ECONOMIC AND SECURITY IMPLICATIONS OF STRUCTURAL CHANGE WASHINGTON, D.C. JUNE 3, 1985

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88B00443R000401530002-0
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 16
• Document Creation Date: December 22, 2016
• Document Release Date: January 5, 2011
• Sequence Number: 2
• Publication Date: June 3, 1985
• Content Type: MISC

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ECONOMIC AND SECURITY IMPLICATIONS
OF STRUCTURAL CHANGE
Washington, D.C.
June 3, 1985
Leo Cherne, Vice Chairman
President's Foreign Intelligence Advisory Board
"Structural change" is a particularly bloodless phrase for
transformations that can change the destiny of nations, the
welfare of peoples, and even the course of civilization.
The world is in the process of continuous change. This
century, and much of the preceding one, have seen an extra-
ordinary acceleration of change, Yet few of the events which
have occurred, few of the ideas, discoveries and inventions that
have arisen, are among those which produce "structural change".
Structural changes are those rare events in human history
which redirect human affairs in a profoundly new way.
Structural changes irreversibly affect power -- economic,
political, and military power, There are virtually no structural
changes which do not have a disruptive effect on the stability
of a society's value system. Most structural changes inherently
alter the distribution of power among states, and the distri-
bution of power and expectations within individual states.
Structural change, therefore, is essentially disruptive.
These disruptions are felt in different ways in societies at
different levels of economic development, Even in societies at
essentially the some levels of economic development, the effects
of a particular structural change will differ because of the
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different distribution of resources and the effect of history,
culture and geography on those countries.
The particular subject for this day is technology and
structural change. The invention of movable type is an illustra-
tion of an essentially technological development which left
virtually nothing unchanged thereafter.
Until the 19th century, developments which produced struc-
tural change occurred very infrequently, With the invention
of steam and the introduction of the Industrial Revolution,
the pace of profound change and alteration of world power picked
up. However, it was not until the 20th century that the
accelerating forces of technological change accelerated to an
extraordinary degree,
In the past 25 years, we've witnessed vast demographic
changes that are the outcome of medico-scientific developments,
especially the enormous reduction of contagious disease and the
incalculable impact upon the length of life and, hence,
population.
The depletion of resources, amplified politically in the
case of oil, resulted in the largest shift of wealth in the
history of the world occurring in the shortest interval of time.
This, in turn, helped set into motion a process of probably far
greater ultimate impact: the transfer of those funds to less
developed nations, producing debts of such magnitude that I
simply want to seriously.assert that those debts will not
be repaid.
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The effect of those unpaid debts and the changes they will
induce in particular debtor countries produce turbulence and
almost certainly set into motion effects which are structural
in nature.
As these events have been unfolding, a structural changer
of classic character began to exert an even stronger effect.
The ultimate impact of that event can only be guessed at.
It will alter the distribution of world power. It is the
subject of a massive economic race between two major industrial
powers at this very moment. It has already contributed to the
most profound impact on every industrial power, particularly
among the free nations, and it has produced substantial though
clearly different changes among the less developed nations.
That event which may generate the greatest process of change
in the history of man is the invention of the microchip,
The race for the fifth generation computer (more
flamboyantly described by some as the search for artificial
intelligence), is but a way station along a still-to-be-traveled
distance mandated by the microchip, It is not inconceivable
that among the many consequences is the possibility that today's
national enmities and friendships may be more crucially affected
by a wafer less than an inch in size than they ever could have
been by what until this age had been the most powerful
discovery in the history of man -- the ability to harness
nuclear energy.
Closely linked to the computer and the microchip, and
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almost certainly unavailable without it, is an offshoot with the
potential for profoundly changing the nature of the world, indeed
the nature of life and death, and certainly man's eternal curse --
hunger, That structural changer is biogenetics and the
new science, bioengineering,
It is tragically ironic that a vast demographic convulsion
across virtually all of sub-Sahara agriculture is producing
one of the great famines in world history even as an agricultural
revolution is producing miraculously beneficial results in
India. But even those beneficial results hold the prospect
of altering agricultural patterns, markets and national depen-
dencies in ways which are likely to be profound,
The potential of bioengineering is such that some
serious economists advance the possibility that India, which
had considerable difficulty in meeting its own food needs a
generation'ago,'may yet be able to satisfy not only its own agri-
cultural needs, but the food deficiency of the Soviet Union --
with all the profound changes that would set in motion.
I will try to identify some of the most important of
structural changes now in motion, with the hope of stimulating
our appreciation of the effects they will have on national
power, on allied relationships, on societies across the world,
I hope that some of the political, economic and military distress
which lies ahead can be anticipated, with the possibility
that we may reduce that distress, or be better prepared to deal
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with the more painful consequences. We have already seen the
following consequences.
It is clear that structural change has intensified the
competition in the race for world trade,
In 1952, our share of world trade was 52 percent; in the
sixties it was 40 percent, It is now 22 percent, Our current
account imbalance is such that we are likely to be a debtor
nation before the year is out, Last year alone, the increase
in our trade deficit wiped out more than 500,000 jobs.
By 1990 (only five years from now), Japan will probably
enjoy a current account surplus that may be larger than the
one enjoyed by OPEC at that institution's peak.
Other major effects of the on-going structural change
include:
- The decline or flight of manufacturing industries which
remain labor-intensive, and the growth of radically new
manufacturing systems which make maximum use of new computer
assisted manufacturing technologies which involve low labor use,
- The displacement of skilled labor trained for tradi-
tional assembly-line manufacture, To this must be added the
growth of those especially the youth, untrained for any role
in a post-industrial economy,
It is hard to exaggerate the importance of the fact that
just one industry -- machine tools -- has increasingly been
moving overseas, Machine tools are to industry what parents
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are to a child.
Foreign firms today produce approximately 75 percent of
all free world exports of high technology products. What the
Soviet Union has not been able to buy, it has stolen,
And the growth rate of high technology industries has
been twice that of total industrial output. They have contri-
buted the bulk of technological advances to all sectors of
the economy.
Information system use throughout business and industry
is projected to grow very substantially in the next ten years,
At the end of that decade, this one area of activity will
account for nearly 1.5 trillion dollars of our Gross National
Product, But the competition is fierce,
The U.S, and Japan are deep in the race which is expected
within a decade to produce new supercomputers so powerful that
they will, in fact, constitute a new and revolutionary form
of wealth.
Hardly a month now passes without an announcement of
extraordinary progress in specific structural change or changers
(they are both).
On April 11, Fujitsu, Ltd,, Japan's top computer manu-
facturer, announced that it was ready to market the world's
fastest supercomputer, which it claims is capable of making
more than 1 billion calculations per second, nearly double
the speed of its fastest model up to now. A spokesman said the
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new supercomputer would find a wide variety of applications in
scientific research, such as aircraft development, weather fore-
casting, and nuclear power development.
Yet U.S, supercomputer development continues apace,
Industry experts predict that ETA Systems, an innovative start-up
spun off by Control Data Corporation, will deliver a 10
billion operation per second unit next year, with plans under
way for a "super-super" to triple that number crunching capacity.
On May 9 the announcement was made that a team of scientists
at the Bergische University, Gesamthochschule Wuppertal, is
working on the new technology, supported by a grant of about DM
one million from the Volkswagen Foundation, The first equip-
ment, for the production of microelectronic switches by means
of x-rays, has been completed. The x-ray element allows the
production of structures in the chips whose size is of the
order of a thousandth of a millimeter.
The human consequences of these extraordinary leaps into
the Information Age are, by definition, central in the explora-
tion of the significance of these structural changes.
It is important to recall that with the introduction of
the computer in business and industrial use in the early 1960's,
dogma and logic both led to a nearly universal expectation
that mass unemployment would accompany the computer. But
the contrary proved to be the case. The far more advanced
application of high technology of very recent Years, which has
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led to the loss of comparative advantage of several of
America's major basic industries, has, according to the Bureau
of Labor Statistics, not been accompanied by all the adverse
effects in human employment which one might reasonably expect,
During this entire period in which high technology began
changing the character of American economic life, the total
American economy experienced one of the most remarkable achieve-
ments. In the midst of growing unemployment, excrutiating
inflation, intractable and unbearable interest rates, the
American economy created more than 24 million new jobs. At
the same time, Europe lost a million jobs. That's an American
miracle;
Yet many of those new American jobs have been created in
the burgeoning service sector. And there is a disconcerting
fact about service economies, They cannot mount a national
defense.
What is the probable impact of the major structural
changes on the industrial nations? It is urgent that we
understand the changed relationship which will occur among allies
as a result of these changes.
The subject is, by definition, subject to both prejudice
and politicalization, neither of which are helpful as we
seek to shelter the national security or most usefully advance
the national welfare.
There are two essentially different but indispensable
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national purposes: to protect and increase the national security;
and to serve the national good. The nature of the structural
change which is taking place and the far greater change (much
of it as yet indiscernible) which will occur, create urgent
new needs for intelligence,
Some of the intelligence needs fall within the traditional
province served by the Intelligence Community. Others involve
areas of inquiry and analysis, which can be best performed by
other agencies of government,
I offer the following partial list of forces which will
create substantial urgency for complex, urgent and often new
kinds of intelligence,
1. There are the economic, political: and social changes
which are the consequences of the more than 800 billion dollars
of unpaid debts, most, though not all, owed by the less
.developed countries, It is important to realize, however, that
the United States is also an international debtor of major size,
2, There are the international changes which have in part
already come about as a result of the depletion of vital
resources, especially oil. In a period of relative quiescence,
it is useful to speculate that we are yet to see a host of
profound effects which will flow from the further exhaustion
.of the world's oil resources, in turn deeply stressing the poli-
tical and economic stability of many countries.
3, There are somewhat similar changes whose effects are
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more limited but dramatic in their impact upon particular
countries, Thus, for example, new technology, which has produced
materials which substitute for mined products like copper, are
likely to have a convulsive effect upon those nations dependent
upon the export of copper and, in a different way, an impact
upon those nations utilizing the newly invented materials --
the ceramics, the fibre optics, the other products of modern
laboratories.
4, There are the changes which have already resulted in a
transfer of important industrial activities to areas of the
Third World, In some instances, these have not only resulted
in a major shift of manufacture but have already brought some
of the more advanced of the Third World countries into high
technology assembly, and are likely in fact to carry them well
beyond simple assembly of high technology. Since one of the
driving forces in this direction is the existence of an easily
trained, manually dexterous, highly motivated, poorly paid
work force, it will be important to determine whether or not
this is purely a transitional change. Further advances in
technology may well enable the industrial countries which have
lost competitive advantage to the low labor cost areas to so
sharpen their high technology responses so as to make the
existence of.a low-cost labor force of marginal importance,
5. A widespread replacement of the use of simple, one-
function robots by the highly complex "flexible manufacturing
systems" which are beginning to be employed by the industrial
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countries will not only affect the nature of employment, but
will as well affect where it is that manufacturing institutions
are located. If competitive capability is to remain at a
sharp edge in the United States, it is urgent that knowledge
of what is happening in Japan, what is happening in Europe, at
a minimum stimulate an adequate response within the United States.
But where within our government does the responsibility
lie to stimulate that response by our private manufacturing
community?
This is one of the areas in which the traditional Intelli-
gence Community is not by definition either the most informed
or necessarily the most useful source of analysis. It is also
not the instrument which is authorized by its charter to pro-
pagate vital information and guidance to the host of businesses
which must be prodded into increased capability in the period
ahead if we are to restore our competitive edge, To the
extent that problems will arise in the United States which have
any relationship to employment, to training and education, to
the adequacy of the work force, to the multiple problems which
flow from chronic unemployment, the Bureau of Labor
Statistics is the most likely source of constant and objective
observation and interpretation,
6. There is a more limited but extremely vital area of
intelligence essential to the protection of the national
security which has involved the collaboration of the Intelligence
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Community, the Defense Department and the Department of
Commerce, It involves the protection of highly sensitive tech-
nology. A new set of questions are now added to the traditional
ones. To what extent does the assembly and/or manufacture of
sensitive high technological products outside the United States
make them more accessible to the Soviet Union? There is the
further question of the extent to which the increasing number of
joint ventures between our domestic and overseas companies
may increase U.S. dependency upon overseas sources in the
event of an emergency, And this, of course, leads to the final
question, To what extent will industrial mobilization in the
United States become difficult, if not impossible, because
essential manufacture has been moved offshore?
These by no means exhaust the intelligence-related problems
which must be reexamined. There is an area of traditional
intelligence which must focus upon one of the most intriguing,
and potentially promising, of the international changes which
lie ahead.
There is the possibility that the entire balance of power
between the United States and the Soviet Union may be changed
as the Information Age matures, Is it possible, if not probable,
that a closed society such as the Soviet Union may not be able
to adapt itself to those key aspects of structural change
which flow. from the flowering of the Information Age? In terms
which may be overdramatic but are not unreal, it is entirely
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possible that the microchip may prove more powerful than the
nuclear weapon. The unhampered availability of information and
judgment and the existence of total political control are oil
and water. This, at least, is the premise which has guided
much of our understanding of the Soviet society. A society
which keeps its electrostatic printers under lock and key with
the result that prohibited communication is passed along by
hand in the form of Samizdat either misreads its requirements
for political control or is fundamentally unequipped for the
problems it faces which will be compounded as the Information
Age matures. Even now, xeroxing involves a technology which is
primitive compared to those personal computers which are already
linked to extensive data bases and increasingly permit communica-
tion from console to console.
I raise a heretical question: To what extent does the
Soviet Union purchase or steal the high technology output of
the West not because its engineers are incapable of comparable
invention? May not the motivation flow from the fact that poli-
tical control suggests the wisdom of avoiding the intellectual
openness which produces the invention of these products in
the West? It is politically safer to rely instead on the acqui-
sition of the final component or product, By-product benefits
are sacrificed in the process, But much of that can be
recaptured by "reverse engineering".
Closely related to this massive new difficulty which
confronts the Soviet Union is the evidence that tensions have
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been increasing in the relationship between the USSR and the
more educated, more technologically oriented, the less corseted
scientific communities in the Soviet's more advanced client
states. Precisely because the impact of the Information Age
may prove explosive in the power contest between us and our
major adversary, it is urgent that the analysis directed to
this inquiry be impeccably objective and agnostic. Mirror
imaging and wish fulfillment would serve us poorly,
The questions are of such weight and will so affect
policy that we must know as much as we can, as early as possible,
and with maximum authority.
I close with another heretical question: It has been
widely assumed that the reinvigoration of our military and strate-
gic capability impelled the Soviet Union to return to the
bargaining table, Is it not possible instead that the Soviet
Union has been observing the onset of the Informatio n
Age and the structural changes which are inevitable as acutely
as we have --and very-,possibly for some time before our own
complacency was shaken? Should there be merit in this speculation,
the Soviet concern that it may not be able to manage and control
the changes produced by the Information Age may well be the
single most important implication of the structural changes
we are examining. Should that be-the Soviet motivation, it
would not only significantly strengthen the hands of those who
represent us. It could even alter the content of that which
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is being negotiated, Simultaneously, however, we must
intensify our concern that the Soviet Union will not "go gentle
into that good night," choosing instead to "Rage, rage,
against the dying of the light" ,#
*Dylan Thomas
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