Part VIII: The 1980s an the 1990s

Only a continuing confrontation along East-West lines -and in the future increasingly along the North-South divide -can create the conditions of international tension that make the US strategy possible and, so far, successful in forcing the other countries to follow⁶².

The end of the Cold War has created what some observers have called a “unipolar” or “one-superpower” world. But the United States is actually in no better position to dictate the global agenda unilaterally than it was at the beginning of the Cold War. America is more preponderant than it was ten years ago, yet, ironically, power has also become more diffuse. Thus, America’s ability to employ it to shape the rest of the world has actually decreased⁶³.

Meanwhile, others had been preparing for power. Enter the neo-conservatives⁶⁴.

“The 1980s will see a disintegrating international order in which economic growth is going to be extraordinarily difficult to achieve. What will be relevant is an American foreign policy in which power, and the readiness to use it boldly, will play a far more central role than has ever been the case in our history … Our economic growth will henceforth be as dependent on our foreign policy as our economic policy … Today, it is military rearmament that is the first priority, as well as political.” (my emphasis)

Ronald Reagan increased defense spending substantially. However, after a 9.9% increase in defense spending in 1981, profits fell badly in 1982 -by 17%. But after that, in 1983 and 1984, profits improved, while the growth of defense spending declined from a high of 10.3% in 1982 to 6.7% in 1983 and 4.6% in 1984 (see table above), i.e. even before the Soviet Union began to make requests for meetings with the United States.

But then profits fell in 1985. Throughout the second half of the 1980s, the second Reagan Administration actually reduced defense spending, while profits grew somewhat faster than during the first half of the decade.

The collapse of the Soviet Union: U.S. corporate profits in the first half of the 1990s

Profits continued to rise at growing annual rates during the first half of the 1990s, especially during Bill Clinton’s first Administration from 1993 to 1996, with a large 19% rise in profits in 1995. Nevertheless, these growth rates were no match to the very large growth rates that had occurred in 1987 and 1988, the last two years of Reagan’s second administration. Clinton appears to have learned something from Carter, but his cuts in defense spending during the first half of the 1990s were even greater. Again, though, it was actually Reagan who started cutting defense spending, with George Bush Senior continuing this -increasing defense spending slightly in 1991 for the Gulf War.

The specific world conditions need to be clarified here. George Bush (Senior), although certainly no simple stand-in for Ronald Reagan, had continued to serve America’s military industrial complex, challenging the status quo in the Middle East with his Operation Desert Storm in 1990. It is known that he was not popular with the Reagans, and was only reluctantly supported by Ronald Reagan. Meanwhile, a very dramatic change was taking place, one that the U.S. elite had fought for publicly⁶⁵-the Soviet Bloc was collapsing. Reaganites claimed this as their victory; others thought it had more to do with the ongoing break-up of national groups within the Soviet Union and the low price of oil.

By removing the sworn enemy of Capitalism⁶⁶, a new era appeared to have opened up for the United States and for capitalism worldwide. America was confronted with the problem of shifting itself towards a more peaceful stance. This seems to have been unavoidable. A few weeks before the 1992 presidential elections, Bill Clinton ex-governor of Arkansas and a virtual unknown in U.S. national politics, was invited to the annual Bilderberg conference at Versailles.

In fact, certain events indicate that this change in the world climate led to a serious crisis in the U.S. political system. Media coverage of the 1992 elections was for a time not dominated by the two big party candidates -Republican Bush and Democrat Clinton -but by the rise of a new force that threatened to topple the old 2-party system, led by a businessman called Ross Perot. Perot had been close to Reagan and a declared enemy of George Bush. He managed to get 19% of the popular vote in the 1992 presidential election, the most successful third candidate since Theodore Roosevelt in 1912⁶⁷, despite having dropped out of the campaign during the summer, following a dirty tricks campaign in the press. Perot may have posed as an outsider to politics, but he was an insider, with privileged access to U.S. intelligence, etc.

It seems unlikely that Perot deliberately helped Clinton to win the elections by splitting the Republican vote. His actual role in that was probably just circumstantial, although it has also been said that a strongly Republican Arkansas businessman, Jackson Stephens, helped finance Clinton’s presidential campaign.

This political struggle, apparently focused on winning the presidency, needs to be seen in the context of the changed world environment and the economic challenges and opportunities this opened up for Capital.

Clinton’s struggle for U.S. technological leadership

The move away from the Cold War caused Clinton to emphasize America’s need for a civil technological focus. During the 1992 election campaign, Bill Clinton laid out his view on how America would regain its technological supremacy:

“TECHNOLOGY: THE ENGINE OF ECONOMIC GROWTH. America can compete and win, but only if we have a positive vision guiding our economic policies. Our economic future depends on our capacity not only to invent and master the new technologies of the future, but to ensure that these ideas move rapidly to market to spur growth, create new jobs for our people and strengthen our industrial performance⁶⁸.”

The above is a Clinton campaign position paper from 1992. I notice that it conforms with the line traced out by Mario Pianta regarding what was going on prior to 1988. It appears to be a civil response to the problem, unlike the neo-conservative lobby’s program.

“In Putting People First, Bill Clinton, announced his support for a revenue-neutral transfer from unnecessary defense R&D to civilian and dual-use R&D.” (ibid)

The paper goes on:

America’s competitiveness rests ultimately with the private sector. U.S. firms must expand employee involvement and participation, continuously improve their product and process technology, increase their investments in R&D, plant and equipment, worker training, forge better relationships with their suppliers and customers, and shorten the time required to bring products to market.

On September 18, 1992, Clinton summarized his “Putting People First” technology drive, as follows:

1. Investing in a 21st century infrastructure; 2. Establishing education and training programs for a high-skills workforce; 3. Investing in technology programs that empower America’s small businesses; 4. Refocusing federal R&D programs on critical technologies that enhance industrial performance; 5. Leveraging the national R&D investment; and 6. Creating a world-class business environment for private sector investment and innovation.

The same document makes the following point:

We are the world leaders in biotechnology, information technology, aerospace technology and many other fields on the frontiers of science applied to human life. As a result of intense international competition, however, the U.S. technology edge has eroded in some of our prominent industries.

If anything, though this seems to play down the problems referred to by Pianta, making the solution less complex than suggested by him.

We have seen that US productivity was lagging behind that of its rivals, while many new States were moving faster and faster on this front. Measured as output per hour for the G7 industrialized countries (United States, Canada, Japan, Germany, Italy, France, United Kingdom) during the period 1950 to 2000 shows that Japan averaged the fastest rate (6.3% per annum); the United States is at the bottom of the list with an average of 2.9%. The United Kingdom is the second lowest on this list with 3.2%. It is no coincidence, as noted by Mary Kaldor⁶⁹, that R&D expenditure for both the United States and the UK⁷⁰ was focused heavily on the military sector. Nevertheless, it is clear that great changes occurred during this 50-year period, with the United States’ position improving towards the end of it, so that in the last decade (1990-2000) it was second on the list with 4.0%, followed by France with 4.2%. However, breaking that decade down into two five-year periods, we find that productivity rates had become more even among the G7 countries. U.S. productivity for the 5 years, 1990-1995 stood at 3.3%, alongside Canada, Japan, Germany and the UK. Heading the list was France with 4.1%, followed by Italy with 3.5%. Nevertheless, in the second half of the ‘90s, US productivity⁷¹ pushed up to 4.6%, and topped the list, followed by France at 4.2% and Japan at 3.9%.

If US productivity was actually exceeding that of other States what, then, went wrong for Clinton? It is not, in fact, simply a matter of Clinton’s plan not succeeding, but the corruption of that plan -for example, if SDI satellites were used for industrial espionage in the 1990s, then as President of the United States, Clinton was surely responsible for that.

Regarding Clinton’s civil technology orientation, one piece from The Wall Street Journal in 1998, suggests it paid off:

“For a long while, no one worried seriously about America’s ability to innovate. In the 1980s, Japanese rivals were outflanking U.S. companies in industry after industry. Today, America is the envy of the world, in software, in networking technologies, in much of life sciences and in other emerging industries. Even some mature industries have been revitalized.” (Bernard Wysocki Jr.: “Innovation in Japan and in the U.S.”, The Wall Street Journal Interactive Edition, March 23, 1998)

The article goes on to refer to former Defense Secretary William Perry’s comments at a recent M.I.T. conference:

Mr. Perry noted that Japanese industry made some expensive bets in the 1980s and 1990s that simply didn’t pay off: semiconductor memory chips, which have become almost a commodity; artificial intelligence, which has a limited commercial market; and high-definition television, which has gone very slowly. By contrast, the U.S. invested in microprocessors, software and telecommunications networks. All three have been growth engines of the global economy of the 1990s. (The Internet, in a way, combines all three.)
To Mr. Perry, probably the most important lesson is that America’s innovation was “bottom up,” while Japan’s heavy government hand placed its technology bets. And, he said, America’s growth was fueled by a large amount of risk capital, which is almost unknown in Japan. (ibid)

However, two years later, in 2000, Dan Hoydysh, Co-Chair of the Computer Coalition for Responsible Exports expressed US computer industry anxieties in a fast-changing technological world:

...it is quite clear that foreign computer companies are positioned to take advantage of markets closed to U.S. computer companies while the U.S. companies are waiting for the 6-month waiting period to run its course. If U.S. companies have to wait until the export controls are updated as much as six months later, foreign computer companies selling comparable computers will reap the significant benefit of being “first to market.” As you know, for high technology products being “first to market” is a critical commercial fact of life. The U.S. computer industry will soon be facing a crisis when computer systems with the new Intel Itanium™ come on the market, but are still controlled by outdated export control thresholds. At present, at least five foreign firms (NEC, Siemens, Hitachi, Fujitsu, and Bull) have already indicated that they intend to market computer systems with the Itanium. Those foreign computer companies will reap all the advantages of “first to market” in some of the most important growing markets in the world, while our computer companies face the barriers of the pre-export notification and licensing process. Once lost, foreign markets will be very hard to recover⁷².

Hoydysh focuses on a component known as the Intel Itanium, noting at the time of his presentation that this was already being used in non-US rival computer companies worldwide before being released in the United States.

He also notes that America’s foreign competitors:

are not constrained by export controls to the same extent as is the U.S. computer industry. The end of the Cold War and the demise of effective multilateral export controls has essentially freed our foreign competition from such constraints. (ibid.)

Greg Blonder, speaking in a Business Week interview in 2002 about the so-called “Dot-com” revolution in the 1990s in America, seems to have put his finger on a fundamental problem:

It fostered a gold-rush mentality that sucked a lot of good scientists and engineers out of schools before they finished their degrees. Even a lot of professors went off to start companies. So it created a climate that was negative toward long-term thinking and work on long-range problems.
That matters because I don’t think we realize how broken we are. And when we wake up, when the next crisis hits, it will be way too late. Innovations are built on basic research that was done long ago 15 or 20 years ago for electronics and communications, and 20 to 30 years earlier for new materials.
America’s innovation engine is broken? ...To be blunt, yes-in the sense that we haven’t been planting new seed corn. Long-term research needs steady hands, steady financing over very long periods of time.

... China will certainly present us with a bigger challenge than Japan. They’re disproportionately interested in engineering and science-much more so than we are. They’re also very entrepreneurial, unlike the Japanese.
But there’s also India. Even more so than China, it’s homogeneous in terms of value systems and skill sets. And again, they have a deeper penchant for technical careers than we do, plus all the same desires to build businesses. Look at the number of successful Indian entrepreneurs here—it’s astonishing. So if I had to pick two groups that could compete with the U.S., it would be the Indians and the Chinese. More so than Europe, more so than Japan⁷³.

In other words, just looking at productivity in the OECD States is no longer enough -Asia (not simply Japan) is now very much in the picture. Something that seems paradoxical, in this context, is that apparently the largest American corporations were actually cutting back on long-term research and innovation, rather than trying to increase it. At the U.S. National Institute for Science and Technology (NIST):

Caltech physicist David Goodstein [stated]: “Companies like Boeing, AT&T, and Hughes supported big facilities doing fundamental research. Today, most of those labs have shut down or been scaled back.” Without NIST, Goodstein believes, the US would not be a tech leader.
After years of ideological quarreling in Congress over NIST’s precise role, George W. Bush’s budget blueprint this March [2001] called for a “reassessment” of the agency’s cash grant program, initiated in the 1980s to support advance-guard research that businesses wouldn’t support themselves. The blueprint wiped out funds for new grants, effectively killing the program, which accounts for one-quarter of NIST’s budget.
As long as Bill Clinton and technophile veep Al Gore were in office, those who griped about NIST made little headway. Raymond Kammer, named director of the agency in 1997, was an eloquent spokesperson for the lab’s expanded role. He argued that NIST had to step into the void created by the rollback of corporate R&D. The US can quibble all it wants about whether the government ought to be picking up the slack, he argued, but somebody has to do the science⁷⁴.

U.S. legislation has not been helping either. Indeed, according to Joel Hruska in March, 2002, it is doing the opposite. He describes the U.S. Consumer Broadband and Digital Television Promotion Act as a barrier to entry that undermines American innovative activities in the computer software and hardware industries by forcing innovators to pay a large fee (US$ 5,000) for the copy protection software:

If there’s a bill that has been more misnamed, I have yet to hear it. The CBDTPA does nothing for consumers, save to bring them even more under the heel of mega corporations.
I can think of no better way, in fact, to destroy America’s position in the 21st century as a technological leader than by passing the CBDTPA. Controlling US software and hardware, after all, is bad enough, but what do we do about foreign products? Consider, for a moment, how much of the IT hardware we consume on a yearly basis is produced overseas by foreign companies. ASUS, MSI, ABIT, IWILL, EPOX, ECS, AOpen, Albatron, Tyan, and a host of other companies are NOT U.S.-owned or operated. Are we going to dictate to foreign companies under what grounds they can sell products in this country? Are we going to tell VIA, ALI, ATI, and SiS that they must make products that conform to our standards, despite the immensely higher cost of doing so? Keep in mind that these countries are not American owned. They do business here, but they are not under our legislation. Such legislation, in fact, could violate the much-vaunted WTO rules that regulate free trade⁷⁵.

However, this fits in with the way US international patent law was being pursued under Clinton, and with the mercantilist spirit commented on by various people. In May, 1998 a “Priority Watch List” was published which stated the following:

“The Administration is placing 15 countries on the Priority Watch List because of the lack of adequate and effective intellectual property protection or [because] market access in these countries is particularly troublesome to U.S. interests.” The countries already listed were: Argentina, the Dominican Republic, Ecuador, Egypt, India, Israel, and Kuwait. These were joined by Australia, Bahrain, Chile, Colombia, Costa Rica, Guatemala, Honduras, Jordan, Korea, Pakistan, Qatar, South Africa, Thailand, the United Arab Emirates and Vietnam. Others to be watched were Hungary, Lebanon, the Netherlands, Nicaragua, Romania and Tunisia. For example, in the last-named, “the lack of patent protection for pharmaceutical products means that dozens of unauthorized copies of top-selling medicines are in the market. Once a medicine is manufactured in Tunisia, its importation is restricted, hindering access to the market for U.S. firms… We look to Tunisia to … move toward providing patent protection for pharmaceutical products.

As noted, in the background to all this is Asia. Homing in on the PCB (personal computer board) market, the following passage refers to the cost competitiveness of Asian producers that was evident during Clinton’s first Administration in 1994:

U.S. PCB manufacturers face major challenges in producing cost-competitive PCBs because manufacturing-related costs are higher in the United States than in the newly industrialized countries. The cost differential is mainly attributed to higher wage rates, and costs related to stricter environmental, labor, and health regulations in the United States. PCB producers in Japan face higher manufacturing costs than their Asian counterparts, but have responded by moving much of their production facilities to areas with cheaper manufacturing costs. To remain competitive globally, U.S. companies must continue to seek ways to improve PCB manufacturing that will result in higher volumes and lower-cost products.
According to IPC data, the world market for PCBs combining rigid boards and flex circuits was $18.2 billion in 1992 ($17.1 billion for rigid boards and $ 1. I billion for flex circuits). Japan and the United States are the largest PCB producers…
From 1980 until 1992, U.S. producers experienced a declining share of the world market, but they increased their share to 29 percent in 1992. Japan’s part of the market decreased from 34 percent in 1991 to 30 percent in 1992. In another significant development, Asia (other than Japan) displaced Western Europe as the third-largest market segment in 1992. (from U.S. Industrial Outlook: Electronic components and equipment and superconductors – Industry Overview, Annual, 1994 by Margaret T. Donnelly, Judee Mussehl-Aziz, Erin Finn, Roger Chiarodo, Robin Roark, Robert Scott)

And this piece from 2004 shows how Asia has stolen the lead in semiconductors, despite Clinton’s determination to achieve technological supremacy for America:

As a region, Asia/Pacific has been the geographically dominant part of the current semiconductor industry recovery, at least in terms of capital expenditures, observed George Burns, president and founder of market research firm Strategic Marketing Associates. All of the major chip foundries are located in Asia/Pacific, and capital spending in 2004 is slated to surpass that of 2003, accounting for 25 percent of all capital spending this year, Burns said.
Broken down by country or region, China will account for 10 percent of cap ex this year; South Korea approximately 15 percent; Taiwan also about 15 percent, Japan approximately 25 percent; and Southeast Asia, 5 percent. By contrast, The United States, which in 2001 accounted for 40 percent of capital expenditures in the industry, will account for less than 25 percent.
“I think this is permanent,” Burns said of the United States’ decline as a center of semiconductor manufacturing. In fact, Asia/Pacific’s combined spending is closing in on the combined spending of Europe, Japan and the United States. This year Asia/Pac in total will account for approximately 45 percent of semiconductor cap ex; Europe, Japan and the United States, 55 percent⁷⁶.

This needs qualifying somewhat, although we should bear in mind what Otis Port (above) pointed out:

And even as the Asia/Pacific region blossoms as the center of high-tech manufacturing for the world, many note that much of the world’s chip design and IP originate from the West.
But if Western companies are to really share in the financial boom of Asia/Pacific in the high tech sector, it is going to take more than operations on the ground or sales offices, argued ASE Group’s Tien Wu. It’s going to require Western executives to adapt to the Asian way of conducting business, he suggested.

We should be clear, then, historically speaking, increasing U.S. profits have been associated with increases in defense spending, but increasing profits appear also to have been have associated with decreases in defense spending because what lies in the background is the abundance revealed by science. This is not new, of course -defense spending had fallen dramatically at the end of World War II, and profits later surged up. It should also be borne in mind that US national defense spending has never dropped below 15% since World War II, even with Clinton’s great slashes in it.

N.B. This is a continuing project. We welcome comments, corrections, suggestions, criticisms from readers.

NOTES

⁶² Mario Pianta: “New Technologies Across the Atlantic -U.S. Leadership or European Autonomy,” 1988.

⁶³ Henry Kissinger, Diplomacy, 1994

⁶⁴ Irving Kristol in 1979, from D. Gordon: “Do We Need to be Number One?” Atlantic Review (April, 1986)

⁶⁵ It may have been that they privately hoped it would never occur, although it seems certain they were also divided on this question -viz. the two main factions of the Republican Party.

⁶⁶ It was politically convenient to call the situation in the Soviet Union “Communism”, but business continued to grow between the United States and the Soviet Union during the Cold War.

⁶⁷ The 1912 episode is interesting: a rupture in the Republican Party centering on how to deal with the monopolies, which opened the way for an overwhelming Democratic presidential election victory by Woodrow Wilson. This points to repetition in American politics, indicating that old problems remain…(See: John A. Garraty: “The American Nation”, 1983.

⁶⁸ From a 1992 Campaign position paper.

⁶⁹ For example, she has noted that the growth of the US military ‘has diverted resources in such a way as to constrain and distort accumulation and so accentuates the underlying cause of the crisis.” (“Warfare and Capitalism”, NLR, 1982.)

⁷⁰ See: “Technical Change in the Defence Industry”, Chapter 6 of K.L.R. Pavitt et al: “Technical Innovation and British Economic Performance,” 1979.

⁷¹ Aaron E. Cobet and Gregory A. Wilson: “Comparing 50 years of labor productivity in U.S. and foreign manufacturing”, Monthly Labor Review, June, 2002.
fn72. Before the Senate Governmental Affairs Committee, United States Senate, May 26, 2000.

⁷³ Otis Port: “The Innovation Machine Needs Fixing”, Business Week, July 26, 2002.

⁷⁴ Brian Alexander: “Atomic Rulers of the World”, Wired 9.06, Issue 9.06, Jun 2001

⁷⁵ Joel Hruska: The Destruction of American Technological Leadership and Personal Freedom -All in One Piece of Paper (March 25, 2002)