Conversion to Competitiveness: Making the Most of the National Labs

nearly fifty years, U.S. military superiority has depended on
technological preeminence financed through public spending by the
security establishment. At the peak of the Cold War during the
1980s, the
Pentagon, the Department of Energy, NASA, and the intelligence
agencies together
spent more than $60 billion a year on defense-oriented research
and development--
nearly two-thirds of all government-funded R&D outlays during the
Reagan years.

This public investment didn't just build weapons. It created a
archipelago of immense value, whose crown jewels are the three
national weapons
laboratories at Los Alamos and Sandia in New Mexico and Lawrence
Livermore in
California. With the Cold War over, the national labs will either
be gradually
defunded as relics or reborn as civilian technology centers of

Today America's commercial technology base is eroding in the face
of stiff,
government-assisted competition from foreign firms. This erosion
does not stem
solely or even mostly from exchange-rate imbalances, low rates of
savings, wage-rate differentials, or the process of industrial
inevitably "catching up." Most of America's competitive problems
are structural.
Primary among them is the country's overreliance on
defense-driven technology a
strategy sufficient to win the Cold War but not to prevail in the

To meet this competition, the U.S. needs to formulate an
civilian-oriented technology policy. In one sense, the U.S. is
lucky that it
already has the national laboratories in place. If they didn't
already exist, the
United States would have to create them. Yet the traditional
military rationale
for the labs, as a special exception to a general dogma of
laissez-faire, makes
it difficult to broaden their mission.

Under a new policy committed to the support of commercial
technology the weapons
labs would be one instrument among many in a national
competitiveness strategy
(see "Investing on the Frontier," by Michael Borrus, p. 79). They
would facili-

tate innovations American companies would not make if left to
draw on their own
resources. Adding public to private resources, they would
encourage investment
in technologies that reflect a new definition of national
security embracing
environmental as well as defense concerns.

Beyond Test Tubes

Ever since J. Robert Oppenheimer led the Manhattan Project at Los
beginning in 1943, the national labs have benefited from
enormous investments
in human and physical capital. Today they employ approximately
27,000 scientists
and technicians. They have a capacity, rarely matched in
privately owned
industrial laboratories, to undertake costly basic and applied
research aimed at
long-term payoffs. Although the weapons labs are owned and
financed by the U.S.
Department of Energy, they are operated by contractors. Los
Alamos and Livermore
are run by the University of California and Sandia (until October
1993) by
AT&T. Compared with government-operated institutions,
contractor-operated labs provide an unusual measure of
intellectual freedom and
flexibility. The resulting university-like environment has helped
the labs to
attract and retain top-quality people.

The word "laboratory" conjures up images of white-frocked
scientists mixing
chemical concoctions in test tubes and conducting arcane basic
research. In fact,
the national weapons labs are highly applied, "mission-oriented"
Building a nuclear weapon is, after all, a manufacturing
enterprise that requires
concrete problem-solving in theoretical and applied nuclear
physics, computer
simulation, metallurgy, precision fabrication and testing, as
well as actual
production. At the weapons labs, interdisciplinary teams of
scientists and
engineers solve design and manufacturing problems as concrete as
those at any
consumer products company. The labs also deal with safety-related
problems involving weapons manufacturing, transportation, and

Though the labs have been used primarily to design and develop
weapons, their use
for nondefense purposes has fluctuated over the years. At the
high point of the
perceived energy crisis of the 1970s, the laboratories devoted
nearly 50 percent
of their budgets to energy research. During the Reagan years, the
priority shifted back toward weaponry. Today about 25 percent of
laboratories' budgets finance nonweapons research emphasizing
energy and the
environment. The labs are housed in the Department of Energy
because it was the
successor to the old Atomic Energy Commission, which was in
charge of nuclear
weapons and later nuclear energy under Eisenhower's "Atoms for
Peace" program.
But thanks to their practical experience with a variety of
advanced technologies,
the labs have also made significant contributions in fields such
as diagnosis and
treatment of cancer and AIDS, development of new structural
materials, hardware
and software advances for supercomputers, and techniques for
sequencing the human
genome (see "Chips With Everything," p. 94).

the labs' primary mission nuclear weapons recedes, at issue is
just how they
should contribute to basic and applied commercial research. In
government policy
circles, three main approaches are being debated. The first,
espoused by many in
the Departments of Defense and Energy, asserts that the labs
should continue to
focus exclusively on their defense missions. A second approach
concurs that the
labs should focus on defense, but argues that the defense
technology base itself
requires the labs to promote more civilian technology. A third,
more radical,
proposal would convert at least one of the three laboratories,
Lawrence Livermore, into a research center for civilian

These are not the only possibilities. Other options include the
wholesale dedi
cation of separate (and perhaps new) national laboratories to the
solution of
particular problems, such as a National Environmental Protection
Laboratory or
a National Energy-Efficient Transportation Laboratory. We
sympathetize with these
aims, but the history of the national weapons labs suggests the
particular value
of interdisciplinary institutions with multiple missions. The
weapons labs have
shown a capacity for flexibility and technological serendipity
that would be lost
if they were converted to single-purposes. The challenge is to
broaden their
franchise so that the labs can anchor a renewed national
commitment to high-tech
research and production generally.

Spinning a New American Technology Policy

There is nothing new under the rising sun. Well before Japan
devised its famous
industrial policy, the United States had industrial and
technology policies for
its emerging sectors. These policies were largely dictated,
however, by the
nation's military needs. In fact, most of America's
high-technology success
stories including aircraft, semiconductors, telecommunications,
computers trace their origins to government efforts to promote
technologies for
national security. Sometimes, the federal government even
fostered civilian
markets for essential military products for example, providing
postal routes for
aircraft during the 1920s so that defense contractors would not
disappear or lose
their technological edge for want of markets during peacetime.

The commercial benefits of America's defense-driven technology
strategy were pervasive if unintended. Pentagon research funding,
projects, and procurement expenditures provided four crucial
functions not found
sufficiently in private industry: patient capital; a mechanism
for collaborative
research; high-volume "launch markets" for new products and
production processes
such as integrated circuits and computer-controlled metal cutting
tools; and
rapid diffusion of the latest technologies.

The United States has spent billions of dollars on agricultural
extension, but
almost nothing on industrial extension. However, military
technology has been the
closest American equivalent to a technology-diffusion policy.
requirements for domestic second sources on major weapons
contracts, along with
the extensive use of subcontracting, ensured rapid and widespread
diffusion of
new production equipment and materials, fostering further rounds
of manufacturing
and design innovation. All of these led to essentially unintended
that had commercial uses.

But lately, as military technologies have become more rarified,
the possibility
of easy spin-off has diminished. Military-oriented companies have
come to exist
in their own distinct subculture. Over time, narrow military
requirements, along with byzantine procurement regulations and
national security
restrictions on exports, have isolated the defense sector of
high-tech industry
in its own ghetto.

Paradoxically, as the underlying technical base of military and
civilian products
have converged (mostly around microelectronics), the very
flexibility of the
underlying technologies made it possible for the products
themselves to diverge
more than ever before, driven by the very different needs of
military and
civilian consumers. The military can now optimize semiconductor
designs, for
example, for higher speed processing, whereas many commercial
chip producers want
to emphasize low power consumption (often a necessary trade-off).
A machine tool
for the Air Force can be constructed with a built-in capacity to
cut along
five-axes in unbounded space, whereas a commercial cutting tool
just needs to be
able to carve a curved or straight line along a stencil. And
defense satellites
can be built and programmed to confuse enemy spy equipment,
whereas commercial
satellites are typically made to travel in predictable
geosynchronous orbits.

Recent technological advances have enabled commercial producers
to match and
surpass military producers in product performance while
maintaining their
traditional superiority with regard to price. For example, while
the Pentagon's
Very High Speed Integrated Circuit (or VHSIC) program ultimately
produced new
high-speed chips for insertion into the cruise missile, Intel
Corporation, which
refused an offer to participate in VHSIC, met the same technical
commercially more than a year earlier, and at much lower cost.

In the U.S. military technology establishment today, there is a
debate that goes
under the heading "spin-on versus spin-off." If spin-off means
applications of defense-oriented technology, spin-on suggests
technologies de
signed in the commercial sector that can have military uses. Of
late, as advanced
technologies have proliferated, most Pentagon planners have
concluded that
advanced technology is simply too diffuse and dynamic for the
establishment to be the sponsor of every technology that might
have military
uses. Hence, even narrowly military needs require a broad
commercial high-tech

For the foreseeable future, America's industrial technology base
will be shaped
by three trends: declining military R&D and
procurement budgets; an
expanding overlap among technologies and materials underlying
both civilian and
military applications; and an increasingly global marketplace for
high technology
in which the much larger and more dynamic commercial component
determines the
overall direction of innovation. All three trends suggest there
will be more
spin-ons from commercial producers to the military sector and
fewer spin-offs in
the opposite direction. Given these trends, the United States can
no longer bear
the cost of maintaining two technology bases one for the
military, one for the

Today the same functional elements of government technology
policy that once
worked so well for the Pentagon R&D subsidies,
collaborative research
projects, large-scale guaranteed launch markets, domestic
diffusion mechanisms,
and export controls have purely civilian counterparts overseas.
In Japan, in
newly-industrialized countries such as Korea, Singapore, and
Taiwan, and in an
increasingly unified Europe, commercial producers need not wait
for spin-offs
from military-funded projects.

A New Mission

In light of the shifting relationship between military and
commercial technology,
what course for the national labs makes the most sense? Consider
the three
proposals that have emerged thus far.

Status Quo. The most conservative proposal, propounded in
a January 1992
report of the Secretary of Energy Advisory Board (SEAB) Task
Force on the
Department of Energy National Laboratories, counsels adherence to
the traditional
defense missions of the laboratories, even while it argues that
the world
situation has changed radically. The task force sidesteps this
contending that "a strategic vision of the future missions of the
Laboratories cannot be developed until the Department and the
Nation have
developed a similarly clear vision of their own role in the
future multipolar
world." In fact, the report denies any role for the labs as part
of a larger
national economic infrastructure. The report minimizes the labs'
role in
technology transfer, declaring that it and "other activities"
such as math and
science education should be undertaken only insofar as they do
not "detract from
the overall Laboratory focus on their core missions." In effect,
the task force's
recommendation regarding diffusion of technology amounts to an
endorsement of a
"trickle down" theory of technology transfer that will transfer
very little of
practical use to industry.

Bifurcation. A second proposal has been advanced by
Congressman George
Brown, Jr., chairman of the House Science, Space, and Technology
Responding to the SEAB report, Brown proposes that Lawrence
Livermore be
transformed into a wholly nondefense national laboratory, charged
with the
advancement of critical commercial and environmental
technologies. In Brown's
design, Sandia would become a technology transfer "center of
excellence" and the
main provider of arms-control verification technologies. A
downsized nuclear weapons R&D effort and a somewhat
larger nuclear
nonproliferation effort would be centered at Los Alamos.

Brown's proposal reflects an understanding of the economic
security challenges
facing this nation and a seriousness of purpose that is either
wholly absent or
obscured in the SEAB proposal. The proposal could, however,
create inefficiencies
and greater costs in the long term. In separating their defense
R&D from civilian
R&D efforts, the labs may fail to take advantage of the
increasing similarities
between the generic technologies of both sectors. For example,
microelectronics and advanced materials technologies used in
defense technology
are not significantly different from those in civilian

be sure, defense products typically cost more, take longer to
develop, and lag
behind their civilian counterparts in both quality and
performance. But such
differences are not inherent in the technologies; the example of
very high speed
integrated circuits demonstrates how the organizational
separation of technology
development projects can interrupt the flow of information
between research
groups that gear their applications to the diverse needs of
different customers.
Rigidly separating defense and commercial labs would limit
possible applications
and spillovers. Congressman Brown's proposal, however well
intentioned, would
isolate defense from commercial development. But if the nation is
to continue to
integrate the most advanced technology into its defense systems
at an acceptable
price and pace, the flow of civilian technology into those
systems should not be
artificially constrained.

Partnership. The third and most visionary of the proposals
to emerge thus
far is a bill titled the "Department of Energy Laboratory
Technology Partnership
Act of 1992" introduced by Senator J. Bennett Johnston, the
chairman of the
Senate Energy and Natural Resources Committee. This bill would
partnerships involving the DOE national laboratories and
industry, universities,
and other federal agencies for the purposes of research,
development, and
application of technologies critical to national security and

Recognizing the gravity and breadth of nondefense challenges the
nation faces and
the relevant technical strengths the labs possess, the bill is a
departure from most standard congressional attempts to come to
grips with the
post-Cold War world. The bill casts a wide net, specifically
identifying the need
for partnerships in areas such as energy efficiency, energy
high-performance computing, the environment, human health,
advanced manufacturing
technologies, and transportation technologies.

The bill is designed to strengthen the 1989 National
Competitiveness Technology
Transfer Act, which, for the first time, permitted the national
weapons labora
tories to enter into cooperative R&D arrangements
with the private
sector. It suggests the need to form partnerships for the
development of
technologies targeted by the biennial National Critical
Technologies Report an
effort derided by many free-market enthusiasts as an industrial
policy exercise
in "picking winners and losers." Breaking with past civilian
R&D initiatives, the bill stresses that the partnerships with
industry should involve sharing costs; provide greater
accessibility to the
personnel, facilities, and capabilities of the labs; and seek to
technologies that offer potential commercial value.

Still, there are a number of problems with the bill. The first
and most critical
shortcoming is that the partnership activities it promotes are
meant merely to
supplement traditional missions of the DOE and its labs in
defense and basic
energy research. These activities are likely to become
subservient to "missions"
of the labs and will not likely command priority funding and

Moreover, while the bill's emphasis on "dual use" implicitly
recognizes the
convergence of generic technologies in both defense and
commercial industry, it
overlooks the fact that commercial technology often outpaces
military technology.
The Pentagon's leading dual-use programs in the 1980s in very
high speed
integrated circuits and strategic computing led to few
significant civilian

The problem is that the funding for dual-use programs that make
applications paramount passes through (and is managed by) a
Pentagon or armed
services office. Despite the best dual-use intentions, the
technical defense
requirements imposed by these offices almost always aim the
evolutionary trajectory toward uniquely military applications.
Thus a dual-use
strategy dictated primarily by military needs ignores the fact
that the
commercial sector can increasingly accommodate military needs for
products and
processes something that was not usually true in the past.

A final problem is the risk that this approach could lead the
labs to be overly
obedient to the short-term needs of private industry. Taken to an
extreme, this
approach risks turning the labs into short-term "job shops"; in
short order, the
resources and talents resident in the laboratories will be chewed
up, burned out,
and effectively dispersed.

Thus the three general proposals suffer from fundamental
shortcomings, as does
the resulting state of the debate. Instead, the labs should be
retained as broad,
multipurpose organizations, with new resources and a broader
charter to work both
on "market-driven" projects with industry and on basic and
applied research that
serves the national interest.

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Labs as Economic Infrastructure

The missions of the labs must be recast to meet the post-Cold War
imperatives of
national and global well-being. This is not to suggest that the
national weapons
labs abandon defense R&D. Rather, we propose that they radically
shift their
efforts toward meeting nondefense needs in such areas as energy,
the environment,
and health care, as well as economic competitiveness essentially
reversing the
current 75 percent-25 percent ratio between defense and
nondefense R&D efforts.

Under this conception, the labs would:

  • pursue a civilian-driven R&D mission that is not merely
    to the present weapons mission but that entirely supplants the
    present mission
    in terms of importance;
  • continue to serve the nation, not U.S. industry, as their
    primary customer;
  • focus their R&D on a broad range of generic applications,
    with no
    "dual-use" bias imposed upon it;
  • redirect their mission as part of a larger, comprehensive
    post-Cold War
    national science and technology strategy.

Notwithstanding the stale industrial policy debate of a decade
ago, government
has always played an active role in the U.S. economy not in
"picking winners" but
in helping to incubate technologies. To compete in global
markets, American firms
need a place to work together to develop and diffuse generic,
technologies that are expected to produce significant spillovers
(in terms of
both product applications and manufacturing know-how) to a broad
swath of
industrial sectors. Today no individual firm has in place the
same multiprogram,
interdisciplinary strengths already present at the national labs,
nor can any
individual firm afford the investment in both time and money that
would be
necessary to create, from scratch, a similar range and breadth of

The national labs are not the only available instruments to
develop enabling
technologies, but as industry cuts back on its own long-term
R&D, the
labs play a more important role than ever. Bell Laboratories, for
example, used
to perform this enabling function for the American electronics
industry with
extraordinary distinction. Barred by antitrust agreements from
commercial applications of its own basic research, Bell Labs sold
or licensed the
results of that research to a wide array of electronics
companies, foreign and
domestic, which then went on to compete with one another on the
basis of their
own particular applications of the Bell-generated technology. The
break-up of
AT&T, and the resulting commercialization of Bell
Labs, deprived U.S.
electronics firms (and all the firms that use electronics
products) of their
guaranteed access (through widespread diffusion) to the latest
breakthroughs. As a result, the entire U.S. economy was deprived
of a powerful
engine of economic development.

The national labs can help restore this engine of development and
diffusion that
the U.S. lost with the commercialization of Bell Labs (and which
the Ministry for
International Trade and Industry and NTT Labs still provide in
Japan). Because
the labs have no commercial interests of their own, they are a
cooperative arena for companies many of them sometime competitors
to work
together. At the same time, unlike other possible government
arbiters, the labs
are technologically competent in their own right.

Though still minuscule compared with their defense programs,
partnerships at the weapons labs are under way in areas such as
oil recovery,
superconductivity, and specialty metals. These partnerships have
characteristics that define a useful model: they share costs,
where government
supports the laboratories and industry supports the research to
which it
contributes; their efforts are focused on areas of technological
they are directed substantially at the local level, with
decisions made by the
partners, not government bureaucrats; and they are
industry-driven to ensure
market relevance but not industry-dominated. This approach, which
the partnership
bill emphasizes, should be refined and enlarged.

Since the passage of the 1989 technology transfer legislation,
the federal
government has increased funding for cost-sharing projects at the
labs. Energy
Secretary James Watkins has requested $117 million for such
efforts for 1993, up
from $69 million in 1992. Yet, these efforts remain underfunded,
representing a
small fraction of the budgets at the three weapons laboratories.
For example, out
of the approximately $250 million in nondefense R&D conducted in
1991 at Los
Alamos (including basic science), only about $20 million, or 2
percent of the
lab's total budget, went to support cooperative, nondefense R&D
with U.S.

There is still room for improvement, of course. Since the 1989
however, industry-laboratory interactions have been more
constructive and
productive and the level of trust and confidence continues to
rise on both sides.
Experience has overturned the simplistic view that the national
labs are
"technology warehouses" containing uncommercialized commodities
ripe for the
taking. The evolution from technology transfer to technology
collaboration an
evolution accelerated by the 1989 legislation marks a major
shift for the

The national laboratories should also be given a strengthened
mission in basic
and applied civilian research. Such research is a public good,
indeed, critical
to a new definition of national security the health, wealth, and
well-being of American citizens. Under such a definition,
research in alternative
energy sources, energy-efficient transportation systems, and even
algorithms, which can save millions in communication costs,
becomes a top
national priority. Consequently, it would make as much sense to
privatize science
as it would to privatize the military.

The national laboratories are the fruit of nearly five decades of
investment in state-of-the-art equipment, multiprogram research
facilities, and
world-class scientists and engineers. Indeed, the labs are
unsurpassed in the
federal sector for the quality of their research and the breadth
of their
achievements. The time is right to make the labs available to
tackle a broader
set of national purposes. For fifty years, government and
industry teamed up to
win the Cold War. With that battle won, and a new, peaceful,
competition getting under way, this is the moment to recognize
the labs as the
unique national asset they are.

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