February 20, 1989
"Not So Dependent on Defense"
San Jose Mercury News
By Timothy Taylor
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MANY people are certain there's a strong relationship between defense spending
and high technology industry. They just aren't sure whether the relationship is
positive or negative.
On one hand, people worry that high levels of U.S. defense spending sop up
scarce resources of brainpower and capital, making it harder for the U.S. to compete
with Japan in consumer-oriented high technology business.
On the other hand, people worry that if defense spending is cut sharply, high
technology enclaves like Silicon Valley or the Route 128 corridor in Massachusetts
will suffer a great deal.
So is high technology industry (and Silicon Valley in particular) dependent
on high levels of defense spending, or not? Some of the relevant evidence was
accumulated by Lynn E. Browne, vice president of the Federal Reserve Bank of Boston,
and reported in a recent issue of the New England Economic Review.
The first step is to put together a list of all "defense- dependent industries."
With a little work, one can compile a list of 55 industries that sell at least
10 percent of their output to the Defense Department. These range from copper
ores (11 percent of output to defense) to explosives (65 percent to defense) to
metal forming types of machine tools (15 percent) to aircraft (66 percent) and
many others.
Next, one can compile a list of high technology categories, defined as those
groups of industries with a high proportion of technology-oriented workers and
higher-than-average spending on research and development. This list of industries
ranges from those not always seen as high tech -- like agricultural chemicals,
pharmaceuticals and petroleum refining -- to industries more familiar to Silicon
Valley ears, like office and computing machines, electronic components and measuring
instruments.
The two lists overlap somewhat, but not a lot. Only about half of the defense-dependent
industries are high-tech industries. Of the 26 broad categories of high technology,
only 10 contain some industries that are dependent on defense.
However, Browne notes that many of the industries that are defense-dependent
industries today would not have been considered defense-dependent before the increased
defense spending of the early 1980s. To investigate the long-term ties between
defense and high technology, she created a shorter list of 25 industries that
were dependent on defense even during the relatively low defense spending of the
Carter presidency. In describing this period, she writes:
"While almost all defense-related industries are high tech, the reverse
is not true. Not all high-tech industries are defense related. Most of the chemicals
industry is not defense- related. Measuring and controlling instruments and medical
instruments are not defense-related. Computers and semiconductors are not defense-related
today, even if they were at one time." In short, the people who believe that
the high- technology industry is a mere barnacle on a great whale of defense spending
are living in the past. In the early 1960s, when 90 percent or more of the semiconductors
produced in this country went to the Department of Defense, high tech was certainly
dependent on defense.
But today, only about 5 percent of U.S. semiconductor production goes to defense.
Whether defense spending was cut by half or raised by half, the chip industry
will have to depend on civilian applications.
The chart shows how this general lesson applies to Silicon Valley industry.
It shows the top 16 manufacturing industries in Santa Clara County, ranked by
the value of their shipments, and then categorizes each industry as either high
tech or defense dependent, or both.
Twelve of the top 16 industries are high technology, including the top six.
However, only two of those 12 high-tech industries are dependent on defense. Nationwide,
about 20 percent of the output of the "electronic components" industry
is bought for defense purposes, and about 86 percent of the output of the "ordnance
and accessories" industries goes to defense.
Most types of high technology industry are simply not dependent on defense,
even if they used to be at one time, because the number of civilian applications
now far outstrips the number of military ones.
As a result, both of the generalizations at the start of this article are probably
wrong. Cutting defense spending might help the U.S. compete with Japan in high
technology, but it will only help indirectly, depending on how the saved resources
are spent. While lower defense spending would certainly sting some Silicon Valley
companies, it isn't likely to injure the overall development of high technology
industry.
The connection between defense spending and high technology, for better or
worse, is by no means as clear as many people assume.
HIGH TECH AND DEFENSE DEPENDENCY IN SANTA CLARA COUNTY |
Industry |
1987
shipments
in millions |
High
Tech? |
Defense
Dependent? |
Electronic computers |
$4,335 |
Yes |
No |
Computer peripheral equipment |
$2,625 |
Yes |
No |
Semiconductors, related devices |
$1,921 |
Yes |
No |
Electronic components |
$1,634 |
Yes |
Yes |
Computer terminals |
$1,311 |
Yes |
No |
Electricity-measuring instruments |
$1,281 |
Yes |
No |
Motor vehicles, passenger car bodies |
$926 |
No |
No |
Telephone, telegraph apparatus |
$760 |
Yes |
No |
Canned fruits and vegetables |
$679 |
No |
No |
Ordnance and accessories |
$679 |
Yes |
Yes |
Dehydrated fruits, vegetables, soups |
$485 |
No |
No |
Industrial machinery |
$326 |
No |
No |
Pharmaceutical preparations |
$326 |
Yes |
No |
Computer storage devices |
$293 |
Yes |
No |
Search and navigation equipment |
$204 |
Yes |
No |
Measuring and controlling devices |
$202 |
Yes |
No |
Sources: Shipments estimates from Sales and Marketing Management, April 25,
1988. High tech and defense dependent columns from New England Economic Review,
Sept./Oct. 1988. |
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