The United States has all the resources for a winning hand, provided it stays competitive in a changing world.
Throughout history, nations with both a strong economy and a strong military have shaped human civilization. From ancient times to our modern world, the creation, mastery and use of new knowledge and technology have played a critical role in this leadership, and have determined which societies, countries and economies flourished, gained geopolitical power and changed the course of history.
Continuing this historical progression in the 20th century, the United States rose as a global economic and military giant on the foundation of its industrial and technological might. Since the Cold War, as the world’s only remaining superpower, the United States has shaped the evolution of the global economy and geopolitical landscape, promoting freedom, democracy, free trade and open markets around the world. Hundreds of millions of people globally have risen out of poverty on the basis of these principles.
It takes wealth to build and sustain a strong military force, and it takes a strong economic engine to build that wealth. This depends heavily on a nation’s scientific and technological prowess. Economists have estimated that advances in knowledge and technology have been responsible for at least half of long-term economic growth among advanced economies. U.S. industry plays the pivotal role in converting that new knowledge and technology into the competitive products and services that generate our nation’s economic growth and wealth.
U.S. industry’s competitiveness and the U.S. military have been closely intertwined. For example, in the postwar era, U.S. defense research and development (R&D) set the direction for world technology. In 1964, U.S. defense R&D alone was two-thirds as large as all government and industrial R&D – both civilian and military – performed by Germany, France, the United Kingdom, Italy, Sweden and Japan combined.
U.S. companies used the technologies emerging from federal and defense R&D to develop and grow new commercial industries. For example, in the aerospace industry, defense-related research supported the development and refinement of jet engines, aluminum airframes, civilian airliners and communications satellites. Federal and defense R&D programs supported important advances in computing and software that were applied in the emerging commercial computer industry. Of the 45 major advances in software originating in the United States between 1950 and 1980, 18 were funded by the federal government. These provided important benefits to the U.S. commercial software industry, which today dominates the global market.
However, we have moved to a multipolar science and technology world. In 1960, the United States accounted for more than two-thirds of global R&D. Today, two-thirds is performed somewhere other than the United States. For example, China’s investment in R&D has grown more than fivefold in the past decade – from $70 billion in 2004 to $368 billion in 2014 – and is now second only to U.S. investment. Game-changing technology can emerge almost anywhere, and the United States is no longer assured of global leadership in all areas of technology critical for commercial and defense applications.
THE ADVANTAGE IS OURS ... FOR NOW The globalization of technology comes at a time when the role of advanced technology is vastly expanding in defense across all fields of action: air, land, sea, outer space – and the new domain of cyberspace, where DoD must defend millions of devices linked into thousands of networks that are probed millions of times each day by unauthorized users. Robots, drones, and other autonomous and unmanned systems will increasingly extend operational capabilities, lower the risk to soldiers and lower costs. Sensors will permeate the operational environment, expanding intelligence-gathering, increasing battle-space awareness, monitoring the condition of soldiers in the field and improving logistics. Data analytics will enhance decision-making, while new materials will strengthen structures of all kinds or provide unimaginable properties and novel functions.
Advances in technology are creating a stronger, safer, smarter and more shielded U.S. soldier. Even the combat uniform is going high-tech with revolutionary textiles and fibers. These technical textiles could protect against microbes, insect-borne diseases, cold weather, cuts and abrasions; enhance flame resistance; screen for toxic chemical and biological agents; and provide biomedical monitoring. Wearable electro-textiles could provide power generation and personal cooling, and reduce a soldier’s thermal signature. Ultimately, many of these advancements in textiles and fibers will have civilian applications, offering the United States an opportunity to lead the world in high-tech fiber and textile manufacturing.
In some areas of cutting-edge technology, DoD may need to rely on sources outside the defense-industrial complex – for example, where DoD represents a small slice of the customer base and does not drive the marketplace, the manufacturing base or the technology race. For example, information technologies, advanced imaging and advanced microelectronics are the foundation for the evolving defense landscape in intelligence-gathering, information dominance and net-centric warfare. However, many areas of IT systems and microelectronics are being developed and implemented faster in the civilian sector.
Sourcing from offshore producers may provide some benefits in terms of lower costs due to economies of scale and cost sharing, and access to best-in-class technologies. For example, nine nations have partnered on system development, demonstration and component production for the F-35 Joint Strike Fighter. However, relying on a primarily commercial industry that must maintain global competitiveness also presents challenges. Our national security depends on fielding the most advanced weapons, communications and cryptographic systems, and these rely on microchips, sensors and imagers that have not been compromised by tampering or counterfeits. But ensuring the integrity of electronics is more challenging than ever, as production has largely migrated to Asia.
For example, the carrier variant of the F-35 contains about 3,500 integrated circuits across 12 of the aircraft’s subsystems. The majority of these integrated circuits are manufactured in Taiwan
and China, the global epicenter of electronics counterfeiting and intellectual property theft. Suspected counterfeit parts have been found in military aircraft, thermal weapon sights delivered to the Army and mission computers for the Missile Defense Agency’s THAAD missile.
We need secure, trusted manufacturing for U.S. defense microelectronics. But due to the rising costs of semiconductor foundries and the commercial nature of electronics markets, there is a dwindling number of trusted microelectronics producers on which DoD can rely. At the leading edge of microchip technology, only four companies in the world can provide products: Taiwan Semiconductor, Abu Dhabi’s GlobalFoundries in New York, Korea’s Samsung Semiconductor facilities in Texas, and Intel facilities in Oregon, Arizona and Ireland.
Also, commercial microelectronics drives production, where producers rely on large markets and large production runs to be cost-competitive. In contrast, the defense microelectronics market is much smaller, requires more sophisticated products and typically involves small production runs without the economies of scale of commercial production.
This is a significant risk to assured supply of the most advanced defense microelectronics that must remain superior to our adversaries. The United States will need new financial models and public-private partnerships for trusted foundries, and new approaches to validate and verify the integrity of microelectronics.
COMPETITIVE LANDSCAPE U.S. military capabilities rest on our industrial base, which is globalizing and undergoing rapid transformation with smart manufacturing, new materials, the Industrial Internet of Things and other advances. Competition has expanded well beyond our traditional competitors in Europe and Japan to include China, South Korea, India, Brazil and other emerging economies that only need an Internet connection to access the global economy.
Given the critical role of U.S. manufacturing to our defense capabilities, the industry’s global competitiveness and sustainability in commercial markets on which it relies is vitally important.
The Council on Competitiveness’ 2016 Global Manufacturing Competitiveness Index is a survey of CEOs and senior-level manufacturing executives, who give their rankings and outlook for
manufacturing competitiveness among countries.
In manufacturing, China is the most competitive nation – for now. However, global executives expect the United States will take over the No. 1 position by the end of the decade. The traditional manufacturing powerhouses of the 20th century – the United States, Germany, Japan and the United Kingdom – are all back toward the top of the 10 most competitive nations in 2016, as manufacturing industries in these countries have embraced advanced product and manufacturing technologies likely to underpin their top positions globally in the decade ahead.
The United States leads in high-technology manufacturing industries, many important to U.S. defense: aircraft; computers, communications and semiconductors; testing, measuring and control instruments; and pharmaceuticals. We have a 29 percent global share and our output is growing, but China is close behind at a 27 percent share. European Union and Japanese output have declined.
Of the BRICs – Brazil, Russia, India and China – only China was viewed as a top 10 manufacturing nation in 2016. Other BRICs have experienced a significant declines in their rankings over the past few years. Brazil – a global leader in aerospace and aircraft – has had the steepest fall, dropping from the top 10 to 29th. Russia has slid down the list to 32nd.
The “Mighty Five” – Malaysia, India, Thailand, Indonesia and Vietnam – are rising. In fact, they are expected to pierce the top 15 nations in manufacturing competitiveness over the next five years. They could become a “New China” in terms of low-cost labor and agile manufacturing.
This is a snapshot of 2016. Yet the competitive landscape is dynamic and ever-transforming. For example, natural gas is a key feedstock for the chemical industry. And thanks to the shale gas boom and plummeting natural gas prices, the U.S. chemical industry has gone from being the world’s highest-cost producer to among the world’s lowest-cost producers.
STRONG ON FUNDAMENTALS Beyond this snapshot, some fundamental factors determine the long-term competitiveness of nations – factors that have been ranked by global executives.
They identify talent as the most important driver of global manufacturing competitiveness, and skilled technical and engineering talent is essential for the development of new military technologies. The global executives see developed nations such as the United States, Germany and Japan as the most competitive in talent.
A nation’s innovation ecosystem is vital in shaping the future of a country’s competitive and innovation potential. The United States, Germany and Japan lead the world in innovation ecosystems. The United States has a globally unparalleled science and technology enterprise, with half a trillion in R&D expenditures annually (as of 2015), creating the world’s deepest wells of innovation potential. Because the United States is the world’s largest investor in basic research, it dominates the playing field in terms of patents, sowing the seeds of future innovation. It represented 29 percent of patents filed by all countries in 2014.
In the superb U.S. innovation ecosystem, industry, startups, national labs and universities collaborate on R&D across the spectrum of science and technology. Other elements that make the United States so competitive in this area include its policies on technology transfer, ability to adopt new tech and intellectual property protection laws.
Energy and manufacturing competitiveness are tightly connected, and the cost calculus for energy in manufacturing has rapidly tilted in the direction of the United States. We are an energy superpower, the top global producer of petroleum and natural gas – thanks to U.S. advances in horizontal drilling, hydraulic fracturing and advanced seismic imaging technologies that unlocked a treasure trove of shale oil and gas.
Also, the United States has some competitively decisive intangibles, including a culture of entrepreneurship and risk-taking. For example, the most recent data show that about a half-million
new firms are started in the United States each year. The country has dynamism at every level of the economy when it comes to economic and business change, and we are better than most in reorganizing around disruptive technology.
I believe the United States has a winning hand for long-term global leadership and national security: resurgent manufacturing, a deep well of research and technical capability that is constantly being replenished, a superb capacity for innovation, high-quality research institutions, a globally unique national laboratory system, a culture of creativity and entrepreneurship, and a world-class workforce in science, engineering, technology and manufacturing.
These are the assets needed to keep our economy fundamentally strong, allow us to field the world’s most technologically sophisticated and capable military force, build strong alliances worldwide and lead in global affairs, which will mitigate any major threat to our national security.
But this all depends on addressing some economic and investment challenges that are weighing us down – including our national debt, the need to increase the rate of economic and productivity growth, rebuilding our crumbling physical infrastructure, and investments in our future in R&D and the skills of our people. Ultimately, U.S. national security is achieved by both our military and our economy as a whole.
Deborah Wince-Smith is president of the Council on Competitiveness, a nonprofit and nonpartisan leadership organization committed to advancing U.S. competitiveness in the global economy.
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