REDUCING THE DEFICIT: SPENDING AND REVENUE OPTIONS
Congressional Budget Office - March 1997


DEF-20 CUT SPENDING FOR DUAL-USE TECHNOLOGY PROGRAMS TO HISTORICAL LEVELS


Annual Savings							Five-Year
Savings from			(Millions of dollars)		Cumulative
the 1997 Plan		1998	1999	2000	2001	2002	Total

Budget Authority	108	126	101	107	136	578

Outlays			96	113	109	105	118	541

In recent years, the Congress and the Administration have expanded funding for research and development (R&D) on dual-use technologies--those that have both civil and military applications. One program that was financed with part of that increase was the Technology Reinvestment Project. TRP provided support to consortia that developed or disseminated dual-use technologies; it was administered by the Defense Advanced Research Projects Agency (DARPA) in cooperation with the three military departments and five other federal agencies. In most cases, recipients of TRP awards matched their federal support dollar for dollar.

Several other dual-use programs have also received considerable funding increases over the past several years, including R&D in high-performance computing, materials and electronics processing, and electronics modules. Those programs are administered by DARPA, whose technical managers are given considerable independence in selecting technologies and managing projects. Organizations that receive R&D awards from DARPA are not necessarily obligated to share project costs, although some do.

In 1997, the Administration replaced TRP with the Dual-Use Applications Program (DUAP). That initiative was designed to address criticisms of TRP by focusing only on technologies that are potentially useful to the military and by making all of its awards through a competitive selection process--that is, avoiding special earmarks. The Administration has requested $225 million for DUAP in 1998 and would like funding for that program to continue over the next five years. Under the 1997 request, other dual-use programs would have received about $1.1 billion annually.

This option would limit funding for DUAP and other dual-use initiatives to $1.2 billion, an amount that is consistent with appropriation levels from 1992. Compared with the Administration's 1997 request, out-lay savings under this option would be $96 million in 1998 and total $541 million over the next five years.

Advocates of greater funding for dual-use technologies contend that those programs ultimately will help lower the cost of defense equipment. Although military R&D has spawned numerous commercial applications, today some civil products outpace their defense counterparts and are less expensive, particularly those in the field of microelectronics. By incorporating widely available components from the commercial sector, some defense equipment could be made more capable while keeping costs reasonable. Programs such as DARPA's efforts in electronics processing may help to adapt commercial technologies for military use.

Initiatives such as DUAP may also improve the integration of the defense industrial base into civil sectors of the U.S. economy. Historically, military and civil production have been treated as two distinct sectors because of onerous cost-accounting requirements and detailed specifications for military products, among other factors. But as U.S. military spending has declined, integrating those sectors in order to meet future military needs has become more important. Some analysts fear that otherwise, only a few companies would remain in the defense business and retain the capability to produce sophisticated military equipment. That could become a problem if threats to national security emerged that would need advanced technology to counter them. Some advocates also believe that dual-use programs can bolster economic growth in certain industries, especially high-technology ones.

Critics of direct funding for dual-use R&D argue that other policy changes can encourage the integration of civil and military efforts more effectively. Adopting commercial standards in place of military specifications, for example, may allow weapons producers to incorporate civil components on a more widespread basis than, say, a DARPA-sponsored study in which commercial technologies are customized for military use. Dual-use programs that tailor civil technologies to defense specifications can leave too little in common with the commercial marketplace, thereby defeating one of the key purposes of dual-use items: to benefit from economies of scale in production. Ultimately, dual-use programs may not be sufficient to sustain domestic suppliers of high-technology goods for military equipment. And such programs also cannot control whether companies that develop technology with their help share those innovations with foreign firms, even though such sharing may undermine the objectives of the program.

Moreover, these dual-use programs sponsor a type of R&D for which the grounds for government funding are less clear. Most economists believe that federal support for basic research is justified because the private sector will underinvest in research of that type. More contentious, however, is the degree to which the government should support applied R&D, the type funded by most dual-use programs. As projects move from underlying scientific knowledge closer to products and processes, the commercial benefits of that R&D are likely to become more apparent. Applied research projects could take numerous paths, and it is difficult to select a few projects from among several promising applications and then evaluate critically the role of federal support. Some analysts therefore contend that the private sector--with its vested interests in identifying commercial potential--is better suited to promote applied R&D projects. Furthermore, if supported with federal funds, R&D programs can become entrenched politically and difficult to discontinue.