Where Industry and Security Intersect
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I. Introduction
Thank you, Mike, for that warm introduction. I’d like to also thank Ian Moncaster and the World Affairs Council, Boeing, and the University of Washington Global Business Center for inviting me to speak today. And I would particularly like to thank all of you for making time in your busy day to be here.
It’s great to be back in Seattle to talk about the interaction between industry and security. The people of Seattle have long prided themselves on being in the vanguard of new trends and new opportunities. Whether as the point of departure for the Yukon gold rush at the close of a bygone century, or as the window on the Pacific today, Seattle has always pointed the way to a more prosperous future. At the same time, as home to critical defense production and important military bases, the Seattle area has been a cornerstone of our nation’s defense preparedness.
The economic numbers released today spell good news in the year ahead for not only Seattle, but also the rest of the country. The U.S. economy has added over 4.6 million new jobs in the last two-and-a-half years and the unemployment rate is 4.9 percent, lower than the average for the 1970s, 1980s, and 1990s. Real GDP grew strongly and steadily at a 4.1 percent rate in the third quarter. Especially important to this region, this growth has been driven in large part by consumer spending, business investment in equipment and software, and federal defense purchases.
Nearly half a century ago, Seattle hosted the Century 21 World’s Fair, which was billed as a look into a better future. And, indeed, the world has changed radically since those Cold War days of the early 1960s, and in many ways for the better. At that time, U.S. economic and security policy existed in different spheres, with the former taking a definite back seat to the latter. Today, however, the old Cold War trade-off between economic and national security policy has been replaced by a mutually reinforcing relationship. Actions that strengthen our security can in fact also strengthen our economy, and vice versa. Our national security depends more now than ever on a strong economy and technology leadership. At the same time, America ’s economic strength depends on our ability to project power and create a stable international environment.
II. Changing Global Environment
Our world is changing at breakneck speed, driven by forces some refer to as “globalization.” The result is a world that offers historic promise for Americans, but also unique and unprecedented peril. But to truly understand our world, we need to look behind globalization to the forces that are driving change. I see four such fundamental forces.
First, democracy is on the rise. The latest Freedom House report identifies 119 electoral democracies, up from only 76 in 1991. As the circle of democracy expands, the space within which terrorists and proliferators are able to operate dries up. Free people making their own decisions create prosperity for us all.
Marching in tandem with democracy is the international spread of free markets. We have seen literally billions of new consumers enter the global marketplace as China , India , Southeast Asia , Mexico , and other countries have embraced property rights and economic freedom. That’s billions of potential buyers of U.S. goods and services – and millions of potential competitors for our market share.
The third fundamental force that is shaping our environment is the technology revolution. I don’t need to tell a Seattle audience that from smart bombs to iPods, technology is changing the way we wage war and live in peace. Although today we enjoy capabilities undreamed of a generation ago, technological progress also has led to new and deadly threats. The same Internet that allows us to make long distance phone calls for the same price as local ones also allows al-Qaida supporters to plot their crimes by email. The same cell phone from which we can download the day’s breaking news can also be used by terrorists to coordinate their next assault on Iraq ’s emerging democracy.
Last, but certainly not least, are the geopolitical changes that are shaping our world. It has been just over 16 years since the fall of the Berlin Wall, but the impact is still rippling through the international system. The states of the former Soviet Union are evolving. New stakeholders in the system -- India , China , and others -- are rising. America inhabits a very complex global environment, one in which security threats are not always evident.
III. Free Trade Initiatives
President Bush has recognized these forces and is working to channel them to the benefit of America . One of the primary ways he is doing so is by promoting a more secure world based on the interdependence of free trade and free societies. Free trade agreements are not merely economic agreements. They have an important national security and foreign policy dimension, as they provide a high-profile symbol of the mutual commitment between the United States and the countries involved. They increase economic opportunities for firms and workers and serve to reinforce market-oriented constituencies within those countries. And as the President observed in his 2002 National Security Strategy, free trade is important to U.S. national security because economic growth promotes political reform and stability.
To keep its economy growing, the United States must continue opening foreign markets multilaterally, regionally and bilaterally. Ninety-five percent of America ’s potential customers live abroad. By opening up new markets for American goods and services, the President is helping to create jobs and opportunity at home. This is particularly true in the state of Washington , which exported nearly $34 billion worth of goods and services to foreign markets in 2004, and where one out of every four jobs in the state is linked to international trade.
The Central America Free Trade Agreement (CAFTA) is another example of opening new markets for American goods. CAFTA immediately eliminates tariffs on nearly 80 percent of U.S. exports to participating nations and is expected to generate billions of dollars of increased sales of US goods and farm exports. This will help keep jobs in the United States and make American workers better able to compete. With the passage of CAFTA, the United States has enhanced stability and prosperity in the region, while a failure to pass CAFTA could have undermined pro-western leaders and political stability.
Under President Bush’s leadership, America has also fostered economic development, in the Middle East where distorted economies coupled with political alienation have provided a ripe environment for terrorism. Given the national security significance of this region, it is vitally important to increase economic opportunity for those nations that recognize good governance and the rule of law. As we see in Iraq , security is a precondition for political stability and expanding free trade in this and other critical areas around the globe.
IV. Defense Industrial Base
Another area where security interests and economic interests converge is in the defense industrial base. As the foremost exponent of free-market capitalism, the United States has long had a practical and philosophical aversion to government policies targeted at specific industries. The United States has generally honored its ideological predisposition, and despite dire warnings from protectionists, rarely has a key strategic industry been threatened by foreign competition.
Some fear this may change. There has been a rapid rise of foreign competition in sensitive sectors due to accelerated globalization. For example, a recent Heritage Foundation study noted that there are many foreign suppliers for the Joint Strike Fighter, that a foreign supplier has been selected to build the President’s helicopter fleet, and that the Army and Marine Corps lease Australian catamarans. And as highlighted in a 2005 Defense Science Board study on the semiconductor industry, many of the high-end chips on which our military is dependent will increasingly be produced abroad.
The Defense Department now emphasizes procuring from the best-quality, best-value supplier, which in some cases may be a foreign supplier. Moreover, by buying commercial goods in addition to military items, and by using foreign suppliers, the Department of Defense can free up dollars for our military to spend on critical research. Such policies also make sense as a way to obtain the top quality products and save taxpayer dollars, but these policies place pressure on U.S. suppliers in the defense industrial base who no longer have a guaranteed customer.
While there are great benefits from globalized procurement, there are also security risks from such critical items being made abroad. U.S. industry is subject to U.S. rules, while foreign industry may not be. T he U.S. government in some circumstances may mandate U.S. industry to give priority to defense procurements. The same authority may not exist for foreign suppliers. And, the U.S. ’s military’s inability to control critical supply in times of crisis is a legitimate concern.
The Administration recognizes this changing environment and has adopted a balanced approach, demanding f air access for American firms to foreign defense procurements, thereby allowing U.S. industry to prosper by spreading R&D and production costs over a larger base, and American taxpayers to benefit from reduced procurement costs.
Also, as part of this strategy, the Commerce Department is currently conducting extensive studies of a number of key industries about their concerns regarding transparency and fairness in foreign defense markets as well as U.S. controls on critical, sensitive exports. The vitality of these industries at home may seem like an “economic” concern, but it is critical for security reasons as well.
V. Strategic Trade
The intersection of economic and security interests is also evident in the area of strategic trade or export control policy. U.S. export control policies of the past were strongly influenced by security concerns, which often took priority over economic impact. This approach worked when the West had a virtual monopoly on most advanced technologies and when there was a broad international consensus that Communist countries were a threat to Western security.
The United States and its partners today do not have a monopoly on many of the commodities they control, so items they deny may be obtained from other sources. While there is a high degree of consensus with our allies on core objectives, it is difficult to achieve unanimous agreement on strategies to achieve them. In the export control area, this difficulty has led to countries taking different approaches to their multilateral commitments. Disparate implementation undermines the effectiveness of controls by allowing proliferators to shop for the weakest link, and may place U.S. industry at a disadvantage.
To respond to these challenges, the U.S. government is working to build consensus for harmonizing implementation of multilateral controls so that our partners do not impose less stringent requirements on industry than we do. As one initiative to seek this consensus, the Administration has launched a strategic dialogue with the European Union regarding East Asia , including China . We must ensure that U.S. licensing requirements are not so onerous as to provide unintentionally an incentive for critical U.S. industries to move offshore, and in doing so erode the security we seek to preserve.
Another important area of export control policy involves our rules on technology transfers to foreign nationals within the United States . Without such rules, foreign nationals would be able to access and repatriate sensitive U.S. technology to potentially hostile military programs. We face a particular threat today from terrorist groups, who may be operating within our own borders. At the same time, foreign nationals play a vital role in promoting the development of advanced technology within the United States . Many of the top researchers at our universities, government labs, and in private industry are foreign nationals.
At first blush, this issue again appears to involve a “trade-off”, balancing our national security interests against our economic policy interests. But given the critical role of foreign nationals in the U.S. research system, attracting foreign nationals is itself very important to our technological edge and therefore to our national security. A thoughtful response to this issue requires policymakers to focus our controls on protecting the technology that matters most, while avoiding undue restrictions that will undermine our ability to attract the best and the brightest to our shores. The United States must maintain leadership in cutting-edge research in as safe and secure an environment as possible.
VI. Foreign Investment
Finally, as we have seen in the news with China ’s National Offshore Oil Company’s failed attempt to acquire a U.S. oil company, U.S. policy toward foreign investments in the United States can also raise significant national security concerns.
The U.S. Government evaluates these national security concerns through the interagency Committee on Foreign Investment in the United States (CFIUS). CFIUS takes a broad range of factors into account when it evaluates national security including the acquisition’s impact on the defense industrial base, the potential for transfer of sensitive technology, and foreign control of critical U.S. infrastructure. If there are concerns, participating agencies work together to develop measures to mitigate the threat or recommend that the President block the transaction if mitigation is not practical.
The Administration knows it is important to get this right. It is crucial to our national security to deter foreign investments that risk particularly sensitive technologies or capabilities being obtained by our strategic rivals. But it is also important to our long-term security that our actions not significantly deter foreign investment in the United States . Foreign investment creates jobs and tax revenue in states across the country, and increases the value of U.S. companies. Overly-restrictive policies toward foreign investment would slow global growth and hamper U.S. exports, ultimately reducing U.S. strength. Here again, advancing economic interests and national security go hand in hand.
VII. Conclusion
As you can see, my over-arching point is a simple one: successful U.S. policy-making on the issues of today and tomorrow will require us to integrate national security and economic interests into sound, coherent policies that advance both. This approach is paying off.
In the area of security, this Administration’s policies have yielded real results. Enhanced efforts to ensure the security of Americans such as the Proliferation Security Initiative, shutting down the A.Q. Khan black market operation in nuclear technology, and the focus on maintaining U.S. technology leadership while prohibiting the diversion of sensitive technologies have gone hand-in-hand with concerted efforts to ensure U.S. economic vitality.
President Bush’s dynamic pro-growth economic agenda, only a portion of which I have touched on today, is working. Productivity is growing at the fastest rate in nearly 40 years, at a 3.4 percent annual rate since the end of 2000. And this has translated into real economic benefits for Seattle and the state. Since the President signed the Jobs and Growth Act in May of 2003, 145,800 jobs have been added to the State of Washington . International container traffic at the Port of Seattle grew 26 percent in the first 10 months of 2005. Boeing has performed very well with a record year in 2005, and has increased sales to Asia and the Middle East .
This Administration has advocated policies to help America capture this century’s unprecedented opportunities while making our people and our world more secure. Yet, this is a job that is too big for government alone. It requires an active partnership between government and the private sector similar to that which built this country, this state, and this city. It requires the time, talent, and active engagement of dedicated people like you. Thank you for your commitment, and thank you for your kind attention this afternoon.