In 1798, inventor Eli Whitney signed a contract to supply 10,000 muskets to the fledgling U.S. Army. Borrowing a concept from the world-class French armed forces, Whitney said he would make the parts interchangeable, so that soldiers could replace damaged pieces on the battlefield. It took him eight years to deliver the muskets, and their parts weren't interchangeable after all. Nevertheless, Whitney's idea inspired what became known as the "American system of manufacture" and helped the U.S. become one of the world's great industrial powers.
Since then, research conducted for military purposes has produced dozens of inventions that have benefited the civilian economy, from jet engines and radar to nuclear power and plastics. The U.S. Navy used one of the world's first computers during World War II to calculate missile trajectories. The Internet evolved from a Pentagon-funded network called ARPANET, which connected university researchers. Global positioning satellites -- now widely used by hikers and car-navigation systems -- were put in place by the U.S. Air Force in the early 1970s to guide missiles. Indeed, Silicon Valley itself got its start with help from defense contracts awarded to Stanford University and such outfits as Fairchild Semiconductor Corp. and Hewlett-Packard Co.
But in Gulf War II, something different has been happening: The military is on the receiving end of technology developed by the civilian sector. Digital warfare draws extensively on off-the-shelf commercial information technologies, from computer workstations and laptops to database software and networks. "The Pentagon is [just] another user," says Frank Cevasco, a vice-president at defense consultancy Hicks & Associates Inc. "In many cases, it's the same machine."
On the whole, this historic turning of the tide in technology transfer is good for both the economy and the Armed Forces. Why? Because the U.S. has the world's strongest information technology. Instead of pouring money into developing technologies that it alone needs, the Pentagon can piggyback on hardware and software developed for the bigger commercial market. Engineers can assemble those components inventively and write custom software to create systems of awesome power, such as the wireless network designed by TRW Inc. -- now part of Northrop Grumman Inc. -- that gives Army infantry commanders and troops an unprecedentedly clear picture of the state of battle.
The result is more bang for the buck. "People are not going to abandon their regular businesses [in selling to the Pentagon]," says E. Floyd Kvamme, a partner at Silicon Valley venture-capital firm Kleiner Perkins Caufield & Byers, and a co-chair of the President's Council of Advisers on Science & Technology. "Rather, they are suggesting ways their technology could be applied to various kinds of things the government is talking about."
The synergy produces real savings. "About 15 years ago, we would have to build systems from the ground up," says Frank C. Lanza, CEO of L-3 Communications Holdings Inc. (LLL), which makes communications and surveillance gear and simulators. "But now, with Hollywood and multimedia, we can buy their graphic processors, modify them to suit the needs of an F-16 [simulator], and spend our time with the operational scenarios to train the pilots." Mass production for commercial customers also cuts component costs. L-3 sold F-16 simulators in 1986 for $35 million apiece. Now, Lanza says, it can profitably sell better ones for $2 million or $3 million each.
Why has the nature of technology transfer changed so radically? Mainly because of the explosion of the civilian info-tech market, starting with Intel Corp.'s (INTC) introduction of microprocessors in the early 1970s, according to Harvard University economist F.M. Scherer. With plenty of revenue from commercial customers, info-tech companies no longer needed to take their cues from the Pentagon. Meanwhile, military-related research and development spending had already begun falling as a share of total U.S. R&D, from half in 1960 to one-third by 1970. Today, it is down to 15% of the total.
Even technologies that have military origins are sometimes developed primarily in the civilian sector. Later, they often find their way back into military use. For instance, even though the military began launching satellites for the global positioning system (GPS) in the early 1970s, GPS receivers that read the satellites' signals were expensive and rare. It wasn't until the civilian market developed that the price began to fall. Now they're so cheap that the Pentagon can afford to deploy them widely. GPS receivers guide bombs and missiles and help soldiers get back to base in sand storms.
There are drawbacks to the military's transformation from a generator of inventions to mainly a consumer of them. For one thing, no other institution has assumed the military's diminishing role as a supporter of long-term research in the physical and information sciences. Even giants like Intel draw on government-funded research in designing products. Clyde V. Prestowitz Jr., a competitiveness guru, says he belongs to an Intel advisory board whose members are concerned about "what's going to happen to this country's lead in electronics technology" with government research funding on the wane. "There's a really serious problem," agrees Lewis M. Branscomb, a professor emeritus at Harvard's John F. Kennedy School of Government.
Perhaps even more ominous is the ready availability of critical military components, since so many now derive from the commercial sector. Says L-3's Lanza: "The commercial world has permitted access by rogue nations to some very high technology. It's made the enemy smarter." In 1999, a Defense Science Board task force recommended that the Defense Dept. focus less on blocking access to components and more on ensuring U.S. leadership in stitching the components together into systems. Congress is so conflicted over the matter that it hasn't been able to pass an Export Administration Act since the old one expired in 1994. The rules have stayed in place through emergency extensions.
Those are genuine concerns. On the whole, though, the changing nature of warfare plays to America's strengths. Silicon Valley is more than a business center now. It's an arsenal. By Peter Coy
With John Carey in Washington, Diane Brady and Otis Port in New York, and Linda Himelstein in San Mateo, Calif.