Innovation and Its Discontents: National Models of Military Innovation and the Dual-Use Conundrum

This study explores variations in national models of innovation, as well as the pathways or levers those models afford in controlling innovation’s end product. This report focuses on dual-use, emerging technologies’ “origin stories” and takes a big picture view of their emergence. It is bookended by an exploration of where these dual-use technologies come from and by an assessment of where they are going. The report uses case studies of both U.S. and German investment in artificial intelligence and additive manufacturing to highlight national approaches to innovation, assessing each country’s approach to regulating sensitive and dual-use technologies once they have been developed. 

The report argues that within a national model of innovation, the way in which technology is procured by a state’s military is linked with that state’s ability to control or regulate an end-product and, in turn, prevent diffusion or proliferation. On national models of innovation, their evolution and variation, it finds: 

• The United States has restructured its innovation model with “military edge” in mind, seeking to “out innovate” rival states in the security domain, and, at the national level, is currently debating “how to get innovation right” for defense purposes. Meanwhile, Germany has refocused its model to address retraining its workforce and maximizing market share. Both countries face high uncertainty about the future. We do not yet know what a successful model for innovation looks like in this technological and political ecosystem, but every state’s model can be understood as some combination of state-level investment in and the military integration of dual-use technologies.  
• National models of innovation are being reshaped with state goals for dual-use emerging technologies in mind: The U.S. and German national models of innovation are currently evolving to reap the benefits of private-sector innovation to achieve national goals. However, there are significant “growing pains” in the restructuring and evolution of both. States face increasing tradeoffs as the structure of their national models evolve to achieve chosen ends, making R&D infrastructure less flexible in the long run. 
• The U.S. model for innovation is characterized by the quest for superiority through the monopolization of military innovation. It follows that the U.S. approach to the export or sale of sensitive military and dual-use items is implicitly based on the assumption that the United States has a monopoly on technology innovation (which yields superiority) and “helps” allies by exporting (selling) them sensitive items. This is no longer the case. The United States has a particularly difficult time considering any other paradigm and conceiving of European states as either competitors or collaborators. 
• In Germany, the pursuit of military advantage through innovation ended in the wake of World War II with the demise of Hitler and the Nazi regime. In the post-War period, Germany channeled its engineering expertise into its workforce and economy. German capacity for engineering continues to be valued and is instantiated in the country’s large network of innovation centers. This “Fraunhofer model” reflects the German understanding that “innovation must result in productivity gains that are widespread, rather than concentrated in the high-tech sector of the moment.”  Germany’s national model of innovation has perpetuated the robustness of Germany’s industrial base, which fuels its export-led economy. Germany has adopted a collective mentality of “huddling in the middle” and is reluctant to innovate in the pursuit of military advantage, an area in which it still operates as a penitent actor.

Implications of the U.S., German models for Innovation: 

• Whereas the United States is better at defense integration than Germany, Germany spends more on innovation per GDP than does the United States. And Germany has a more efficient, profitable, and sustainable innovation model.  Germany out-innovates the United States in sustainable energy systems, molecular biotechnology, lasers, and experimental software engineering; it is better at “adapting inventions to industry and spreading them throughout the business sector”; and it is better at “infusing old products and processes with new ideas and capabilities or recombining elements of old, stagnant sectors into new, vibrant ones.”
• Because we are in a high uncertainty environment, characterized by rapid change, setting goals and establishing strategies for “winning the competition” in innovation is difficult.  The problem with all of this “competitive innovating” for defense and security is that, absent a strategy or concrete operational goal, the risk of not being successful (having measurable yield) is high. There is an opportunity for the United States to establish the course and set the bar for innovation, as well as lead in establishing goals for innovation’s yield. There is also ample opportunity and good reason to justify transatlantic cooperation in this realm.

By tracing the innovation process across U.S. and German national systems, this study highlights common patterns and critical divergences in order to assess the possibilities for and the obstacles to international cooperation in countering “next generation proliferation,” or the multi-modal, global diffusion of dual-use technologies. The study explores U.S. and German investment and expertise in the development of two types of dual-use technologies: artificial intelligence (and two of its components: robotics and semi-conductor engineering) and additive manufacturing. 

On Artificial Intelligence, it finds:

• The U.S. government spends far less on AI industrial application and more on defense relative to Germany.
• The U.S. has been comparatively slow to adopt a national AI strategy. Germany’s strategy is focused mostly on AI’s potential contribution to industry, while the U.S.’s on security. 
• Consistent with Germany’s national strategy for AI, Germany’s efforts to integrate semiconductor and AI technologies into the German military are relatively nascent and opaque.  
• U.S. AI efforts are geared at out-innovating adversaries, primarily in regards to battlefield applications of AI.  However, the United States currently lacks metrics for gauging output with respect to AI battlefield application.

On Additive Manufacturing, it finds: 

• In the United States, AM is benefiting from hub-like innovation and incubation centers that draw on government, university, and private-sector expertise. The United States is working to actively integrate AM into the military, while Germany is doing so to a much lesser extent. Instead, Germany is focusing on cultivating the technology with engineering and economic goals in mind.
• Given its regulatory and funding environment for AM, Germany could partner with allies to develop key technology applications while continuing to develop the R&D end. Germany may be doing this under the auspices of the European Defense Fund, but it is a lost opportunity for the United States.

On the ability of the two models to prevent the diffusion of dual-use technologies: 

• The desire to optimize innovation facilitates downstream risk in both the United States and Germany. Those who think about innovation do not tend to think about the protection or proliferation of innovations.
• In the United States, planners are primarily focused on “getting innovation right,” preoccupied with the “success” of their innovative model; they give little consideration to protection or proliferation. They are motivated by concerns that the United States will be out-innovated by adversaries that have fewer constraints and can innovate faster. Increasingly, the United States must balance the ability to procure dual-use innovation for military applications relatively quickly with the need to have propriety over, regulate, or control that technology.
• German officials are beginning to recognize the sensitivity of many of the dual-use innovations and industries burgeoning within German borders, and the country is working to implement recent EU-wide regulations for FDI screening and export controls—but it is behind the curve.  Germany and the rest of Europe are also committed to open markets and are relatively permissive in allowing foreign entities to bid on domestic projects.
• Recent events have contributed to unique tensions in the U.S.-E.U. relationship and there are profound obstacles to U.S.-E.U. defense cooperation. U.S.-E.U. defense trade has served as a backbone of the transatlantic relationship. As Europe continues its inward turn, innovating indigenously for defense, the United States has begun calling for Europe to cease excluding U.S. defense companies. Tensions have reached an all-time high. 

Recommendations

• The United States should develop a framework for assessing competitors’ models of innovation to enable the development of targeted strategies for effective competition.  At the national (NSC) level, the United States can employ national models as a useful indicator of both the technological capacity and the limitations of potential adversaries.
• The United States must achieve better management of uncertainty and complexity at the policy-maker level and direct interagency processes to better frame downstream uncertainty, including about diffusion and proliferation. Requirements for new military technology must come with investment in preventing the diffusion of that technology and its component technologies.
• The United States should actively work to resolve tension vis-à-vis E.U. defense innovation initiatives, either by welcoming them, which would beget competition and, in turn, spur innovation; or healing the rift spawned by European defense innovation with track-one and -two dialogues.  Dialogues could address the following: 
  • If Europe wants to maintain its reliance on the United States within NATO to guarantee its security, it should consider “biting the bullet” and establishing regular consultations and partnerships with the United States on new European weapons and systems.
  • The United States could agree to an initial period of ITAR-free procurement (which precludes U.S. cooperation in the development of new systems) to allow Europe to “make a go of it,” and to invest more in ongoing consultations on military innovation.  
  • As an olive branch, the United States could also explore options for co-development of defense technologies, issuing an exemption from U.S. requirements that new weapons and systems be built on U.S. soil, for example, and allowing the resulting technology and capabilities to be jointly owned—by the United States and Europe.
     
• The United States must cooperate with allies in this high-uncertainty, technology-security environment. Cooperation stands to improve the odds of achieving strategic goals, maximizing innovation, and identifying targets for non-proliferation and arms control.  
  • The United States and its European allies should conduct regular consultations.  Consultations should focus on the development of specific dual-use technologies. This could, in turn, guide discussions on how to align indigenous capacities in critical areas and “out-partner” adversaries, and further assist in cultivating transatlantic cooperation.
  • The United States and its allies should focus collaborative efforts on identifying a common threat. A combination of dialogue and collaborative simulations and war-gaming should seek to provide insight into the range of strategic threats and the capabilities needed to address those threats and inform the necessary innovation. Collaborative efforts must focus on the risk of diffusion or proliferation of dual-use technologies by identifying the “crown jewels” of the new crop of weapons and systems. Doing so may help set guidelines for international agreements and regulations with respect to what are the most “sensitive” items—a kind of focused export control approach. Finally, we must assess how an accretion of actors (state and non-state) empowered by equivalent or analogous technologies changes the security space and then identify the weapons and systems least beneficial for conflict in the future. We may then be able to set targets for arms control—the elimination of weapons and systems with outdated or limited utility.