes

1. Jacques S. Gansler, Undersecretary of Defense (Acquisition, Technology, and Logistics), “The Defense Industrial Structure in the 21st Century,”

remarks prepared for delivery at the American Institute of Aeronautics and

Astronautics Acquisition Reform Conference, 27 January 2000.

2. For example, Stan Crock, “Reveille for Government Arsenals?”

Business Week, 10 January 2000; “Pentagon to Review Its Policy for

Weapons Procurement,” Wall Street Journal, 21 January 2000; “Pentagon

Panel to Study U.S. Arms Acquisition,” Reuters, 21 January 2000; “Pentagon Seeks to Aid Defense Contractors,” Washington Post, 8 February

2000, E01; “U.S., Britain Set Defense Agreement Boosting Trans-Atlantic

Business Ties,” Wall Street Journal, 8 February 2000; “Pentagon Board

Urges Fix for Defense Industrial Base,” and “Brain Drain Threatens Aerospace Vitality,” Aviation Week and Space Technology, 24 April 2000.

3. Gansler.

4. For example, “Lockheed Plans Management Layoffs Among Latest

Restructuring Moves,” Wall Street Journal, 25 January 2000; “Lockheed

to Reorganize, Cut 2800 Jobs,” Washington Post, 28 January 2000, E03;

“Executive Pushes for Turnaround at Colorado Lockheed Martin Plant,”

Knight-Ridder/Tribune Business News, 4 February 2000; “Lockheed

Withholds Bonus for Chairman; Coffman Foregoes Cash, Wins Praise”

Washington Post, March 23, 2000, E01; “Lockheed Martin’s Latest Space

Setback,” Aviation Week and Space Technology, 10 April 2000, 22. A different view was offered by Loren Thompson, “Lockmart in Decent Shape,”

Aviation Week and Space Technology, 6 December 1999, 8.

5. William A. Anders, “Revisiting the Rationalization of America’s Defense Industrial Base—Ensuring Public and Private Sector Efficiency and

Adequacy for Future National Security,” address to the Aerospace Industries Association Human Resources Council, 27 October 1992, 4.

6. “Lockheed Martin Corporation acquired 26 different companies.

Today, Boeing Co., Lockheed Martin, and Raytheon Co. account for 70

percent of the nation’s military business.” “800-Pound Guests at the Pentagon,” “Week in Review,” New York Times, 15 March 1998.

7. Norman R. Augustine, “Reshaping an Industry: Lockheed Martin’s

Survival Story,” Harvard Business Review, May–June 1997, 85.

BUTTERWORTH 25
8. “Lockheed Drops Its Bid For Northrop,” Business Week Online, 16

July 1998; http://www.businessweek.com/bwdaily/dnflash/july1998/

nf80716e.htm.

9. Gansler, 4–5.

10. Jacques Gansler, The Defense Industry (Cambridge, Mass.: MIT

Press, 1980), 77.

11. Ibid., 78.

12. Defense Science Board, Antitrust Aspects of Defense Industry Consolidation (Washington, D.C.: Department of Defense (DOD), Office of the

Undersecretary of Defense for Acquisition and Technology, 1994), 14.

13. Ibid., 28.

14. Nevertheless the classified space programs, in my view, represent

a historical pattern of innovation from new combinations in response to

policy and organizational circumstances that is Schumpeterian in nature.

This approach differs from the common neoclassical perspective, such as

that referenced in the immediately following footnote, most significantly,

I believe, in its focus on the future, developmental importance of economic networks. This question is important because the different perspectives indicate sharply different options for government policy. See, for

example, Giovanni Dosi, “Economic Change and Its Interpretation, or, Is

There a ‘Schumpeterian Approach?’ ” in Arnold Heertje and Mark Perlman, eds., Evolving Technology and Market Structure (Ann Arbor, Mich.:

University of Michigan Press, 1990), 335–41.

15. Gansler, Defense Industry, 305. But he also argues that “in general, competition appears to favorably affect prices and quality in the defense sector. As for quality, a primary value of competition is the stimulation it provides to technological innovation. It is absolutely essential

that competition be maintained, at least in the R&D phase, in order to

continue to advance military technology. Perhaps by separating R&D

from production it might be possible to have the best of both of these alternatives—technological competition in R&D and price competition in

production,” note 33, 298. The “separation” idea was advanced by Defense Secretary Aspin but proved unhelpful; innovation can draw inspiration from both pure research and from production technology, and

quantity production itself often requires innovation.

16. For example, James Asker: “With the space telecom market

emerging slower than expected, [said Richard D. Stephens, vice president

and general manager of Boeing Reusable Space Systems], we anticipate

that launch supply will soon—if it already hasn’t done so—exceed launch

demand,” Aviation Week and Space Technolgy, 1 November 1999, 21;

Peter S. Goodman, “New Launch Attempt for Satellite Phones,” Washington Post, 18 January 2000, A3; “10-Year Commercial Satellite and

Launch Vehicle Market Forecast: No Growth Anticipated,” Aviation Week

and Space Technology, 10 January 2000: “A dearth of near-term commercial launches has raised concerns within the Air Force, Boeing, and

Lockheed about the health of the [EELV] program in the next couple of

years”; “A new era of prosperity in space may be taking a pause as the industry sorts itself following the Iridium debacle, reassesses some practices, and deals with overcapacity and the flight of money and talent,” Aviation Week and Space Technology, 10 April 2000, 34.

26 SPACE INDUSTRIAL BASE 
17. This discussion is drawn from Martin Libicki, What Makes Industries Strategic? (Ft. McNair, Washington, D.C.: McNair Papers, 1989).

18. For example, one of the defense systems with the most widespread commercial applications ever is the Global Positioning System.

The satellite builders, however, are not the companies providing the products and services for automobile navigation, communications synchronization, mapping, and the rest.

19. For example, Edwin Mansfield, ed., Defense, Science, and Public

Policy (New York: W. W. Norton & Co., Inc., 1968); Chalmers W. Sherwin

and Raymond S. Isenson, “Project Hindsight: A Defense Department

Study of the Utility of Research,” Science 156:3782 (23 June 1967), 1572;

and others cited in Hans Mark and Arnold Levine, The Management of Research Institutions: A Look at Government Laboratories (Washington, D.C.:

Government Printing Office (GPO), 1984), esp. chap. 5, “The Structure of

Technology Development Laboratories.” Mark and Levine concluded that

“the more complex the task of technology development becomes, the

harder it is to assert that there is one best form of organization to get the

job done. The fact is that there are many ways of doing research and technology development and all of them may be appropriate, depending on

what is to be done,” 109–10.

20. For example, Carnegie Commission on Science, Technology, and

Government, Science, Technology, and Congress: Organizational and Procedural Reforms (New York: Carnegie Commission, February 1994);

Council on Competitiveness, Industry as a Customer of the Federal Laboratories (Washington, D.C.: Council on Competitiveness, 1993); National

Science Board, Committee on Industrial Support for R&D, The Competitive Strength of U.S. Industrial Science and Technology: Strategic Issues

(Washington, D.C.: National Science Foundation, August 1992); Office of

Science and Technology Policy, Report of the National Critical Technologies

Panel (Washington, D.C.: Department of Commerce, National Technical

Information Service, order number PB91–156869, March 1991); Office of

Technology Assessment, Building Future Security: Strategies for Restructuring the Defense Technology and Industrial Base, OTA-ISC-539 (Washington, D.C.: GPO, June 1992); Office of Technology Assessment, Redesigning Defense: Planning the Transition to the Future U.S. Defense

Industrial Base, OTA-ISC-500 (Washington, D.C.: GPO, March 1991); Office of Technology Assessment, The Defense Technology Base: Introduction

and Overview—A Special Report, OTA-ISC-374 (Washington, D.C.: GPO,

March 1988); Office of Technology Assessment, Innovation and Commercialization of Emerging Technologies (Washington, D.C.: Office of Technology Assessment, September 1995).

21. DOD, Office of Industrial Base Assessment, Assistant Secretary of

Defense (Production and Logistics), Draft Report to Congress on the Defense Industrial Base: Critical Industries Planning (Washington, D.C.:

DOD, September 1990), 2.

22. John Deutch, deputy secretary of defense, “Future Technology

May Work, But That’s Not Enough,” remarks prepared for delivery at

Northeastern University commencement, Boston, 18 June 1994, Defense

Issues 9:54 (Washington, D.C.: DOD, 1994), 3.

BUTTERWORTH 27
23. William J. Clinton, Technology for Economic Growth: President’s

Progress Report (Washington, D.C.: Executive Office of the President, November 1993), 49–50. A third approach, international cooperation, was

also identified, but it led to no programs that might significantly affect the

industrial base.

24. Advanced Research Projects Agency, Program Information Package

for Defense Technology Conversion, Reinvestment, and Transition Assistance (Washington, D.C.: DOD, 10 March 1993), 1.

25. Wendy H. Schacht, “The Federal Role in Technology Development,” CRS Report for Congress 95–50 SPR (Washington, D.C.: Congressional Research Service, Library of Congress, 28 December 1994), 3.

26. Gary L. Denman, director, Advanced Research Projects Agency,

“Advanced Technology for Defense and Economy,” statement prepared for

House Defense Appropriations Committee, 12 April 1994, Defense Issues

9:48 (Washington, D.C.: DOD, 1994), 7.

27. John Carey, “Remember Clinton’s Industrial Policy? O.K., Now

Forget It,” Business Week, 12 December 1994, 53.

28. John J. Hamre, “A ‘Hothouse’ Defense Industry Will Fail,” Aviation

Week and Space Technology, 10 January 2000, 66.

29. Drawn from Murray Weidenbaum, Small Wars, Big Defense (New

York: Oxford University Press, 1992); Office of Technology Assessment,

Assessing the Potential for Civil-Military Integration (Washington, D.C.:

GPO, September 1994); and Libicki.

30. Adapted from Weidenbaum, 144.

31. Libicki, 47.

32. The full presentation of this illustration is in Libicki, 47–54.

33. Table taken from Office of Technology Assessment, Building Future Security, 10.

34. Consider, for example, Eliasson’s 1990 example of competing operating systems for computers (at the time, Apple, MS DOS, UNIX): “Not

long ago, no one would have challenged you if you had suggested that the

Government should elect a committee of experts to study all the facts to

come up with a proposal for the optimal decision on the operating system

. . . [But a historical case study provides] some very clear contrary evidence on this point. You may not know what you want until you have

seen it tried, and evaluated different systems. In other words, knowledge

is often tacit and cannot be derived in advance through analytical methods. The experimental method (my term) then becomes the only efficient

choice. Many independent experiments have to be evaluated. This is the

market solution.” Gunnar Eliasson, “Commentary,” in Heertje and Perlman, 159.

35. John M. Deutch, deputy secretary of defense, “A Problem the Pentagon Will Solve,” Washington Post, 21 June 1994, A17.

36. DOD, National Flat Panel Display Initiative, 28 April 1994, 9.

37. Glenn J. McLoughlin and Richard M. Nunno, “Flat Panel Display

[FPD] Technology: An Introduction to the Issues,” CRS Report for Congress 95-10 SPR (Washington, D.C.: Congressional Research Service, Library of Congress, 19 December 1994), 6.

38. For example, see New World Vistas.

28 SPACE INDUSTRIAL BASE 
39. This discussion is drawn from my 1998 congressional testimony,

“Statement to the Subcommittee on Space and Aeronautics of the Committee on Science, jointly with the Subcommittee on Military Research

and Development and the Subcommittee on Military Procurement of the

Committee on National Security, Hearing on ‘U.S. Spacepower in the 21st

Century,’ 29 September 1998.”

40. The homepage of NASA’s aerospace “enterprise” explains that “our

research objectives are defined by the Nation’s critical needs and our customers’ expectations, which we have codified in the Three Pillars and the

Ten Goals. This has set our agenda for action to deliver enabling technology solutions. Our research is critical, but cannot stand alone. We

must rely on our partners for implementing those technologies and delivering products.” (http://www.aerospace.nasa.gov/enterprise/index.htm).

The recently appointed head of the enterprise, Sam Venneri, testified on

11 April 2000 about the approach: “By converging with the commercial

capabilities, enabling private sector competition, and ensuring evolvability and alternate means of access to space, we and our industry partners

intend to increase the role of industry, fundamentally change NASA’s culture, and revolutionize the economics of space transportation.” Statement

of Samuel L. Venneri, associate administrator for Aero-Space Technology,

National Aeronautics and Space Administration, before the Subcommittee on Space and Aeronautics, Committee on Science, House of Representatives, April 11, 2000.

41. And it looks at present as though the Defense Department’s effort

to structure competition in the supply of EELV launches is also failing.

Recent trade press reports claim that Lockheed Martin will need relief

from the launches it contracted to provide. See “Delta IV Enters Final

Year of Development,” Launchspace, March 2000, 10.

42. This discussion is drawn from my “Statement Prepared for the

Subcommittee on Space and Aeronautics of the House Committee on Science, Hearing on NASA’s Aerospace Transportation Enterprise, 11 April

2000.”

43. Libicki, 70.

44. “We have just kicked off a Defense Science Board Task Force to

help us. They will listen to experts from all fields—Congress, Universities,

Government, Wall Street, and representatives from both the commercial

and military industries.” Gansler, remarks, 6. References in this paragraph to other policy efforts are also drawn from this speech.

BUTTERWORTH 29