INTERNATIONAL ISSUES REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00912A002300010026-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 20, 2016
• Document Release Date: June 6, 2006
• Sequence Number: 26
• Publication Date: February 28, 1979
• Content Type: REPORT

National
pr 9migiFor Release 2007/03/06: CIA-RDP79T00912AO02300
Assessment
Center
International
Issues Review
State Dept. review completed
Secret
Secret
RP IIR 79-002
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ENERGY ISSUES
II
IRANIAN OIL DIFFICULTIES AND THE INTERNATIONAL
ENERGY AGENCY: PROBLEMS AND TENSIONS
The Iranian crisis poses a serious threat to the
stability of international oil supplies and
prices that will severely test developed country
energy cooperation. The ways in which the 19
TEA countries handle tensions arising from dif-
ferent national philosophies on supranationalism
and different attitudes on specific energy
issues will. affect the chances for future coop-
eration. II
INDUSTRIAL INNOVATION
INDUSTRIAL INNOVATION POLICY IN FRANCE AND
THE UNITED KINGDOM
I
This article discusses the efforts of France and
the United Kingdom to devise an effective indus-
trial innovation policy. The task is in many
ways more difficult for them than it is for West
Germany or Japan, since the French and British
economic situations are less favorable, and
their industrial innovation policies more r.e-
sponsi.ve to external political aims.
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REGIONAL SECOND ORDER POWERS
II
NORTH-SOUTH ISSUES
MAPUTO NONALIGNED BUREAU MEETING: THE KEYNOTE
WAS UNITY . . . . . . . . . . . . . . . . . 29
The special Bureau meeting in Maputo, Mozam-
bique, again demonstrated the ability of the
nonaligned movement to pull together despite
fundamental. differences. The battle between Yu-
goslavia and Cuba for leadership of the movement
bubbled beneath the surface, but each nation
compromised for the sake of unity. A more im-
portant test for nonaligned unity will be the
Bureau meeting in June in Sri Lanka, where nei-
ther the agenda nor attendance will be limited,
as they were in Maputo.
HUMAN RIGHTS
DISSIDENCE IN THE USSR
Soviet attempts to discourage dissidence since
the show trials last summer have been only par-
tially successful. While the regime has neutra-
lized some groups of dissidents, it has failed
to eliminate any groups, and new manifestations
of dissidence continue to appear. II
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Iranian Oil Difficulties and the International
Energy Agency: Problems and Tensions
Iranian instability and the resulting impact on
the international oil market pose a threat to the in-
dustrialized world less grave at present than 1973-74
Organization of Petroleum Exporting Countries actions,
but perhaps more serious in the long run. The effec-
tiveness of consumer cooperation, especially within
the framework of the International Energy Agency
(TEA), will probably be one of the most important de-
terminants of how well the democracies will cope with
the threat. I-I
Growing recognition that Iranian oil export re-
ductions are likely to be substantial and prolonged
will probably exacerbate political tension among the
Organization for Economic Cooperation and Development
(OECD) countries over desirable forms of multilateral
cooperation to mitigate the impact of anticipated sup-
ply problems. Since the 1973-74 oil crisis, problems
stemming from different national philosophies concern-
ing supranational cooperation, different legal systems
and industry-government relationships, and conflicting
positions on specific energy issues because of differ-
ent resource bases have complicated efforts by the in-
dustrial democracies to cooperate on energy matters.
In the past these issues have been handled in "low
politic" fashion by working-level experts. Now, as
the problems assume increased relevance, they are
likely to become "hi h politic" questions engaged by
senior officials.
Within the TEA, the most likely forum for such
cooperation, the uncertainty and tension associated
with Iranian oil shortfalls can be separated into
three different, but related, issues. First, there is
the question of whether TEA emergency provisions will
be activated in the future and whether attendant po-
litical disagreements will impede their application.
Second is the question of what role the TEA is to play
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as a forum for political discussions and decisions re-
garding relations with producer states. Third, the
problem of different national perceptions of the IEA's
proper role in long-term energy policy and program de-
velopment will complicate considerations of short-term
measures. II
IEA Emergency Provisions
General uncertainty and potentially serious dis-
agreements currently exist among
the
19 IEA countries
concernin ossible activation of
the
emergency provi-
sions.*
The first emergency section of the International
Energy Program (IEP) requires each country to establish
and maintain an "emergency reserve" (normally thought of
as oil stocks, although standby oil production or in-
place fuel switching also satisfy the requirement) equal
to 60 days (90 days by 1980) of oil imports. Since the
opening discussions of the IEA in 1974, there have been
some difficulties in determining how much oil could actu-
ally be made available for consumption during an emer-
gency. There is, however, general agreement that na-
tional stock levels have increased dramatically from the
two- to 40-day range held prior to 1974. Reserve oil
stocks are now at a level where they offer considerable
insulation from minor, short-term supply disruptions.**
-IEA members are: Austria, Belgium, Canada, Denmark, Germany,
Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New
Zealand, Norway, Spain, Sweden, Switzerland, Turkey, United King-
dom, and the United States.
**In November 1978 CIA estimated that major IEA countries held oil
stocks ranging from 60 to 140 days of imports or 60 to 70 days of
consumption. However, it is important to note that these stocks
are normally drawn down during the first quarter of each year and
that drawdowns have been exceptionally severe as a result of Iran-
ian shortfalls.
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Nonetheless an Allocations Systems Test in 1978 found
that the IEA countries were still devoting too little
'attention to the details of national stock programs,
raising the probability of regional, seasonal, refining,
or product shortages during an emergency.
The second emergency provision requires each coun-
try to have ready at all times domestic demand restraint
programs sufficient to reduce its final oil consumption
by 7 percent whenever the group faces a 7-percent short-
age, and by 10 percent when the group faces a 12-percent
shortage (stocks in excess of the 60/90 day requirement
may be substituted for demand restraint). Although
these programs are an important part of the emergency
agreement, there has been relatively little discussion
of them because they are considered self-enforcing; all
oil sharing is computed by subtracting each country's
demand restraint from its normal imports to reach a
"permissible consumption" figure. There is, however,
disagreement here (as in many other areas) between those
who favor leaving maximum discretion to the individual
country and those who favor stronger multilateral con-
trol. The smaller European countries, generally the!
most supranational of the IEA members, have on occasion
criticized the largest members--especially the United
States--for formulating only vague plans on how to con-
strain gasoline consumption, the mainstay of the pro-
posed US restraint program.*
*Many US policy planners contend that a nonspecific, flexible al-
locations system is the most desirable program and that the criti-
cisms are not substantively justified. The Benelux countries,
often joined by Italy, have been most vocal on this question. The
United Kingdom has tended to support the US philosophy of looser
cooperation, although they have taken exception in the area of
producer-consumer cooperation. Germany also tends to agree with
the US philosophy although they have pushed hard for greater
supranational cooperation in long-term research and development.
This pattern is complicated however, by special national interests
(for example, when an oil indust,rv issue is raised, the Dutch act
to "protect" their companies). lI I
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The most important, and most complex, provisions of
the emergency program deal with the redistribution of
oil within the group to share any shortage accruing from
a reduction in normal available supplies. "When the
group as a whole or any participating country sustains
or can reasonably be expected to sustain" a reduction
in oil supply of 7 percent or more, the international
allocation mechanism can be activated. Following a de-
tailed formula, all oil available is distributed to the
group on the basis of recent consumption ratios.
The emergency allocation provisions often are de-
scribed as the outstanding success of the IEA. This may
be true, but there is still considerable controversy over
how the allocation process should be initiated and ad-
ministered. Perhaps the most acute problem stems, as
with demand restraint programs, from different national
positions on what constitutes a desirable balance between
national sovereignty and supranational decisionmaking.
These differences were apparent during the 1978 Alloca-
tions Test in discussions concerning the links between
international allocations and national programs, such as
a government price freeze on oil products that would
force companies that have purchased crude oil at rising
Conditions for implementation
Oil consumption by the 19 IEA members will prob-
ably average about 36 million (mm) barrels per day (b/d)
during any base period (first four of the last five com-
pleted quarters) used for emergency computations during
the near future. Therefore, a reduction to the group of
2.5 mm b/d (7 percent) would activate implementation of
the combination of national demand restraint programs
and intragroup allocation of oil. Precrisis Iranian oil
exports averaged 5.2 mm b/d, almost 4.0 mm b/d of which
went to IEA members. The shortfall required to activate
restraint and sharing has not developed to date because
of loose oil market conditions that existed before cur-
rent Iranian production cuts and the willingness of Saudi
Arabia to expand its production. If, however, Iranian
exports remain low or unstable over the next few months,
other producers reimpose precrisis production levels,
or the demand for oil rises, the possibilities f
7-percent shortfall will significantly increase. I
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Even if the group as a whole escapes this large a
shortfall, it is possible that an individual IEA member
would suffer'a 7-percent reduction in its oil supply and
would, request that the allocation mechanism be put in
force. Japan, the most vulnerable member, when both
quantity of oil imports and percentage of the imports
coming from Iran are considered, consumes approximately
5 mm b/d of oil, about 12 percent of which is Iranian.*
Either a reduction in Iranian exports of less than .2.5
mm b/d that is unevenly distributed and has heavier im-
pact on a single member, like Japan, or any other chain
of events resulting in a 350,000 mm b/d loss to Japan,
could be used to activate allocation.
For the following reasons, such a reduction to
Japan and ensuing activation of the allocation mechanism
are less likely in the short run than first appears:
-- The previous loose market described above.
-- The inclination of international companies
to distribute supply evenly because this
is less disturbing to their commercial
distribution systems, profits are maxi-
mized, and government and public criti-
cism of the companies for shortages are
kept in check.
-- The Japanese Government's reluctance to
dramatize any shortage for domestic polit-
ical reasons and because it fears OPEC
retaliation against IEA.
During late January and February, the IEA Secre-
tariat has become somewhat less optimistic about avoid-
ing emergency measures. In early January, IEA Secre-
tariat data (based on the assumptions of Iranian produc-
tion of 2 mm b/d during the first quarter and increasing
thereafter, and on 3.4 mm b/d additional production from
other sources) indicated that conditions for the alloca-
tion activation were not likely to be met during the
*Japan's Iranian oil imports averaged about 12 percent early in
1978 but reached higher levels late in the year.
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first quarter of 1979 and perhaps not during the entire
year. By late January the Secretariat and delegates to
the Oil Market Group that assesses supply conditions
were less optimistic about both Iranian production and
alternate sources. They described the situation as
"serious but not critical," and Executive Director
Lantzke publicly discussed "grey zone" shortfalls that
would not formally activate the emergency program but
would, nevertheless, be cause for concern. By early
February IEA members had grown much more pessimistic.
Even now, however, there is considerable uncertainty
over how quickly stocks are being drawn down and whether
the situation will be made "critical as well as serious"
b, r consumption peaks or fall stockbuilding.
Longer Term Problems
In addition to difficulties surrounding the emer-
gency program, we are beginning to see troubles emerging
from longstanding, although muted, disagreement over the
role of the IEA as a forum for political discussions con-
cerning relations with producer states. For some time
after the creation of the IEA, the organization was
widely viewed as a US attempt to create the appearance
(at least) of a countercartel to confront OPEC on price
and supply security questions. This view of the IEA
faded as the notion of a workable countercartel lost
credibility, but it was resurrected last summer by UK
Energy Secretary Benn, who criticized the IEA as "a
vehicle for confrontation with OPEC" and praised the
French as "brilliant diplomats" for not joining. Benn
followed his criticisms with a call for a conference of
OPEC and non-OPEC oil producers--and he has pushed
harder for such a meeting since the difficulties in Iran
have grown acute. US officials oppose the conference,
reportedly to be attended by IEA members Norway and
Canada as well as the United Kingdom, because they be-
lieve it would undercut IEA solidarity.
Others have criticized the Agency for the opposite
reason. Since the demise of the ill-fated CIEC Energy
Commission, non-British Europeans have complained that
the IEA has not served as a forum for political discus-
sion and decisionmaking on relations with producing
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countries. Charging that the IEA has failed to facili-
tate "better communication and closer contacts" with
producing countries, EC Energy Commissioner Brunner has
called for a conference of oil producer and consumer
states, presumably outside the IEA framework. Although
we have little information on the Brunner proposal, his
advocacy of such a conference has grown stronger as the
Iranian crisis has deepened and could become as sou
of considerable disagreement within the IEA.
A third issue likely to result in increased tension
within the IEA and complicate more immediate problems
is that of long-term cooperation. For the first two
years of its existence, the IEA was the arena for a dif-
ficult series of negotiations to develop an agreement.
on long-term energy principles, objectives, and stra-
tegies acceptable to each member. Although a long-term
program was agreed to in 1976, it is very likely that a
prolonged tight oil market will lead to the reemergence
of many of the disagreements that were present during
its negotiation. During the process of negotiations the
non-oil-producing states wanted to codify responsibility
for higher levels of oil production by IEA members while
the oil producing states pressed for IEA financial back-
ing of any expansion of production. Most states urged
the United States to raise its oil and natural gas prices
to world price levels, and states with lower per capita
energy consumption pressed the United States to adopt
more effective conservation measures. The national
sovereignty versus multilateral question broke out fre-
quently when particular elements of national energy pol-
icies (for example, coal use) and particular objectives
(for example, import targets) were discussed. In addi-
tion, each country raised its own "special circumstances"
to avoid sacrifice. These disagreements would probably
be intensified by the slow and painful national political
debates over energy policies that will occur if a long-
term global oil shortage develops.
Outlook
In many respects, the degree and type of cooperation
by industrial countries called for within the IEA frame-
work should a prolonged global oil shortfall occur are
unprecedented. For that reason, as well as because of
the practical difficulties of dividing fairly a critically
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needed but scarce resource, it is problematic that the
agency will function as designed. The relative success
or failure of the IEA will nevertheless be an important
signal of how closely industrial countries will be will-
ing to cooperate on energy matters in the future, and
what form that cooperation will take.
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Industrial Innovation Policy in France and the
United Kingdom
The major members of the Organization for Eco-
nomic Cooperation and Development (OECD) are increas-
ingly convinced that they must spur industrial innova-
tion if they are to improve their internal economic
situations and retain their economic position vis-a-
vis the rapidly industrializing less-developed coun-
tries (LDCs). Competition from other political and
economic objectives, however, seriously restricts the
public funds available for economically promising in-
dustrial innovation projects, and the private sector
has been unwilling or unable to fill the gap. In ad-
dition, the innovation process itself is so uncertain
that even the most generous governmental program might
not have the desired beneficial impact on productiv-
ity, competitiveness, and growth. II
An earlier article in this review offered an
overview of the difficulties facing Western
governments generally in implementing their commitment
to industrial innovation.- This article discusses the
efforts of France and the United Kingdom to devise an
effective policy in the area. The task is in many
ways more difficult for them than it is for West
Germany or Japan, since the French and British
economic situations are less favorable and their
industrial innovation policies more responsive to
external political aims.
French Government Support of Innovation
The Extent of the Government Effort
The government dominates industrial research and
development (R&D) activity in France. Its support to
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private and nationalized industry, the universities, and
public research laboratories accounts for roughly two-
thirds of the industrial research and development funds
expended annually. A recent attempt to shift some of
the burden to the private sector resulted in a relative
decrease of total R&D expenditure more than in an in-
creased private sector effort. Gross R&D expenditures
fell from over 2.1 percent of GNP in 1968 to less than
1.8 percent in 1978.
Corporate reluctance to increase R&D spending prob-
ably stems from limits on available capital, a tradi-
tional aversion to risk, and an expectation bred of long
habit that the government will provide much of the needed
funds. Since the government is increasingly convinced
that more R&D activity is necessary and that the private
sector is unlikely to make the required effort, support
for industrial innovation from the public sector is
likely to increase in the near future.
Government Policy
The French Government became extremely active in
support of industrial innovation in the mid-1960s, as
part of President de Gaulle's drive to enhance France's
economic, military, and political independence and pres-
tige through the creation of viable French high-technol-
ogy industries. Under De Gaulle, the percentage of GNP
devoted to R&D rose significantly. The electronics,
aircraft, and nuclear industries were the objects of
major national programs designed to make France quickly
competitive in those sectors. The performance of the
national programs was mixed. Projects such as the Con-
corde and the Plan Calcul (computers) were economic fail-
ures.- The nuclear energy and military aircraft programs
De Gaulle's successors have been less driven than
he by the desire for national independence and prestige
and more interested in cost-effective social and eco-
nomic programs that would strengthen the domestic econ-
omy and their own domestic political standing. In line
with those aims, the government has been increasingly
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willing to approve the acquisition of foreign technology
or cooperative ventures with foreign firms when such
arrangements are economically beneficial to France. It
has also tried to decrease its support of large firms
and defense-related projects relative to its support of
social and economic development programs and small- and
medium-sized companies. I
The government has found it more difficult, however,
to change its practices than its intentions. Although
the share of government R&D funds devoted to national
defense has declined, it is still large (see table 1).
Aerospace, electronics, and informatics continue to rely
heavily on the government for their R&D funding (see
table 2). The nondefense areas to which the government
has rhetorically assigned top research priority (raw
materials, energy, natural environment; modification of
the agricultural and industrial production systems; re-
search into the conditions of life; and scientific coop-
eration with developing countries) received only one-
quarter of the government research budget in 1978.
The government also has not implemented a major in-
crease in its industrial innovation support to small-
and medium-sized firms. Companies with more than 1,000
employees carry out about 90 percent of French industrial
R&D. Government policy continues to enhance the prior
advantage which personnel, funds, and equipment give
large firms in R&D. Government procurement, which ac-
counts for about 8 percent of GNP, still favors large
companies--most obviously in aerospace, electronics, and
nuclear energy, but in most other industrial sectors as
well. In addition, most direct government res and
development contracts are let to large firms.
Direct Aids to Innovation
No longer characterized by major, single-minded
undertakings, French Government support to industrial
innovation now tends toward a series of discrete, non-
industry-specific mechanisms designed to commercialize
research results and to improve links between industry
on the one hand and government and university labora-
tories on the other.
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One of the largest government programs to encourage
industrial innovation--"Aid to Development"--has existed
in one form or another since 1956. Designed to help in-
dustry make use of research results, it supports the de-
velopment of prototypes and pilot plants, and assists in
the early stages of marketing. The aid consists of an
interest-free loan covering 50 percent of the project,
to be repaid upon success. Large firms, principally in
electronics, electrical engineering, and mechanical
engineering, are the program's chief beneficiaries.
Because they have substantial research facilities,
large companies are also the main beneficiaries of the
system of "Joint Actions" (Actions Concertees), under
which the government funds 50 percent of the cost of a
research program of priority interest to more than one
government department. The main users have been in
heavy engineering, chemicals, oil, and the food industry.
0
Three programs more specifically geared to the needs
and resources of small- and medium-sized firms are "Pre-
Development Aid"; "Medium-Term Innovation"; and the
ANVAR (Agence Nationale de Valorisation de la Recherche).
0 -
The ANVAR uses a variety of means to help enter-
prises and research institutions develop their inven-
tions. For example, it disseminates patent information,
undertakes market studies, grants licenses, and arranges
contacts between the inventor and funding sources.
The more specific "Pre-Development Aid" system
grants a subsidy to an industrial research center for up
to two-thirds of the cost of predevelopment work on a
product of its research. The research center must be
associated with a firm that will develop the product if
the predevelopment work proves successful.
"Medium-Term Innovation," established in 1978, pro-
vides government guarantees on loans of up to 500,000
francs (or 70 percent of costs, whichever is less) to
firms wishing to introduce a new product or manufacturing
process. The loan is granted for the entire period
needed to commercialize the innovation. C
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Another series of government aids to support new
technologies will be proposed this year. The initial
government announcement of that program indicates a
strong interest in high technology (although not neces-
sarily defense-related) sectors. The aim in this case,
however, is probably not only to enhance national inde-
pendence and prestige, but even more to take up the
slack left by declining sectors (principally steel and
textiles) in which France no longer has a productive
advantage.
Indirect Aids to Innovation
Several aspects of the French tax system encourage
industrial innovation. For example:
-- Businesses may deduct many R&D-associated
operating costs and a portion of gifts
to nonprofit research institutions.
-- Fifty percent of the cost of scientific
and research buildings may be written
off in the first year of use.
-- Investors in specific research companies
may deduct 50 percent of the cost of
the shares from taxable income, and may
receive royalties tax free if they are
reinvested within three years.
-- Proceeds from the sale of patents are
not taxable.
-- Reinvested gains on capital held for
more than two years are taxed at only
15 percent. 0
Assessment
Contemporary French Government R&D policy appears
not only much less ambitious, but. also more disjointed
and complex than it was under De Gaulle. When most
effort was concentrated around a few specific objectives
embodied in the national programs, the policy was rela-
tivel well-defined--even if it failed in many respects.
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Now the government is pursuing a great variety of
objectives that are not necessarily compatible with one
another. It tries to encourage economically rational
innovations, but feels politically bound to maintain a
major national defense effort and to assist uncompetitive
high-technology firms that grew out of the earlier
Gaullist programs. It wants to assist small- and medium-
sized firms, but continues to work most closely with the
largest enterprises in each industrial sector. Although
it aims at reducing government support to private indus-
try, it also wants to see the industrial innovation
effort enhanced, and must therefore provide more R&D
funds as long as the private sector is not willing to
do so.
French industrial innovation policy therefore seems
to exist at two levels. Rhetorically, the government
proclaims its commitment to economic-development-oriented
R&D, to economic rationality, and to the health of small-
and medium-sized firms. Practically, some programs de-
signed to fulfill those aims are passed over in favor of
others that are responsive to politically inspired
Nevertheless, the government is increasingly inter-
ested in pursuing economic benefit. Its current interest
in high-technology sectors is grounded not only in polit-
ical ambition, but also in the belief that some tradi-
tional manufacturing activities are no longer viable and
must be replaced and that the United States may no longer
be relied upon for technological leadership. It will,
therefore, continue to support innovation in areas like
nuclear energy and aircraft, which enhance national pres-
tige but where France also has a competitive advantage.
Major new programs that carry little economic promise,
however, are not likely to be introduced.
British Government Support of Innovation
The Extent of the Government Effort
The British case offers telling proof that high re-
search and development expenditures and high levels of
invention do not necessarily lead to satisfactory indus-
trial innovation and thence to improved growth and
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productivity. Relative British R&D expenditures since
World War II have been second only to those of the United
States, at over 2 percent of GNP annually. The United
Kingdom is also generally recognized to be second only
to the United States in the number of major inventions
produced. But British GNP and productivity growth rates
have been very low throughout the postwar period. Al-
though US productivity has risen even more slowly, an
American worker is still almost twice as productive as
The British Government plays almost as important: a
role in industrial research and development as its French
counterpart, supplying 60 percent of the R&D funds spent
in the United Kingdom. The Rothschild Report in the
early 1970s maintained that this figure was too high and
that many government programs should be financed by in-
dustry. In line with those findings, the government
phased out several industrial R&D support programs and
instituted the "customer-contractor" principle whereby
industry-government Requirements Boards determine what
projects should be funded. The Requirements Boards base
their decisions on two criteria: the need for the pro-
posed research, and the appropriateness of government,
funding. Despite these institutional changes, the per-
centage of R&D supported by the government has remained
nearly constant. As in France, a decrease in public
R&D expenditures resulted in an overall decline, rather
than an increase in the private sector effort.
Government Policy
Even more than in France, most of the government
R&D effort in the United Kingdom has been concentrated
in two areas: aerospace and electronics. National de-
fense projects account for an unusually high percentage
of public R&D expenditure; once again, the United Kingdom
is second only to the United States (see table 3).
Like the French, the British have announced their
intention of shifting R&D support away from programs
inspired primarily by external political objectives and
toward economic development projects. The change in
policy, however, has thus far only been announced, not
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A 1977 government White Paper called for a broad-
ening of the government R&D effort, with a sizable re-
duction in aerospace and nuclear support and an increase
in general industrial assistance. Public support for
industrial innovation overall was planned to decline
dramatically by 1981 (see table 4). That forecast has
now been substantially altered, primarily by the govern-
ment's introduction in 1978 of the three-year, $600-
million Microelectronics Industry Support Program. I
The British Government is clearly torn between a
desire for economic rationality--which would lead it to
cut support in areas that have not proved profitable in
the past--and an unwillingness to abandon high-technology
aspirations. Nevertheless, economic constraints and
the disappointing payoff from the government's R&D ac-
tivity may well mean an eventual further cutback in
public R&D funding.
Direct Aids to Innovation
The microelectronics program is the latest in a
series of ad hoc government programs designed to support
advanced technology industry. Among the most notable
have been the financing of the Concorde and the agree-
ment to underwrite any losses involved in the production
of the first 500 RB.211 aircraft engines. The government
has also been heavily involved in supporting the private,
but governmentally sponsored, computer firm, International
Computers, Ltd.
In addition to these ad hoc programs, three institu-
tional structures have been used by the British Govern-
ment to support industrial innovation: the.system of
national laboratories and research associations; the
National Research and Development Corporation (NRDC);
and the National Enterprise Board (NEB). II
-- Research Associations and Laboratories
The government operates several civil industrial
research establishments: the National Physical
Laboratory, the National Engineering Laboratory,
and the Warren Spring Laboratory, which works
mainly in the areas of atmospheric pollution
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and chemical engineering. In addition, the
United Kingdom Atomic Energy Agency's research
establishment at Harwell has been engaged in
nonnuclear industrial research since the mid-
1960s.
Besides the work they do directly for
the government, the laboratories carry out
programs designed to help improve industrial
strength and competitiveness. Under that
rubric, the laboratories engage either in
early research in high potential areas where
the economic risks are too great for an in-
dividual firm to absorb, or in research which
benefits a range of industries.
In addition to running its own research
establishments, the government supports work
by the Research Associations, cooperative
enterprises run by virtually every industrial
sector. The Research Associations are most
active in sectors where there are several
competitive firms, rather than a few leading
ones, and concentrate on production process,
rather than product, advances. 0
-- The National Research and Development Corporation
The NRDC was eatablished in 1948 to limit
a trend that was already a source of major
concern to the British Government--the com.-
mercialization abroad of many inventions de-
veloped in the United Kingdom. The NRDC seeks
to ensure the development of inventions re-
sulting from governmental research and of
private sector inventions that are finding
lt
fi
.
cu
commercial application dif
The NRDC was initially designed to be
primarily a facilitator, much like the French
ANVAR, assisting inventors and firms by pro-
viding development, patenting, and financing
information. Increasingly, however, it has
become involved in the direct financing of
projects, usually on a joint venture basis,
since few if any firms are willing to take
the necessary risks themselves.
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The NRDC has existed for 30 years, but
judgments as to its overall success or failure
differ greatly. It cites as its major achieve-
ments the development of the Hovercraft and
its contribution in the 1950s to the founding
of the British computer industry. Those an-
nounced achievements raise major doubts about
the NRDC's effectiveness, since neither indus-
try has become internationally competitive.
Finally, and most important, the trend that
the NRDC was supposed to help stop has con-
tinued: many United Kingdom inventions still
are commercialized abroad.
-- The National Enterprise Board
The NEB was established in the 1970s to
help supply industry with needed capital and
to assist in necessary reorganization. The
NEB has been concerned with two opposite types
of firms: the large "basket cases," such as
British Leyland, which need a government bailout;
and the innovators in want of venture capital.
There is a real question about whether the ven-
ture capital role is greatly needed, given the
existence of the NRDC and of a fairly active
(at least by Continental standards) venture
capital market in the United Kingdom.
The major NEB operation thus far in the
industrial innovation field is a $100 million
program to establish a production base for
microelectronic technology. The government's
recently announced Microelectronic Industry
Support Program in large part grew out of the
NEB action. The decision has been widely
criticized, by industry and the Requirements
Boards among others, as economically unsound,
since the British cannot realistically hope
to catch up with the Americans anddJJa.anese
in the microelectronics field.
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Indirect Aids to Innovation
Compared to many of its OECD counterparts, the
United Kingdom makes little use of procurement policy
as an indirect support to industrial innovation. With
a few significant exceptions--computers, the Concorde,
Hovercraft--British Government procurement is strongly
British tax policy, finally, is uneven in its im-
pact on industrial innovation. On the one hand, cor.--
porations are fairly well treated. The corporation tax
rate is 52 percent; corporate and individual capital
gains are both taxed at about 30 percent. Industrial
plant and machinery are subject to favorable deprecia-
tion rates. On the other hand, extraordinarily high
personal income tax rates prevent the accumulation of
wealth and offer strong disincentives to savings and
Assessment
The British lack of economic success with its in-
dustrial innovation policy appears to have a number of
sources, some specifically and others only generally
related to that policy. Specifically, the government's
long preoccupation with support to the aircraft and
electronics industries has kept it from assisting other
sectors where it could more realistically expect to
establish a comparative advantage. The new microelec-
tronics program suggests that the past pattern will be
continued.
A change in that policy would probably carry some
economic benefit, but British industrial innovation
policy would still be adversely affected by several
general problems with the British economy. First, there
is the age of plant and equipment in the United Kingdom.
Although the government may spend proportionately more
than most of its OECD counterparts on support to indus-
trial innovation, the task facing it in many ways is
greater. Second, the income tax system severely limits
the availability of investment capital. Third, not
only is British investment chronically low, but the
productivity of capital is much lower than the OECD
average. Finally, the British culture appears to value
basic science more than applied, and channels its best
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students away from engineering and management. The only
one of these basic problems that appears quickly amenable
to government influence--the tax structure--is also one
where there are important political barriers to change.
0
Conclusions
Industrial innovation policy in both France and
the United Kingdom is strongly affected by external
political considerations. Even though each country has
considerably scaled down its external political ambi-
tions compared to the past, each still views itself as
a major power that should have an independent high-
technology capability. In consequence, both countries
support some projects simply because they respond to
political aims. This political component of French and
British industrial innovation policy, along with the
two countries' traditions of a major government role
in the economy, helps explain why the public sector
contributes the majority of industrial R&D funds. 0
France appears better able to pursue such a policy
than the United Kingdom. Its general economy and its
arms industry are relatively healthy. It has had some
success with its industrial innovation policy in the
past, and can reasonably expect further profitable
advances in fields such as aircraft and nuclear energy
if the necessary funds are made available. The last
is a significant constraint, but one which affects all
OECD governments.
The outlook for the United Kingdom is far less
positive. Its economic situation does not easily per-
mit the luxury of noneconomic programs. Yet its desire
to retain great power status has resulted in several
costly national defense and electronics projects that
have not been counterbalanced by any resounding successes.
Ironically, the United Kingdom has lost much of its
former major power standing precisely because of its
economic difficulties. British political ambitions
would probably be better served if the government con-
centrated its industrial innovation effort on the search
for production improvements that would raise the average
return on capital. But it does not yet seem ready to
forgo flashy high-technology progams.
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0
DISTRIBUTION OF FRENCH GOVERNMENT
R&D EXPENDITURES
(In Percent)
1
961
1967
1972
1975
National Defense and Space 4
5
41
35
36
Energy Production 2
5
20
15
9
Economic Development
8
16
20
26
Health -
-
1
2
4
Community Services -
-
1
2
2
Advancement of Knowledge 2
0
20
26
21
0
FINANCING OF R&D PERFORMED BY
FRENCH INDUSTRY IN 1975
(In Percent)
Gover
nmen
t Industry
Other
Aerospace
7
9.2
15.1
5.7
Electronics
3
2.9
48.6
18.5
Informatics
2
9.8
43.9
26.3
Electrical
Engineering 1
3.0
78.2
8.8
Chemical
5.9
90.2
3.9
Mechanical
Engineering
4.5
87.8
7.7
Energy
4.1
79.2
16.7
Motor Industry
1.1
97.8
1.1
Other Industries
5.2
80.8
14.0
Average 2
7.7
61.0
11.3
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0
DISTRIBUTION OF BRITISH GOVERNMENT
R&D EXPENDITURES
(In Percent)
1961-62
1966-67
1972-73
1974-75
National Defense and
Space
66
56
45
49
Energy Production
15
13
9
6
Economic Development
10
14
23
21
Health
2
3
5
2
Community Services
--
--
1
1
Advancement of
Knowledge
7
12
15
20
0
UNITED KINGDOM GOVERNMENT-PLANNED
INDUSTRIAL INNOVATION SPENDING AS OF
FEBRUARY 1977
(Pounds sterling, in millions, 1976 prices)
1976-77
1978-79
1980-81
General Industrial R&D
51
61
68
Technological and Indus-
trial Sponsorship
8
12
12
Aircraft and Aero Engine
R&D
19
12
12
Concorde
Development 23
12
8
Concorde
Production 14
16
4
RB.211 Engine
10
-3
-5
Other Aircraft Projects
-1
-2
-1
Space
30
20
20
Nuclear
127
86
83
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Ma uto Nonaligned Bureau Meetin : The Keynote Was
Unity
A number of threats to the unity of the nona-
ligned movement were averted at a recent meeting in
Maputo, Mozambique of the movement's 25-member Coor-
dinating Bureau. The main purpose of the meeting was
to review the situation in southern Africa. The final
communique issued by the Bureau overcame differences
between radicals and moderates by reiterating the
movement's traditional principles and by endorsing
both diplomacy and armed struggle as tactics for
bringing about majority rule in the region. F
Cuba and Yugoslavia continued to jockey for in-
fluence within the movement. Cuba pushed for radical
positions on most points in contention but backed off
when faced with strong opposition. A moderate fac-
tion, led by Yugoslavia, succeeded in toning down the
strident language on the movement's basic aims and on
southern Africa contained in the first draft of the
final communique. II
The next test of nonaligned unity will be the
Coordinating Bureau meeting scheduled for Colombo, Sri
Lanka in June to prepare for the Havana nonaligned
summit in September. The venue of the June meeting is
more favorable to the moderate faction. Sri Lanka, as
host, will draft a final communique that will probably
set a less combative tone than did the original draft
of the final communique for the Maputo gathering.
Roles will be reversed from Maputo since the radicals
will have to take the initiative to change the drafted
rhetoric. Attendance and agenda will not be limited,
as they were for Maputo, and thus the outcome should
be more indicative of the movement's position on var-
ious issues. II
The Maputo meeting was a first of its kind for the
nonaligned movement (NAM). Mozambique, belonging to
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the movement's "radical" core, is not a Bureau member.
Its offer at the May 1978 Havana Bureau meeting to play
host to the next Bureau meeting was seen by Sri Lanka,
and other moderates, as a Cuban-inspired attempt to con-
trol the preparatory meeting for the summit. As a com-
promise, the members agreed to schedule a limited-agenda
meeting in Mozambique, while Sri Lanka, the current chair-
man, retained the traditional right to host the prepara-
tory meeting for the summit.
The final communique of the Maputo meeting, ac-
cepted by consensus, contained something for everyone,
and in that sense the meeting will be viewed as a suc-
cess by most NAM members. The radicals retained the
hostile, condemnatory anti-West tone, but the more mod-
erate countries were able to include in the opening para-
graphs a restatement of the fundamental principles of
nonalignment, thus heading off endorsement in the com-
munique of the Cuban thesis that the NAM should move
toward closer cooperation with the Soviets and their
The draft communique was prepared by Mozambique,
as is the tradition for hosts of nonaligned meetings.
Its anti-West, pro-Soviet tilt angered the traditional
leaders of the movement who felt dangerous precedents
were being set. Yugoslavia, India, Sri Lanka, and to a
lesser extent, Egypt and Algeria, fought hard in the
drafting group to revise the text and to preserve the
integrity of the movement. The outcome of the meeting
shows that the majority of delegates supported the Yu o-
slav-led effort not to be pressed by the radicals.
Even so, the lengthy final communique is a hard-
hitting attack on "imperialism" and the West. The tone
reflects mistrust of, as much as hostility toward, West-
ern efforts at resolving the conflicts in southern Africa.
As the communique states, many NAM countries doubt the
West's sincerity, believing it impossible for the West
to take action that could prove disadvantageous to its
economic interests. The communique also reflects contra-
dictory attitudes among the members about how to foster
changes in southern Africa in that it endorses both di-
plomacy and the armed struggle of the liberation forces
to bring about majority rule. Items of special note in
the communique are:
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The recommendation that the Zimbabwe Patriotic
Front (PF) be granted full membership in the
NAM. Unlike the support given to the South-
west Africa People's Organization (SWAPO) in
Namibia, however, the NAM stopped short of de-
signating the PF as the sole representative of
Zimbabwe. One reason for the seeming slight
is that the Organization of African Unity has
not yet sanctioned that claim.
The establishment of a special fund for SWAPO
to meet "exigencies as they develop." It is
not clear how the fund will operate or what
the assessments on members will be.
The intent to adopt at the 34th UNGA a declara-
tion of solidarity with the liberation struggle
of the peoples of southern Africa. The effect
of the resolution would be to commit UN members
to agree not to engage in direct or indirect
military intervention in support or defense of
apartheid regimes.
The call for nonaligned support in pressing for
the UN Security Council to sponsor an oil em-
bargo against South Africa.
The communique reflects the frustration among the
Africans over the slow progress in achieving majority
rule in southern Africa and gives an indication of the
potential tack the nonaligned will take on related issues
in the Security Council and the 34th UN General Assembly.
Whether any of the recommendations contained in the com-
munique will be carried out is open to question. Active
financial and military support of the liberation struggle
is beyond most NAM members' capability. Presumably,
calls for action through the UN will be supported by the
members, since to do so costs little in political or
economic terms. In any event, the recommendations for
action are likely to have little impact on events in the
region, since the NAM has neither a direct diplomatic
nor militaa role in the events taking place in southern
Africa.
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Sino-Soviet Intrusion
The Bureau members had agreed at the start of the
meeting not to raise contentious issues, such as western
Sahara, Kampuchea-Vietnam, Cuban and Soviet support to
Ethiopia, or changes in internal NAM procedures. De-
spite this agreement, the question of seating the repre-
sentative of the Pol Pot government of Kampuchea threat-
ened to disrupt the session. Few members wanted the
issue to divert attention from the agenda. A hasty com-
promise was reached, allowing representatives of both
governments to be seated as observers without the right
to speak. The Vietnamese-backed regime did not, however,
attend the meeting.
Near the end of the session, the usually pro forma
listing of accredited observers, which included Kampuchea,
brought objections from Cuba and Vietnam. A decision to
allow members to lodge formal reservations to listing
Kampuchea averted a last minute dispute. Vietnam, Afghan-
istan, South Yemen, and an unidentified fourth country did
so. Cuba, evidently interested in not antagonizing the
delegations, instead wrote a letter of "concern." II
If the Vietnam-Kampuchean issue is still bubbling
by June, it could cause a great deal of contention at
the Colombo session among the pro-Soviet and pro-Chinese
factions in the movement, particularly if China continues
to press its support for the deposed government.
Leadership Struggle
Yugoslavia went to Maputo prepared to do battle to
preserve the integrity of the movement. The pro-Soviet
language in Mozambique's first draft of the communique
heightened Yugoslavia's concern that, if left intact,
the language would play into the hands of Cuba and give
strength to the radical forces at the Havana summit. In-
deed, Yugoslavia began garnering support among the mod-
erate members to control the tone of the communique prior
to the meeting. n
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Algeria, usually considered a "radical" in the NAM
context, was helpful in modifying the strident Mozambican
language. This might be an indication that the new gov-
ernment will take a more moderate approach in the move-
ment. More likely, however, it was the result of in-
structions to the delegation not to go beyond Algeria's
traditional nonaligned positions until the new government
decides what its policy will be.
Cuba's actions during the meeting were circumspect.
The Cubans pressed hard for radical formulations on num-
erous points, but willingly compromised when faced with
strong opposition. Havana apparently is attempting to
do everything possible to prevent polarization of the
membership prior to the summit. As at other nonaligned
meetings, Cuba allowed those radicals more directly in-
volved in the issues--this time it was Mozambique--to
take the hard line until the necessity for compromise
for the sake of consensus became apparent.
The battle for leadership of the movement between
Cuba and Yugoslavia will continue.* At Maputo, however,
both of these NAM leaders, and their respective followers,
again demonstrated that their interest in the movement's
unity still outweighs their individual differences. As
long as neither side attempts to use the movement to at-
tack the other's main foreign policy goals (such as Cuba's
presence in Africa), the commop unit is
likely to remain overriding.
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Dissidence in the USSR
0
The Soviet regime's behavior toward dissidents
since the highly publicized trials last July has been
a mixture of selective repression and guarded toler-
ance. The regime apparently continues to view the
various dissident groups as a serious political prob-
lem. But rather than incurring the costs of draconian
policies to root out all dissenters, the regime has
adopted a twofold strategy to contain the dissent.
This entails harassment and at times severe punishment
of leading activists, while also permitting increased
emigration of Soviet Jews and exercizing a cautious
flexibility toward other religious and ethnic minori-
ties. The regime's approach has been only partly
successful. Although dissident groups remain gener-
ally isolated from one another, they have maintained
contact with sympathizers in the West, and the spec-
trum of dissent is somewhat broader than it was six
months ago.
0
Morale among most dissident activists and religious
groups dropped in the wake of the trials last July. The
branches of the Helsinki Monitoring Group have been par-
ticularly hard hit. Two of the dissidents sentenced in
July, Anatoliy Shcharanskiy and Aleksandr Ginzburg, were
members of the Moscow branch, and the group's specialist
on governmental psychiatric abuses, Aleksandr Podrabinek,
was sentenced to five years of domestic exile in August.
At a press conference in September, spokesmen of the Mos-
cow branch told of threats received by persons friendly
to the group. They reaffirmed their intention to remain
active even though only six of the group's active members
were free at that time. II
Branches of the organization in Armenia, Georgia,
and Kiev fared no better. Robert Nazaryan, a member of
the Armenian branch, was sentenced to a total of seven
years confinement and domestic exile for anti-Soviet ac-
tivities, and Avandil Imnadze, an associate of a member
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of the Georgian branch, received sentences totaling nine
years for distributing anti-Soviet literature. The
founding member of the Kiev organization, Oles Berdnyk,
was picked up by the KGB in December and questioned.
Two other members of the Kiev group received sentences
for engaging in a strike at their place of employment:.
Last November, various members of the Helsinki Mon-
itoring Group circulated a petition against a new Soviet
law that makes it relatively simple for the regime to
deny citizenship to dissidents, but in general thrmp
has been relatively inactive in recent months.
Dissident Soviet physicist Andrei Sakharov, one of
the strongest voices for human rights in the USSR, pub-
licly contradicted the Soviet court's verdict against
Armenian Nationalists S. S. Zatikyan and two accomplices
who were convicted of perpetrating the Moscow subway ex-
plosion two years ago and were executed. According to
the Western press, Sakharov said that Zatikyan was not
even in Moscow at the time of the incident.
Sakharov, who had been warned a number of times in
the past by the authorities not to make such statements,
visited the US Embassy recently and gave his impressions
of human rights issues in the Soviet Union. Despite re-
ports to the contrary, Sakharov said he was not pessi-
mistic about dissident efforts to foster human rights in
the USSR and asserted that authorities will not be able
to eliminate the movement or stop its work.
Moscow's treatment of Soviet Jews is the one clear
indication of the regime's willingness to grant limited
concessions to some active dissidents. The total number
of Jews permitted to emigrate in 1978 exceeded 30,000
and may average 5,000 a month for at least the first
part of 1979. This approximates the rate during the
peak year of 1973, when nearly 35,000 Soviet Jews emi-
grated. The backlog of Jews in Odessa applying for exit
permits reportedly led the government to open a large,
new office to handle the processing. In explaining the
higher emigration figures, Soviet. Jews point to the
Jackson-Vanik amendment, to the larger number of appli-
cants and, increasingly, to a desire by the regime to
get rid of "malcontents" before the 1980 summer Olympics
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The status of the Jewish "refuseniks" (those pre-
v
E iously refused exit permits) may also be ' 'ng.
some
persons ormer y denied emigration because they at one
time held security clearances will now be permitted to
leave. In addition, refusenik scientists held an inter-
national scientific conference in December, with three
US scientists present, even though authorities had seized
some of the conference documents from the residence of
one of the organizers and denied visas to five other US
scientists who wanted to attend the event. II
The regime's attitude toward various Protestant
groups appears to be somewhat ambiguous. The All-Union
Council of Evangelical Christian Baptists, for example,
was given permission to import 25,000 Russian Bibles;
this is the first time a Soviet government has permitted
a significant influx of Bibles since 1947 when 10,000
copies were imported. On the other hand, Soviet media
continue to inveigh against "Bible smugglers," ming
them "paid agents of Western intelligence."
The US Embassy in Moscow has been deluged with re-
quests by Pentecostals and Baptists to emigrate. Repre-
sentatives of these groups in the Ukraine, Byelorussia,
Lithuania, and the cities of Leningrad and Nakhodka
submitted lists containing nearly 2,000 names of members
wishing to leave the country. Spokesmen for the groups
contend that Soviet emigration officials have told them
that their "only hope" is that President Carter will
raise the issue with President Brezhnev during the sign-
ing of a SALT agreement. A religious activist from a
town near Moscow was sentenced to a year in prison for
organizing a seminar on the "defense of rights of be-
lievers in the USSR." In the Kirgiz Republic two citi-
zens were sentenced to three years in a labor camp for
conducting a children's Sunday school. An 84-year-old
member of the Seventh Day Adventists, Vladimir Shelkov,
is being tried in Tashkent for illegal religious activity
because he wrote an eight-volume treatise condemning the
"dictatorship of state atheism." Shelkov could get as
much as five years imprisonment or internal exile and
confiscation of his property if convicted. II
28 February 1979
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The spectrum of dissent seems to be broadening once
again. In October, an independent "trade union" surfaced
in Moscow. Calling itself the Free Inter-Professional
Union of Workers, the group focuses on worker grievances
ignored by the official trade unions. Reports indicate
that the organization lacks internal cohesion and is
plagued by diverse interests. On those rare occasions
in the past when dissidents have tried to organize Soviet
workers, Moscow has reacted quickly and sternly. Al-
though several members of this group have been arrested
and one of its leaders has been confined to a state psy-
chiatric hospital, the "union" has not yet disbanded.
0
On another front, a new journal called Metro ol.
appeared in January. The avowed intention of its pLib-
lishers is "literary excellence" rather than political
debate. The first issue, however, contained articles
critical of Soviet literary restrictions.
Despite official Soviet denials concerning national-
ities problems--most recently in Premier Kosygin's dis-
cussion of 6 February with President Carter's science ad-
viser--several ethnic areas continue to prove trouble-
some. Last August Crimean Tatars sent two petitions to
Brezhnev requesting permission to return from Central
Asia to their ancestral homeland. The government, as
usual, made no direct response; one report claimed au-
thorities in the Crimea have bulldozed the houses of il-
legal returnees and deliberately stirred up local antip-
athy toward the Tatars. As a result, one of the lead-
ers of the dissident Tatars, Mustafa Dzhemilev, publi-
cally renounced his Soviet citizenship and applied for
permission to emigrate to the United States.
Unrest in the Abkhazian Autonomous Republic (ad-
ministratively a part of the Soviet Republic of Georgia)
that surfaced last spring is still causing problems for
Moscow. The Georgian party leader recently warned the
Abkhazi leaders that they were not dealing firmly enough
with "nationalist chauvinism." Although Abkhazis make
up only about 10 percent of the population in their own
28 February 1979
37
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autonomous republic, they are Muslim, and current un-
rest among their coreligionists in nearby Turkey and Iran
may have made the leadership in Moscow especially uneasy.*
In general, the Brezhnev regime is ready to punish
individual dissidents harshly on occasion, and seeks in
various ways to divide and demoralize all of them. But
the leadership is avoiding recourse to draconian meas-
ures, not only out of concern for both its international
image but also because of its own perception of what is
required to maintain the stability and cohesion of the
Soviet administrative machinery. In recent months, for
example, a reported directive from Moscow party chief
Grishin cautioned officials against firing Jewish "re-
fuseniks" lest they spread their "contagion" to their
new places of employment. Because the regime refrains
from using the harshest measures to deal with protests,
and because the reasons for political protest continue,
at least some of the dissidents are encouraged to er-
sist in their activities. 25X1
I
*Because of their relatively high birthrate, Muslims in the year
2000 may, according to recent projections by some Western academi-
cians, number about one-third of the total Soviet population. I
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