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Statement Before Senate Select Committee on Intelligence - 7/17/90
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Originally Processed With FOIA(s): foia Number: 2005-0336-F 2005-0336-F FOIA MARKER This is not a textual record. This is used as an administrative marker by the George Bush Presidential Library Staff. Record Group/Collection: George H.W. Bush Presidential Records Collection/Office of Origin: Science and Technology Policy, Office of (OSTP) Series: Bromley, D. Allan, Files Subseries: Administration Files OA/ID Number: 62027 Folder ID Number: 62027-002 Folder Title: Statement Before Senate Select Committee on Intelligence - 7/17/90 Stack: Row: Section: Shelf: Position: 0 O 0 0 Withdrawal/Redaction Sheet (George Bush Library) Document No. Subject/Title of Document Date Restriction Class. and Type 01. Report Statement by Allan Bromley before the Senate Select 7/17/90 (b)(1) Committee on Intelligence on US Intelligence in Support of America's Economic Competitiveness (62 pp.) Collection: Record Group: Bush Presidential Records Office: Science and Technology Policy, Office of (OSTP) Series: Bromley, D. Allan, Files Subseries: Administration Files WHORM Cat.: File Location: Statement Before Senate Select Committee on Intelligence - 7/17/90 Date Closed: 3/5/2010 OA/ID Number: 62021-002 FOIA/SYS Case #: 2005-0336-F Appeal Case #: Re-review Case #: Appeal Disposition: P-2/P-5 Review Case #: Disposition Date: AR Case #: MR Case #: AR Disposition: MR Disposition: AR Disposition Date: MR Disposition Date: RESTRICTION CODES Presidential Records Act - [44 U.S.C. 2204(a)] Freedom of Information Act - [5 U.S.C. 552(b)] P-1 National Security Classified Information [(a)(1) of the PRA] (b)(1) National security classified information [(b)(1) of the FOIA] P-2 Relating to the appointment to Federal office [(a)(2) of the PRA] (b)(2) Release would disclose internal personnel rules and practices of an P-3 Release would violate a Federal statute [(a)(3) of the PRA] agency [(b)(2) of the FOIA] P-4 Release would disclose trade secrets or confidential commercial or (b)(3) Release would violate a Federal statute [(b)(3) of the FOIA] financial information [(a)(4) of the PRA] (b)(4) Release would disclose trade secrets or confidential or financial P-5 Release would disclose confidential advice between the President information [(b)(4) of the FOIA] and his advisors, or between such advisors [a)(5) of the PRA] (b)(6) Release would constitute a clearly unwarranted invasion of P-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA] personal privacy [(a)(6) of the PRA] (b)(7) Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA] C. Closed in accordance with restrictions contained in donor's deed of (b)(8) Release would disclose information concerning the regulation of gift. financial institutions [(b)(8) of the FOIA] (b)(9) Release would disclose geological or geophysical information PRM. Removed as a personal record misfile. Withdrawal/Redaction Sheet (George Bush Library) Document No. Subject/Title of Document Date Restriction Class. and Type 02. Letter To: Donald Riegle From: John Macomber 7/17/90 (b)(1) Re: Export Administration Act (3 pp.) Collection: Record Group: Bush Presidential Records Office: Science and Technology Policy, Office of (OSTP) Series: Bromley, D. Allan, Files Subseries: Administration Files WHORM Cat.: File Location: Statement Before Senate Select Committee on Intelligence - 7/17/90 Date Closed: 3/5/2010 OA/ID Number: 62021-002 FOIA/SYS Case #: 2005-0336-F Appeal Case #: Re-review Case #: Appeal Disposition: P-2/P-5 Review Case #: Disposition Date: AR Case #: MR Case #: AR Disposition: MR Disposition: AR Disposition Date: MR Disposition Date: RESTRICTION CODES Presidential Records Act - [44 U.S.C. 2204(a)] Freedom of Information Act - [5 U.S.C. 552(b)] P-1 National Security Classified Information [(a)(1) of the PRA] (b)(1) National security classified information [(b)(1) of the FOIA] P-2 Relating to the appointment to Federal office [(a)(2) of the PRA] (b)(2) Release would disclose internal personnel rules and practices of an P-3 Release would violate a Federal statute [(a)(3) of the PRA] agency [(b)(2) of the FOIA] P-4 Release would disclose trade secrets or confidential commercial or (b)(3) Release would violate a Federal statute [(b)(3) of the FOIA] financial information [(a)(4) of the PRA] (b)(4) Release would disclose trade secrets or confidential or financial P-5 Release would disclose confidential advice between the President information [(b)(4) of the FOIA] and his advisors, or between such advisors [a)(5) of the PRA] (b)(6) Release would constitute a clearly unwarranted invasion of P-6 Release would constitute a clearly unwarranted invasion of personal privacy [(b)(6) of the FOIA] personal privacy [(a)(6) of the PRA] (b)(7) Release would disclose information compiled for law enforcement purposes [(b)(7) of the FOIA] C. Closed in accordance with restrictions contained in donor's deed of (b)(8) Release would disclose information concerning the regulation of gift. financial institutions [(b)(8) of the FOIA] (b)(9) Release would disclose geological or geophysical information PRM. Removed as a personal record misfile. EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF SCIENCE AND TECHNOLOGY POLICY WASHINGTON, D.C. 20506 April 23, 1990 MEMORANDUM FOR D. ALLAN BROMLEY THROUGH: MICHELLE K. VAN CLEAVE FROM: RICK E. YANNUZZI Reg." SUBJECT: TESTIMONY BEFORE THE SENATE SELECT COMMITTEE ON INTELLIGENCE You have accepted an invitation to appear before the Senate Select Committee on Intelligence (SSCI) on May 2, 1990, from 2:00 to 4:00 p.m.. The subject of the hearing is U.S. intelligence in support of America's economic competitiveness. The other witnesses for this hearing are Ambassador Michael B. Smith, former Deputy U.S. Trade Representative, and Mr. Lionel Olmer, former Under Secretary for International Trade, U.S. Department of Commerce. Attached is the final draft of your testimony for your review. In discussions I've had with the staff they would like each witness to spend about 15 minutes presenting their testimony. The staff wants to reserve as much time as possible for Q&A's between the committee members and the panel. You have been asked to focus your comments on S&T intelligence in the context of economic competitiveness. According to the staff at least two committee members appear particularly interested in the hearing -- Senators Danforth and Bradley. Judging by Senator Boren's speech to the National Press Club earlier this month (see attached newspaper clipping) I would certainly add him to the list of interested committee members. On a logistical note the SSCI staff has informed me that we can expect Chairman Boren to be late to the hearing. Apparently, tardiness is one of his trademarks. Attachments: 1. Proposed Testimony 2. Newspaper Clipping Boren Urges Intelligence Upgrades By George Lardner Jr. with operatives from other nations watch on foreign exchange rates, oil Washington Post Staff Writer who have worked with the United production levels and trade policies States in the past and "once de- worldwide, he said. The U.S. intelligence community manded our strong presence." In turn, he said, "We will be con- must develop "new and different These people "are looking at us fronted with the policy question of assets" and help keep the nation and saying, 'Why are you still here? how active our intelligence commu- economically competitive, Sen. Da- We don't need you any more,' nity should become" in serving U.S. vid Boren (D-Okla.), chairman of Boren said. business and commercial interests. the Senate Select Committee on American influence in the coming U.S. embassies should be turned Intelligence, said yesterday. century, he said, is going to depend into outposts "not just of American "As the arms race is winding more on economic factors and mor- political influence but of American down, the spy race is heating up," al leadership than military strength. economic influence as well. We Boren said in a speech at the Na- "We have had a strange and sym- can no longer regard the commer- tional Press Club. "An increasing biotic relationship with the Soviet cial section [of an embassy] as share of the espionage directed Union," Boren said. "The decline of something that ought to be in the against the United States comes the Soviet Union might lead to our basement." decline as well." from spying against private Amer- Boren expressed alarm at the low Problems of U.S. intelligence in numbers of American students ican companies, aimed at stealing the Soviet Union will expand from studying abroad and he called for commercial secrets to gain a nation- finding out what happened at the new exchange programs to help al economic advantage." last Politburo meeting to finding out "internationalize the thinking of the He said another sign of changing "what is going on among the peo- next generation of Americans." times was testimony before his ple" who will be electing a president Last year, he said, 356,000 foreign committee in the past month by five years from now, he said. students came to the United States, U.S. intelligence officials who said "We will also need greater human but only 24,000 U.S. students went they are having "some real prob- capabilities and personnel equipped abroad. Students coming here from lems down at the operational level" with economic expertise" to keep Malaysia alone outnumbered them. Business Most U.S. corporations could protect When "Friends" Become Moles their sensitive communications simply by sending them in code. But many companies American companies wake up to a new spy threat: U.S. allies are reluctant to do this, even though the cost and inconvenience might be minor. One reason may be that the effects of spying are By JAY PETERZELL tive told officials about a trip to Paris dur- largely invisible. All the company sees is ing which he had made handwritten notes that it has failed to win a contract or two. T he dangers of Soviet military espio- in the margin of one of his memos. While Meanwhile, its competitor may have clan- nage may be receding, but U.S. securi- negotiating a deal with a French business- destinely learned all about its marketing ty officials are awakening to a spy threat man, he noticed that the Frenchman had a plans, its negotiating strategies and its man- from a different quarter: America's allies. photocopy of the memo, handwritten ufacturing secrets. "American businesses According to U.S. officials, several foreign notes and all. Asked how he got it, the Pari- are not really up against some little compet- governments are employing their spy net- sian sheepishly admitted that a French itor," observes Noel Machette, a former works to purloin business secrets and give government official had given it to him. National Security Agency official who them to private industry. In a case brought Because of such incidents, U.S. officials heads a private security firm near Washing- to light last week in the French newsmaga- began a quiet effort to warn American ton. "They're up against the whole intelli- zine 'Express, U.S. agents found evidence companies about the need to take special gence apparatus of other countries. And late last year that the French in- they're getting their clocks telligence service Direction cleaned." Générale de la Sécurité Extér- As U.S. national-security plan- ieure had recruited spies in the passing along secrets involving research and marketing to Com- ILLUSTRATION FOR TIME BY MICHAEL C. WITTE ners increasingly focus on Ameri- European branches of IBM, can competitiveness, many of Texas Instruments and other them fear that U.S. corporations U.S. electronics companíes. are operating at a severe disadvan- American officials say DGSE was tage. America's tradition of keep- ing Government and business sep- arate tends to minimize op- pagnie des Machines Bull, the portunities for the kind of intelli- struggling computer maker gence sharing that often occurs in largely owned by the French Europe. "I made a big effort to get government. the intelligence community to sup- A joint team of FBI and CIA port U.S. businesses," recalls Ad- officials journeyed to Paris to in- miral Stansfield Turner, who form the French government headed the CIA in the late 1970s. "I that the scheme had been un- was told by CIA professionals that covered, and the Gallic moles this was not national security." were promptly fired from the Moreover, it would be hard for the U.S. companies. Bull, which is Government to provide informa- competing desperately with tion to one U.S. firm and not to an- American rivals for market other. Yet if sensitive intelligence share in Europe, denies any re- is shared too widely, it cannot be lationship with DGSE. Last year protected. the company made a legitimate acquisition of U.S. technology ne thing the U.S. Government when it agreed to purchase Ze- can do is make sure business nith's computer division for leaders understand the threat. $496 million. When the late Walter Deeley was a U.S. officials say the spy ring deputy director at NSA in the early was part of a major espionage program run precautions when operating in France. 1980s, he began a hush-hush program in against foreign business executives since While France can be blatant, it is by no which executives were given clearances and the late 1960s by Service 7 of French intel- means unique. "A number of nations told when foreign intelligence agencies were ligence. Besides infiltrating American friendly to the U.S. have engaged in indus- stealing their secrets. "He considered it a companies, the operation routinely inter- trial espionage, collecting information with real crusade," a former intelligence official cepts electronic messages sent by foreign their intelligence services to support pri- says. American business leaders could see firms. "There's no question that they have vate industry," says Oliver Revell, the FBI'S some of these intelligence reports, I think been spying on IBM's transatlantic com- associate deputy director in charge of in- they would go bananas and put a lot more ef- munications and handing the information vestigations. Those countries include Brit- fort into protecting their communications." to Bull for years," charges Robert Court- ain, West Germany, the Netherlands and "It may not be possible to level the play- ney, a former IBM security official who ad- Belgium, according to Courtney. The con- ing field [with foreign companies] by shar- vises companies on counterespionage sultant has developed a few tricks for gaug- ing intelligence directly" with their U.S. ri- techniques. ing whether foreign spies are eavesdrop- vals, observes deputy White House science Service 7 also conducts an estimated ping on his corporate clients. In one adviser Michelle Van Cleave. "But it should ten to 15 break-ins every day at large hotels scheme, he instructs his client to transmit a be possible to button up our secrets." That in Paris to copy documents left in the fake cable informing its European office of argues for much more use of secret-keeping rooms by visiting businessmen, journalists a price increase. If the client's competitor techniques and far less naiveté on the part and diplomats. These "bag operations" in that country boosts its price to the level first came to the attention of the U.S. Gov- of American business as it enters the spy- mentioned in the cable, the jig is up. "You vs.-spy era of the 1990s. ernment in the mid-1980s. One U.S. execu- just spoof 'em," Courtney says. With reporting by Christopher Redman/Paris 50 TIME, MAY 28, 1990 Price Per Plane Could Increase To $1 Billion By BARBARA AMOUYAL And PHILIP FINNEGAN Estimated B-2 Defense News Staff Writers Research and development costs for the B-2 bomber become Program Costs WASHINGTON - Congressio- nal failure to reach a compromise a smaller share of the total appropriation 10 planes: $26.6 billion on B-2 funding could force a over time as production rate increases. 15 planes: $35.4 billion deadlock that would escalate All figures in billions 75 planes: $61.1 billion costs and result in even more in- efficient production rates than al- ready proposed by the Bush ad- 1988 and prior 1989 1990 1991 ministration, congressional Request: Not available Request: $5.23 Request: $4.73 Request: $4.16 sources say. Appropriation: $17.1 Appropriation: $5.23 Appropriation: $4.29 Appropriation: Not available With the legislative options narrowed as a result of Defense Secretary Dick Cheney's April 26 decision to cut the B-2 stealth $13.2 $2.18 $1.88 buy from 132 to 75 planes, con- $1.56 gressional sources say compro- mise legislation intended to pro- long B-2 production at lower Research & Research & Research & Research & annual rates could jack the price development development development development of the $815 million bomber to well over $1 billion per copy. Source: Department of Defense Marty Baumann Opponents of the B-2 bomber U.S. Mulls Industrial Spy Role Planned Intelligence Agencies Would Share Commercial Information By NEIL MUNRO study being prepared on U.S. in- the National Press Club in Wash- May Not L Defense News Staff Writer telligence priorities in the 1990s, ington. "We are going to have to said one official, who declined to think about the role that we want WASHINGTON - U.S. intelli- elaborate on the study's contents. our own intelligence service to Of Italian gence agencies may be asked to Foreign intelligence agencies play in terms of protecting Amer- gather industrial information already collect and distribute in- ica's economic and commercial about foreign competitors and formation to national companies, interests around the world." By ALESSANDRO POLITI provide it to U.S. defense firms many of which are partially Defense News Correspondent The intelligence agencies are and other companies, sources owned by the government, said already working to defeat espio- ROME - Although the Ital- say. one former intelligence official. nage directed against U.S. eco- ian Parliament took a decisive Sen. David Boren, D-Okla., "It is a fairly routine thing," he nomic and technological targets. step last week toward approv- chairman of the Senate Select said. But such efforts should be com- ing new arms export regula- Committee on Intelligence, told However, industrial data gath- plemented by the use of informa- tions, government and indus- Defense News last Wednesday ered by U.S. intelligence agen- tion for the benefit of American try sources here are uncertain that he expects a policy to cies, such as the Central Intelli- companies, experts say. that new rules will boost Ita- emerge in the next few years that gence Agency and the Defense Although the intelligence agen- ly's sagging foreign sales. would task intelligence agencies Intelligence Agency, are not cies collect much secret informa- The new regulations were with collecting commercially shared with U.S. companies, valuable information. tion, they also collect a great deal sought by defense manufac- sources say. of public information from news- turers concerned that Italy's Such a policy would change "The spy race is heating up papers, scientific papers and oth- cumbersome rules for gaining dramatically the charters of intel- against commercial targets er sources, said Michelle Van export licenses would put ligence agencies and open debate in the United States. More and Cleave, assistant director for na- them at a disadvantage when on how information should be more espionage is [being tional security affairs in the European trade barriers are fairly shared with U.S. used] to steal our private com- White House's Office of Science eliminated in 1992. The mea- companies. mercial secrets for the sake of and Technology Policy. "At pre- sure could be passed by the This prospective new task may national economic purposes," sent, it is not integrated or ex- first week of June, according already be included in a classified Boren told an audience April 3 at ploited to support the private to Italian Sen. Michele Achilli, sector we should look at bet- chairman of the Foreign Com- ter ways of doing that," she told mittee. 19901 ++ * Defense News last Thursday. While the new regulations THOMAS J. BISHOP ##1550 070611430 FIRM 20500 The government could use are intended to simplify the DEC99DN computer systems to make avail- regulatory process, in some MILITARY ASSISTANT able openly gàthered informa- cases gaining export licenses OFF OF SCIENCE & TECHNOLOGY tion, she said. In turn, the com- will be more difficult. Because 1600 PENN AVE NW Italian companies have been WASHINGTON DC 20500 See SPY, Page 35 Monday, M U.S. Agencies May Draw Israel Moves to Reinstate Industrial Spying Activities For German Information SPY, From Page 1 pose any involvement in econom- puterized information would be ic intelligence gathering, the ISRAEL, From Page 4 penditure of U.S. funds to non- reviewed and analyzed by private intelligence units in the Depart- the contract funds would go to U.S. contractors] are used to research companies, she said. ments of Agriculture, Treasury, the German firm Krupp Atlas. support Israeli subcontractors Such computerized analysis of Commerce and State could con- Of the money, $40 million only and that the specified unclassified information might tribute to economic intelligence would go to Loral and $60 mil- funding for advanced weapons yield information that normally gathering, Brown said. lion to Krupp. Some $20 mil- is to be spent in Israel. would be classified, said F. Reese Experts disagreed on whether lion of that amount - all FMS Brown, editor of the New York- the Central Intelligence Agency funds - would be for royalty based International Journal of In- (CIA) would welcome the new and licensing fees to Krupp. "Those of us who have telligence and role. In a speech on April 27 to U.S. government officials sought to maintain po- CounterIntelligence. the Jefferson Club at the Univer- and industry executives fear litical support for the However, distribution of secret sity of Missouri, Columbia, Mo., that if Israel is able to broaden or classified information gath- military assistance pro- William Webster, director of the its exceptions, other countries ered by the intelligence agencies may follow suit. Already, indus- gram always find it use- CIA, said, "It is the job of intelli- is a much more difficult matter, gence to examine what is occur- try sources report that Egypt is ful to point to the fact sources said. "Once you've got ring, the forces at play, and the interested in seeking an excep- that, with certain spe- the information, who do you give ways that action taken abroad tion so it also can spend $10 cific exceptions, Foreign it to? Ford, General Motors, can affect our national security. million with Krupp for combat Chevrolet or Oldsmobile?" asked Military Sales funds are With a clear understanding of the information systems for its Ro- Ken Levit, a spokesman for Bo- playing field, policyakers can bet- meo-class submarines. used only to support the ren. ter determine where it is not level If Israel spends the money sale of American Moreover, many U.S. compa- as far as U.S. interests are on non-U.S. systems, it also systems." nies are partially owned by for- concerned." would weaken the arguments eign companies, Van Cleave said. To improve the intelligence of foreign aid supporters at a Sen. Claiborne Pell "How would it be disseminated agencies' ability to help formu- time when the aid program is without at the same time giving late U.S. economic policy, the facing increased criticism. advantage to foreign competi- government should increase eco- As Pell wrote in a May 8 let- Israel has been allowed to tors?" she asked. ter to Israeli ambassador Protecting secret intelligence- nomic expertise in the foreign spend its funds on non-U.S. embassies and other areas of Moshe Arad, "Those of us who goods since 1987. At that time, gathering methods would also be difficult, especially if foreign in- government, Levitt said. "In that have sought to maintain politi- it was permitted to spend $300 vein, we have to be prepared to cal support for the military as- million of its $1.8 billion in telligence services were able to give our intelligence officers the sistance program always find it U.S. military aid on Israeli monitor the information that the U.S. government was disseminat- skills to analyze economic infor- useful to point to the fact that, goods and services. Israel was ing, she said. mation," he said. with certain specific excep- in the midst of its Lavi fighter tions, Foreign Military Sales project, and wanted to spend Also, the government's intelli- But industry's effort to protect funds are used only to support the money on Israeli systems gence agents might be reluctant their own secrets must be the sale of American systems." for the fighter. to take personal risks for the stepped up, Van Cleave said. Pell also wrote that in the At that time Israel also en- benefits of American companies, "Our private sector could do a case of Israel, it is understood joyed the unique benefits of di- she said. better job of protecting informa- that directed offsets [the ex- rected offsets under which Is- Although the Pentagon's intel- tion" against foreign intelligence ligence agencies are likely to op- services, she said. Troop Levels and Aircraft Ceilings British Hope Problems Wi Among Remaining Arms Talk Issues Before Sea H CFE, From Page 4 any limits on German troops indicated a willingness to re- be negotiated under CFE. duce their own troops sta- with his counterpart, [Soviet "The only way to do this on AMRAAM, From Page 3 tioned in Germany, as have Foreign Minister Eduard] She- the German side is in the RAAM production might reduce the Belgian and Dutch govern- vardnadze, and hopefully the framework of CFE as part of costs. Lowerey added that the en ments. Soviets will arrive in Washing- tire timeframe of the program an overall cap on troop levels U.S. officials and NATO dip- ton with some additional might be stretched, and that all of in Europe," said a West Ger- lomats are optimistic that the thoughts for us on how we can man official in Washington. these options would be consid stalemate over CFE and Ger- move forward with conven- However, West German ered by the defense ministry this man unification can be solved tional force reductions," Che- diplomats have suggested that year. at the May 30-June 3 super- ney said. The Defense Committee had a compromise might be power summit in Washington. Cheney was in Brussels for earlier heard from other defense reached by promising the So- Aside from discussions on a meeting of NATO's defense viets further European troop ministry witnesses that instru conventional forces, Baker mented AMRAAM missiles for PCAST Briefing 20 Automobiles 20 Chemicais O 10 -20 0 q -10 -60 -20 72 75 80 85 87 7% 75 80 85 87 20 Commercial aircraft 20.7 Consumer electronics 10 10 o 0 -10 -10 -20 I -20 72 75 80 85 87 72 75 80 85 87 2 Machine toots 20 Semiconductors. 1 computers & 10 copiers o 0 -1 -10 L 72 75 -20 80 85 87 72 75 80 85 87 20 Steel 20 Textiles - 10 10 o o -10 -10 -20 -20 72 75 -30 80 85 87 72 75 80 85 87 Figure 1.4 Trade balance in industries studied Trade balances are in terms of billions of current U.S. dollars. Source: Data made available by the U.S. Departmènt of Commerce. International Trade Administra- tion, Office of Trade Information and Analysis. B. U.S. Trade Balance with Japan and the NICs Billions of Dollars o -5 -10 Japan -15 -20 Med -25 -30 -35 1961 1982 1983 1984 1985 1986 1987 1988 Source: United States Trade: Performance in 1988. U.S. Department of Commerce, International Trade Administration, September 1989. INTERNATIONAL ECONOMIC COMPETITION Charge to PCAST: Examine aspects of competitiveness in which science, technology, and engineering play a major role and, where appropriate, suggest Federal action that could enhance competitiveness. Product rather than basic science competitiveness is to be emphasized. ELEMENTS OF COMPETITIVENESS o Internal competence and actions of individual firms. 0 Regulatory, tax, and financial environments in which firms operate. o Availability in the environment of new scientific and engineering knowledge. o Environment supportive to improvement of existing product. o Availability of technical labor force. INTERNAL COMPETENCE AND ACTIONS QF INRIVIDUAL FIRMS How well do firms manufacture, how well do they support, use and manufacture R&D, how well do they train and motivate their employees? Largely beyond the purview of government action. REGULATORY, TAX AND FINANCIAL ENVIRONMENTS IN WHICH FIRMS OPERATE Cost of capital and tax structure, particularly depreciation rules, and such items as R&D tax credit. In the legal area, there exist traditional issues relating to anti-trust, as well as the newer issues of product liability and intellectual property. availability IN THE ENVIRONMENT QE NEW SCIENTIFIC AND ENGINEERING KNOWLEDGE The kind of knowledge that historically has launched whole new initiatives, produced radically different materials or powerful new instruments. Really new manufacturing processes could be included here. ENVIRONMENT SUPPORTIVE TO IMPROYEMENT QE EXISTING PRODUCT Less of a matter of really new scientific knowledge than of taking the next engineering step, a step usually aimed at product. Can be a question of adapting existing knowledge to a special product situation or of transferring existing knowledge to a firm that could use it. Examples would include research on existing process or manufacturing, or improved materials. availability OF TECHNICAL LABOR FORCE Training and orientation of scientists and engineers as well as technically competent people for a production environment. POSSIBLE PCAST COMPETITIVENESS ISSUES o Effects of U.S. tax policy, trade policy, and regulatory framework on investment in industrial R&D? In overall competitiveness? o What are the real effects of U.S. capital costs on investment in industrial R&D and in plant and equipment? o What should be the U.S. objective in the semiconductor area? Is this an area where we must retain significant manufacturing capability and market position? o What roles should the Federal Government take in encouraging consortia such as SEMATEC, MCC and NCMS? What should be the criteria for Federal involvement? o Are our universities adequately preparing engineers for careers in commercial manufacturing? o Is there a continuing need for DARPA? Could criteria be developed to make a Civilian Advanced Projects Agency a focused, effective competitiveness catalyst? o Are the policy and decision making processes of the Federal Government (the Administration and the Congress) appropriately structured to respond to the modern challenges of technology and manufacturing competitiveness? o What role can Federal laboratories play in the industrial competitiveness arena? What expectations here are realistic? o How effective have state and local Industrial competitiveness programs been? What should be the nature of the Federal/state partnership here? o Have the diverging interests of our financial and manufacturing sectors adversely affected U.S. manufacturing competitiveness? If so, should there be and is there redress? o What are the 2-4 most important short-term and long-term initiatives the private sector and the Federal Government should be undertaking to improve our global competitiveness? SOME ADMINISTRATION COMPETITIVENESS INITIATIVES FISCAL YEAR 1991 0 Reducing the tax on capital gains to spur entrepreneurial activity. The Administration has proposed restoring a capital gains tax differential such as existed before the Tax Reform Act of 1986. 0 Making the research and experimentation (R&E) tax credit permanent to reduce uncertainty. Under the current law, the R&E credit is scheduled to expire on December 31, 1990. The Administration proposal to make the credit permanent would permit businesses to expand without fearing that the tax laws will suddenly change. 0 Protecting negotiations. intellectual property through international The Administration is aggressively pursuing improved international protection of intellectual property. Negotiations on intellectual property rights are being conducted in the World Intellectual Property Organization and in trilateral talks with the European Community and Japan, as well as in the Uruguay Round of GATT. 0 Reforming product liability laws to restore balance to the tort system. The Administration supports the adoption of uniform product liability standards across the 50 States. The proposed changes to product liability laws would maintain incentives to produce safe products, but would restore balance to the tort system and reduce uncertainty - particularly for new products. 0 Removing barriers to research. innovation. and development. The Administration has proposed legislation that would make it easier for companies to enter joint production ventures by requiring challengers to prove such ventures would harm competition. The legislation would also eliminate punitive treble- damage awards which have made it lucrative to discover antitrust violations in almost every activity of business. 0 Developing advanced technologies to meet government and civilian needs. Some specific advanced technologies that receive support from more than one Federal agency are: Robotics - The budget provides $192 million to six Federal agencies for support of robotics R&D. The focus of this R&D is on the development of systems that are more autonomous and capable of interacting with changing and uncertain environments. High Performance Computing - The budget provides $469 million for Federal support of R&D focused on high performance computing. This activity includes the full range of advanced computing technologies as well as the systems and applications software, networking, and underlying research and human resource infrastructure. Semiconductors - The budget provides $537 million for research on: semiconductor materials; development and application of semiconductor materials to meet agency mission needs; and, support of R&D on semiconductor manufacturing processes. The largest single Federal program is DOD funding of $100 million per year for SEMATECH. Superconductivity - The budget provides $215 million for superconductivity R&D. Programs in five Federal agencies deal with beth high temperature and low temperature superconducting phenomena and materials. Advanced Imaging Technologies - The budget provides $118 million for advanced imaging R&D. Advanced imaging systems include interactive graphics, high definition displays, advanced signai processing, and advanced digital switching technologies. 0 Improving productivity and the quality of life through biotechnology. The budget proposes $3.6 billion for biotechnology R&D in pharmaceuticais, foods, agriculture, waste management, and energy. Developing technologies for improved transportation. The budget proposes funding for transportation R&D of $1,527 million. Federal programs are focused on aeronautics, highways, mass transit, railroads, maritime, water, aviation, and other transportation areas. 0 Promoting alternate sources of energy. For conduct of energy R&D programs in the Department of Energy, the budget proposes totaling funding of $2,450 million. Federal programs cover a broad spectrum of energy technologies including solar, renewable, conservation, nuclear fission, nuclear fusion, fossil energy, and supporting energy sciences. 0 Enhancing industrial productivity and development of standards. The budget proposes $198 million for the National Institute of Standards and Technology. R&D in fundamentai measurements and standards provides the foundation for U.S. industry, commerce, and science to achieve levels of accuracy and compatibility required to support technological development, efficient processing, process controi, and quality assurance. Special activities include R&D. on in-advanced manufacturing technologies. In addition, the Advance Technology Program provides grants to industry-led consortia to support development of generic, pre-competitive technologies. 0 Creation of the Precision Manufacturing Technology Program by the Department of Energy to provide U.S. industry greater access to the extensive manufacturing technology, expertise, and facilities available within the Department's Defense Programs weapons complex. 0 Establishment of Regional Manufacturing Technology Centers. The budget provides $5 million for this program. The approach is to reduce the barriers faced by smail- and medium-sized manufacturers in adopting new technology by: creating awareness, providing up-to-date, practical information and expertise, and supporting implementation. The Need To Know BY LEO CHERNE he primary purpose of intelligence is to avert war by I flagging dangers to national security. The second role of intelligence is to help us make the wise judgments needed to retain our military, political and economic strength against the many threats to each of these. And some of these dangers will grow in the years ahead. We are living in a world in which interdependence increases more quickly than we are able to assimilate its significance. That interdependence involves manufacture and trade, commodities and credit communications, vital resources and ideas. It also stimulates tensions between nations and instability within them. The tech- nological developments that have revolutionized world banking when confronted with a system that prohibits the freedom of the and the transfer of credit result in consequences requiring prompt press. Civil libertarians are slow to criticize a system that most com- and accurate assessments. The United States depends increasingly, pletely obliterates civil freedoms. even for vital sources of military strength, on capabilities and resources It is said that Marxist-Leninism as an ideology no longer exerts that are diminishing within its borders and increasing elsewhere. the appeal it once did. Nevertheless, each of the previous paradoxes The difference of intelligence in the democracies and the remains and is now expressed not by yesterday's adulation of the Marxist-Leninist states is that the normal purpose of Western foreign war-maker, the USSR, but by a constant and undiminished opposi- intelligence is to buttress stability, make change as unturbulent as tion to those who would keep the Kremlin's dangerous propensities possible and protect the democratic order. in check. In short, we, not they, are the enemy. The KGB's role is almost the precise opposite except within its political domain. Its function is to generate and exploit turbulence. The Ambiguity about Hostility "The worse, the better" is an old Russian nihilist maxim that aptly Today's and tomorrow's societies differ in critical respects from describes the thrust of Leninist intelligence activities wherever the international military environment that essentially ended with stability exists. The Soviet intelligence apparatus is inherently the World War II. provocateur, the merchant of disorder, the magnifier of social, Among the 42 current conflicts involving 4 million people economic or political weakness or distress. engaged in wars, rebellions or civil uprisings, few nations have One of the requirements for the late Eighties is to confront the declared war upon another. This ambiguity about hostility today fact that there are those intellectuals who are blind to an adversary places a particular premium upon effective intelligence. that prohibits ideas. Peacemakers exist who are uncritically ready to The massive lethal power possessed by the great nations-and serve a perpetual war-making machine. Journalists develop myopia most particularly the United States and the USSR-has had a still inadequately understood effect upon warfare. Smaller nations are Leo Cherne is vice chairman of the President's Foreign Intelligence Advisory infinitely more free to take belligerent action than are the two Board, which reports directly to President Reagan. He is the executive director of the muscle-bound giants. Research Institute of America, which he helped found. This article is used with per- This does not mean that the United States and the USSR adapt mission of the National Strategy Information Center, Washington, D.C. to this reality similarly. The belligerent propensities of smaller 38/Journal of Defense & Diplomacy v.4,n.5, May 15, 1986 senior statesmen, active and retired military officers and national security specialists from 12 countries convened to consider the character and extent of state-sponsored terrorism. Among their con- clusions, the following are particularly penetrating: The problem indeed is not just loose, gang-like incursions. It is terrorism-state-sponsored, state-supported, state-condoned, and even state-directed. Tyrannical and totalitarian ideologies have now subscribed to a new gospel of violence as an instrument of political change. A "radical entente" presently spearheaded by five militant states (Syria, Libya, Iran, North Korea and Cuba) is making coor- dinated efforts-by themselves and with others-to undermine the power and influence of the United States and its allies. Here the well- documented role of the Soviet Union is to provide the professional infrastructure of terrorism including money, arms, explosives, re- cruitment and training, passports, infiltration and escape routes, transport, communications, safe havens, control officers and more. Taken together, these constitute an elaborate international network of support systems for terrorists. This is not to suggest that the Soviets push the buttons and that their hand is always, directly or indirectly, in play. None of us sub- scribes to that kind of oversimplification. But where they do not initiate it, they encourage it. The destabilization and subversion have a pattern which serves Soviet interests, and this must be faced by leaders of the Free World even if, for the moment, it is not high on the official diplomatic agenda. Both lives and liberties are at stake. We must learn more about what we are dealing with-and do more about it. Meanwhile, the Soviet Union has pursued twin objectives since the end of World War II: to separate the United States and Western Europe and to mount a relentless, sophisticated and sur- prisingly effective propaganda campaign to persuade the world that peace is the Soviets' true purpose and that the risk to that peace resides in Washington, not Moscow. And the Soviet Union has per- nations all too often involve the interests of the superpowers and, fected the manipulation of proxy bodies essential to the propagation somewhat less often, the participation of a superpower by means of that all too widely accepted fantasy. short of war. How, where and why such indirect intervention occurs A great danger to stability is surprise. It is the vital attribute of is a crucial difference. So, too, is the freedom or eagerness with terrorism and aggression. Intelligence is our only available instru- which such indirect action occurs. ment to keep these disasters in check. The Soviet Union has pressed to the hilt the use of proxy nations to perform its purposes, content to rely on the fear of wider Means and Ends war to keep the United States largely paralyzed. Terrorism provides the clearest spotlight with which to Within this rubric, we have seen the growth of a new form of illuminate the true purpose of intelligence. Critics of U.S. intel- war-terrorism-supported, if not spawned, by nations virtually ligence efforts virtually never extend their distaste to include intel- secure in the absence of risk to themselves. Such involvement is ligence designed to alert the nations to impending terror or to invariably supported by the Soviet Union and its client states, while identify the terrorist perpetrators once they have struck. Yet in no joint action to punish those who unleash terror is shunned by respect is the function of intelligence, whether analytic or clandes- U.S. allies. tine, different when applied to the frightful consequences of ter- There will be no more difficult task for intelligence in the years rorism than it is when applied to other international hazards, some ahead than to penetrate the small, fanatical groups that perform the of which involve the threat to life and human safety that are infinitely terrorist acts, groups utterly without moral restraint and that hold greater. the innocent in complete contempt. But that intelligence task Intelligence will be increasingly important with each passing becomes a nearly impossible one unless there is a better month of these years ahead to protect not only freedom, security and understanding that terrorism is itself simply another form of stability but to enhance the safety and stability of all the nations that warfare. seek to avert war and cultivate their own growth with minimal risks One of the most penetrating and accurate descriptions of the to their own tranquility. It is here that the rapid growth of inter- true nature of terrorism was contained in a statement from a con- dependence is especially relevant. Following are listed a few of the ference on "State Terrorism and the International System," held by major dangers in which intelligence is an indispensable tool. the International Security Council in Tel Aviv. Sixty prominent A decision was made by a handful of men that led to an oil price Journal of Defense & Diplomacy/39 reduction by more than a third in less than a month. The life and involving the dramatic economic difficulties we are likely to face, death of nations and their economies will rest on how low that price that the intelligence community is, or should be, the sole source of falls. Some nations will benefit. Others face unmanageable social the information and judgment required for wise and timely govern- and economic turbulence. The consequences to the United States ment policy. are many and varied. A number of U.S. banks may be in jeopardy. It is clear that in specific fields and on a number of the potential Some industries and many localities face serious hardship. And difficulties lying ahead, the U.S. Department of the Treasury, State even as others momentarily remain unaffected or even benefit, an Department, Federal Reserve Bank and Department of Commerce economic fire storm may overtake all of us. Only wise, and some- have specific responsibilities, and they are assisted by sophisticated times swift, government policy provides the possibility of moderat- sources of information available to them. Contributions made by the ing these consequences. Policy formation will be at least partially intelligence community to those key government agencies are on blinded in the absence of effective intelligence. the one hand supplementary and on the other indispensable. A number of less-developed nations are now indebted to Not only must each of these instruments of the federal govern- banks and government and international institutions by more than ment seek to improve their own sources of advanced knowledge $900 billion. It is less the debts than the consequences that flow from and judgment, not only must the intelligence community make a their payment or nonpayment of the interest on those debts that hold a world economy in thrall. It is unfortunate that many of those now in debt are countries that only recently adopted democratic governmental forms. Political and social instability in those countries can swiftly snuff out that recent progress. The danger may be as close to the United States as its southern border. The meeting of the five leading finance ministers of the indus- trial nations illustrates the urgency of cooperative international policy if these shoals are to be navigated. Intelligence is an indispen- sable mapmaker of the charts needed to navigate these shoals. This is the age of high technology married to the information age of microchip, supercomputer and the new sophisticated unique contribution to that input, but it may well be that the greatest robots. contribution required in the interval ahead is one that addresses Labor-intensive industries will continue to die or adjust, move itself to more effective coordination of intelligence sources without their operations to countries that suddenly enjoy comparative which the policy responses may prove inadequate or late. advantage or merge with successful foreign competitors. There are virtually no U.S. automobiles made entirely of U.S.- Tough, Indispensable made parts. The five leading Japanese car makers are now operating There are other very specific intelligence tasks that will be of on U.S. soil. Television brings to every home in the United States the increasing importance for the balance of this decade. Some of them $3,990 blessing of the Yugo, and South Koreans will make their are altogether new. Regrettably, almost none of them are easy. Yet automotive presence vivid indeed with the $4,995 Hyundai. they are indispensable. There are all the makings of international tension in these facts Among the urgent tasks for intelligence will be to fathom the of disappearing U.S. manufacture and growing U.S. manufacturing means by which the Soviet Union intends to derive the benefits of unemployment. And the mix is one that threatens the growth of pro- the information age while withholding from its managers the tectionism. And all this is the grist of governmental policy that technology and the freedom to use it, which are essential to depends on accurate and early intelligence. eminence in the revolutionary structural change taking place. Some of the best work on this process of structural change is Linked to the challenges of the information age, a host of being done by the analysts in the Central Intelligence Agency intelligence questions emerge from the convulsive demographic augmented by expertise derived from conferences, many of them changes taking place in the Soviet Union. These changes are shifting unclassified, with businesses, universities, think tanks and others. the balance of population to the Muslim republics and away from Russia, where its government, industry and education are concen- The Age of Information trated. By what means can these ethnic tensions in the European and Most observers who have studied the structural change Asian USSR be exacerbated? referred to believe we are entering the greatest threshold of de- Is it possible that the Soviet Union had chosen to buy and steal stabilizing change in the history of man-greater than the change set the high technology it requires because those means of acquiring the into motion with the birth of cultivated agriculture, greater than the most advanced technology are easier and cheaper than inventing industrial age that followed, greater than mass manufacture, greater and producing their own high-tech breakthroughs? Their technical than the birth of the service economy that now provides more than ability is surely not the total impediment. 70 percent of U.S. jobs. We have entered the age of information, and The spreading high-technology capability in the Third World we will wander through it blindly unless effective intelligence is an creates an increased difficulty in averting transfer of sensitive instrument that helps shape prompt, effective and peaceful policy. technology to the Soviet Union. And this, too, will complicate the Without it, there is the greater certainty of turbulent, divisive and task for intelligence. dangerous economic conflicts. This new environment suggests still another need that partially The focus on intelligence requirements for the balance of this involves both intelligence and the continuous planning for indus- decade may leave the misleading impression, especially in areas trial mobilization that is the Defense Department's responsibility. 40/Journal of Defense & Diplomacy months That question is, how do we manage our economy in an emergency the wave of the future is not assuredly theirs. when we are increasingly dependent on strategic materials, facilities Do we periodically subject our most certain conclusions and and processes in other nations that may or may not be amenable or cherished conceptions about our adversary to remorseless reex- reliable when needed? amination? For example, are we too ready to assume that the Soviet There is still another intelligence question regarding the Union's economic problems significantly diminish the continuing periodic difficulties in securing participation by U.S. allies in one or danger to security represented by Soviet power and will? another of the international difficulties we confront. Perhaps the It is clear that the tasks ahead for intelligence are both different most striking illustration of this question is why nations that have and greater than any intelligence community has previously con- suffered the destruction of life and property by terrorists far more fronted. There will be many problems in dealing with this painful than the United States appear quite unwilling to associate them- reality. Almost all of them are affected significantly by the public's selves with the United States in any action to redress state- misconceptions, let alone repeated evidence of media hostility. sponsored terrorism. There are bureaucratic and budgetary problems. There are prob- Do we really understand why this is so? Are we altogether clear lems that flow from the very nature of a democratic state and some why neutralism and unilateralism play as large a role as they do in that flow from the particular culture of the United States. The United States has a remarkable tendency to look at the mirror when it con- siders its adversaries, and mirror-imaging is the curse of accurate intelligence. The United States must also ask: can U.S. intelligence be as good as it must be as long as U.S. knowledge of foreign languages and cultures remains as poor as it is and is handicapped further by the disinvolvement of centers of learning, research, science and technology, some of which shun "contaminating" contact with the world of intelligence? In conclusion: a prophecy and a challenge. One is unavoidable, and the other as yet unmet. Less than 50 years ago, the United States, unlike England, had Europe? May not the distaste for the United States among many no need for economic intelligence. Whatever intelligence the United Europeans exist because they correctly perceive the Soviet danger States had was focused on the capabilities and intentions rooted in and correctly judge that they cannot moderate that danger, while the dangers it perceived to be military. United States, by opposing the Soviet Union, would involve its allies During the remainder of the decade, the greater threats to in a risky and costly hazard they are not prepared to assume? stability will flow from economic, social, cultural and political haz- Can we win the war of systems if we cannot win the war of ards. Do not misunderstand. It is not that the military dangers have ideas or are unwilling to pay for what it takes to do so? The Soviet receded. They have changed their character but are painfully with Union spends far more to jam VOA, BBC, Deutsche Welle and Radio us. But a new panoply of dangerous troubles creates urgent intelli- Français than the West spends in efforts to reach the Soviet Union. gence needs in the years immediately ahead. Are there means that have been neglected? Among the pressing tasks facing intelligence for the balance of The Challenge this decade is the redefinition and legitimization of covert action, Now the challenge! The actors in this new international drama unless of course we are prepared to accept the notion that covert are not only governments, but include industries, labor unions, action is legitimate if used by the Soviet Union, its client states and universities, banks and stock and commodity exchanges. the states that sponsor terrorism, but unacceptable as a U.S. counter- Intelligence has thus far been essentially limited to informing force. We are no longer in Henry Stimson's world where "gentle- other government sectors. The United States imposes understand- men do not read others' mail" or George Kennan's world where "if able limits-and they are sharp-to keep the world of foreign intel- covert action cannot be kept secret, it must not exist." ligence and U.S. domestic life apart. The United States also has its And closely linked to this, a fresh assessment must be made of antitrust laws. It does not, as the Japanese do, have an instrument the consequences of sharply limiting the presence of the KGB on like MITI that performs some of the coordinating and judgmental U.S. soil. The Soviet Union's pervasive capabilities for telephonic functions for Japanese industry. eavesdropping enjoy immunity among us, and they operate from Yet, how does the United States meet the manifold challenges key urban locations. How can genuine symmetry be achieved in the of the Information Age? How does it share essential intelligence privileges the Soviet Union enjoys in the United States and those with the private sectors of society, the sectors upon whom tomor- they accord Americans in their midst? This is a major challenge that row's eminence depends? will continue to bedevil U.S. intelligence. And even were that intelligence to be shared, there remains the If the Soviet Union is long permitted to enjoy a field day in the central problem that exists even in the most urgent governmental United States, it should be noted that they have not had uninterrupt- use of intelligence-how to make effective use of the information. ed success in many of the world areas under their influence. We By informing a man about to be hanged of the exact size, location must better understand what is producing Soviet distress among its and strength of the rope, you do not remove either the hangman or clients elsewhere in the world and particularly in Africa. That dis- the certainty of his being hanged. tress varies, but it has included Egypt, Somalia, Mozambique, All that intelligence can do is seek to concentrate the mind suf- Grenada, South Yemen and Tanzania. There are now several on- ficiently to reduce the chance of unanticipated crisis or, more hope- going insurgencies fighting against Soviet-backed Marxist regimes; fully-and less likely-avert it altogether. Journal of Defense & Diplomacy/41 JOURNAL O F DEFENSE DIPEMACY Vol. 4. No. 5 May 1986 $3.00 NAVY DEPARTMENT INTERVIEW: JOSEPH LUN$ MAR 16 1987 LIBRARY REPORT ON ALGERIA BATTLEFIELD COMMUNICATIONS