NASA Technical Reports Server (NTRS) 19980007963: NASA/DOD Aerospace Knowledge Diffusion Research Project. Paper 62: The Influence of Knowledge Diffusion on Aeronautics Innovation: The Research, Development, and Production of Large Commercial Aircraft in

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INDIANA UNIVERSITY

THE INFLUENCE OF KNOWLEDGE DIFFUSION ON
/_RONAUTICS INNOVATION:
THE RESEARCH, DEVELOPMENT, AND PRODUCTION
OF LARGE COMMERCIAL AIRCRAFT IN
FRANCE, GERMANY, AND THE UNITED KINGDOM
by
Vicki L. Golich Thomas E. Pinelli
Associate Professor, Political Science Head, Visual Imaging Branch
California State University San Marcos NASA Langley Research Center
333 SouthTwin Oaks Valley Road Mail Code - 400
San Marcos, CA 92096-0001 Hampton, VA 23681-0001
760.750.4144 (V) 757.864.2491 (V)
760.750.3284 (F) 757.864.8311 (F)
vgolich@mailhost 1.csusm.edu [email protected]
PaperpreparedfordeliveryattheAviationCommunication:AMulti-CulturalForumConference,Prescott,AZ,April11,
1997.TheresearchforthispaperwaspartiallysupportedbytheNASNDOD AerospaceKnowledgeDiffusionResearch
Project.

ABSTRACT
ThispaperfocusesonhowEuropeanpublicpolicies---individuallyandcollectively
--influence thediffusionofknowledgeandtechnology.Itbeginswithanoverview
of the rolesplayedhistoricallyandcurrentlyby Europeangovernmentsinthe
research,developmenta,ndproduction(RD&P)oflargecommercialaircraft(LCA).
Theanalyticaflrameworkbringstogetherliteraturefromglobalpoliticaleconomy,
comparativepolitics,businessmanagement,andscienceandtechnologypolicy
studies. Itdistinguishesbetweentheproductionofknowledge,ontheonehand,
andthe disseminationof knowledge,onthe other. France,Germany, andthe
UnitedKingdomserveastheanalyticalcases.Thepaperconcludeswithacallfor
additionarlesearchinthisarea,sometentativelessonslearned,andadiscussion
of the consequencesof nationalstrategiesand policiesfor the diffusionof
knowledgeandtechnologyinaneraofglobalization.
INTRODUCTION
Aviation haslong had a dose, often symbiotic relationshipwiththe state. Decades ofdirect andindirect
govemment supportforthe industryhave producedan unprecedented level of sophisticationinbothmilitary
and commercial aviation. Govemments have utilized a variety of market intervention instruments to
promotethediffusion--production,transfer,anduse-of aeronauticalknowledge andtechnology. Individual
Europeanstates--namely France,Germany, andthe United Kingdom (U.K.)---have impressive histories of
aeronautical innovation; collectively they--namely France, Germany, and the U.K., together with the
Netherlands, Belgium, and Spain--have collaborated successfully since World War II to rebuild their
indigenous aeronautical capacities under the Airbus Industrie (AI) umbrella. European collaboration to
research,develop,andproduce(RD&P) largecommercial aircraft (LCA) isallthe more remarkable because
theydonotshareacommon language orculture, butdo share an extended historyof mistrustand conflict.
Add these obstacles to the incredibly complex task of LCA RD&P, and the enormity of their success
becomesallthe moreimpressive. This paperfocuses onthe innovation strategies and policiesof France,
Germany, andtheU.K.; eventually, the analysis willbe expanded toinclude knowledgediffusion strategies
andpoliciesadopted bythe European Union (EU) aswell. The intent isto leam which knowledge diffusion
strategiesandpoliciesare efficient,effective, andsuccessful ingenerating advances ingoods andservices
nationally inaglobal economy characterized bymutual dependencies across amyriad of issueareas.
The diffusion of aeronautical knowledgeandtechnology is particularly relevant to thistask. F/rst,
bothknowledgeandtechnologyareessentialingredientsofthe innovation requiredto create new orimprove
extant processes, products, systems, or services which are qualitatively superior or significantly less
expensivethan those alreadyinthe market. Innovation, inturn, isdeemed criticalboth to nationaldefense
and to maintaining economic competitiveness inthe global economy. Inthe realm of national defense,
aviation is a keystone of the industrial base which produces the multitude of systems--weapons,
transportation, communications, and infrastructure---as well as the personnel and training necessary to
provide security. Aviation alsoserves asan economic linchpin, highly valued for its=spill-over" effects,
either asa powerful force pushinginnovationthrough a cascade of"down-stream" activities, oras a=first
user" of novel technologies. The drive to attain and sustain military superiority and economic
competitiveness hasconsistently compelled nationalgovernments tosupportscience andtechnology pre-
commercial researchanddevelopment (R&D)(Cohen, 1994; Councilon Competitiveness, 1994; Dertouzos,
Lester, andSolow, 1989; Julius, 1990; Lopez andYager, 1987; National Academy of Engineering, 1988;
Golioh&Pinelli_KnowledDgeiffusionI'snfluencoenAeronauticInanlovation 2
Nau, 1974;Rapldnand Strand, 1995; Ruggie, 1975; Servan-Schreiber, 1968; Strange, 1988; Tyson, 1988;
1992; VanTulder and Junne, 1988; Williams, 1984; Yoffie, 1993).
Thus, aviation plays a special role in the national innovation systems of several of the most
importantcountriesinthe Organization for Economic Cooperation and Development (OECD). Inaddition,
for the United States (U.S.), the U.K., and France, aerospace products constitute a major source of
manufacturing exports, adding a trade dimension to the strategic importance of that sector (Council on
Competitiveness, 1996; Gellman Research Associates, 1992; 1990; Hayward, 1994; Nelson, 1993; Tyson,
1988; 1992; U.S. International Trade Commission, 1993; 1984; U.S. Congress, Office of Technology
Assessment,1991). Govemments canusea numberofstrategiesandpoliciesto promotean industrysector,
aparticular project,oreven aspecific technology, includingfinancial subsidies, information dissemination,
government mandated technology transfer from foreign sources, technical standards, and govemment
procurement (Pinelli, Kennedy, Barclay and Bishop, 1997, p. 135; Mowery, 1994). More broadly, public
policy establishesthe market parameters (e.g., trade and investment rules)as well asthe education and
legal (e.g., intellectual propertyrights) infrastructureswithinwhich innovation occurs.
Second,governments andcorporations confront an intriguingproblem with respecttothe diffusion
ofknowledgeandtechnology:neitherhasintrinsicvalue. Theirvalue liesintheir usability;that is,knowledge
andtechnologymustbeaccessiblebythe institutions,firms, orindividualswhich create orimprove military
orcommercial processes,products,systems, orservices. In addition, knowledge andtechnology mustbe
"practicar'---relevantandapplicabletothegoalsofprodudngneworimproved processes, products,systems,
orservices. Useable knowledgeandtechnologyareembeddedwithexplicit(science) andtacit (engineering)
components; they provideworkableandeffectivesolutions toproblems. Generally, technological knowledge
is best utilized by engineers because they have gained the tac/t knowiedgs_--personal, context-specific,
experiential (see Pinelli, Kennedy, Barclay and Bishop, 1997, p. 90; Polanyi, 1966; Bateson, 1973; and
Teece, 1981)--which enables them todeploy knowledge andtechnology mosteffectively. At aminimum,
experienced employees who have workedwith related materials, processes,and productswillbenefit the
mostfrom emergingtechnologicalknowledge;the tacit knowledge they have gained asaresult of9earning-
by-doing"and "learning-by-usingnisinvaluable asthey attempt to innovate usingnewtechnologies.
T/drd,LCA RD&P andtechnological innovation share key charactedstics: Each is inherentlydsky
and requires grappling with unknowns that may be technical, economic, or merely the manifestation of
pemonalandsocialvariables(Rogers, 1982). LCA producers andtechnological innovatorsseldom work in
a predictable environment; usually the payoffs are uncertain and distant. In the LCA sector, these
imponderables comprise both"known unknowns"and"unknown unknowns'---referred to as"unk-unks."
Knownunknownsarethenormal,unremarkableimprovementsthat,itisassumed,
will be called for sooneror later.... Unk-unks are the less predictable
contingencies;the assumptionisthat any newairplaneorengineintendedto
advancethestateoftheartwillharboritsownsurprisesintheformofproblems
thatarewhollyunforeseen(Newhouse,1982,p.19).
Despite this remarkable level of uncertainty, LCA producers and technological innovators must make
decisionsandcomplete extraordinarilycomplex tasks. To do so they seek data, information, orknowledge
Golich& Pinelli---KnowledgeDiffusion'sInfluenceonAeronauticalInnovation 3
whichwillhelpmoderate uncertainty. Hence, examples of successful(or even failed) knowledge manage-
ment--such as we find in the European aeronautics expedence---can provide important lessons for
policymakers aroundthe world.
Fourth, LCARD&P isa knowledge-dependent industrysectorthe benefits ofwhich---both tangible
andintangible--am sodeady perceived bygovernment policymakers aroundthe wodd that virtually every
nationwill do what itcan toparticipate inthe sector. The question iswhat kindof intervention isefficient,
effective, andsuccessful.
BACKGROUND
Governmental officialsare expected to adopt strategies and policies which they determine will
enable their individualcountriesto besafe from external attack andto be economically viable. Inaworld
whereknowledgeandtechnologyare increasingly recognized as criticaltothe achievement of beth military
securityandeconomiccompetitiveness, policymakers shouldexplore howbest to fosterthe mosteffective
creationanddissemination of knowledge andtechnology for andto domestic users. Ifwe define effective
creation anddissemination of knowledge andtechnology asincluding the production of an economically
competitiveproduct,then, aswe enterthe twenty-fi_t century,thistask iscomplicated bythe skyrocketing
costandcollateral riskof thislaudable goal. Inan industrysector suchascommercial aviation, thetask is
further complicated by the simultaneous expansion ofthe market toglobal proportionsand the shrinking
numberofconsumers°Addtothisthe problem created bythe extraordinary cost of LCAto consumers, and
pclicymakersareconfronted withan almostparalyzingdilemma.Canthey really expect tosupport andfoster
independent indigenouseconomic competitors without alienating foreign consumers uponwhom they are
dependent and with whom they are competing for sales? If not, how do they join forces with their
competitorsso astoenjoythebenefitsofprofitableproductionwithout undermining the success andsurvival
oftheir indigenouscapabilities?
Europeanpolicymakersgrapplewithjustthisdilemmatoday. On the one hand, market forcesseem
to be compelling them toward greater unityand merging ofcapabilities; onthe other hand, historicaland
political forces encourage protection from the vulnerability which inevitably accompanies the mutual
dependenciesofintegration.The seedlings ofthisdilemma were firstevident immediately following World
War II as government officials and corporate decision-makers recognized the potential negative
consequences of parochial state involvement for their own domestic economies in a world shrunk by
increasinglysophisticatedcommunications andtransportationsystems. The original intervention dilemma
confrontingstatepolicymakers--findingthebalancebetweenexcessive andinsufficientgovernment support
ofdomesticeconomies-became oneofhow"toengineeracompetitive presence ina full range of industrial
activitieswithinstrumentsofpublicintervention that are not necessarilyvery effective andthat threaten the
well-being of the international economic system" (Shepherd, Duchene, and Saunders, 1983, p.21). The
needto resolvethis dilemma isexacerbated inindustrysectorssuchastransportation and communication
which are naturalmonopoliesifprivateactorsareallowedtoact"freely"inthe market (Chandler and Daems,
1980). As the market transitionsfrom domestic to global proportionsgovernment and corporate officials
must negotiate a compromise between unilateral and multilateral costs andbenefits (Golich, 1992; 1991;
Hayward 1994; 1986; StirkandWillis, 1991).
Golich&Pinell_--KnowledDgifefusionI'nsfluencoenAeronauticInanl ovation 4
AnalyticalConsiderations
FourfactorshelpusunderstanEduropeaanpproachetosknowledgaendtechnologdyiffusion:F/rst,
nations can employ a "mission-oriented" strategy, a "diffusion-oriented=strategy, orsome combination
thereof(Ergas, 1987). Theformer ischaracterized bylarge scale projectwork, centering on large firmswith
a heavyemphasis on defense, nuclear power,and aerospace. The latteremphasizes broader, moregen-
eralized forms of investment, notably inpre-competitive, collaborative research, standardsdevelopment,
andtraining. "Mission-oriented=strategies are characteristic ofthe U.S., the U.K. andFrance where, since
1945, nationaldefense and prestige have been keynational goals. Incontrast, Germany adopted a "diffu-
sion-oriented"slrategy;Japanadoptedauniquehybridapproach (see Pinelli, Kennedy, Barclay, and Bishop,
1997). Thegeneraltrendininnovationpolicysincethemid-1980s, when Ergas introducedthe "mission=and
"diffusion"distinction,has beento emphasize diffusioniststrategies. To some extent, thistrend follows the
end of the Cold War which triggered a shift of resources away from defense programs to a growing
preoccupationwitheconomic competitiveness inaglobal market (Sandholz, 1992; Peterson, 1993).
Because aviation frequently involves or requiresthe buildingof prototypes, the development of
proof-of-concepts, and flight tests (whether civil or military), it standsto benefit from mission-oriented
governmentalsupportperhapsmorethan other knowledge intensive, hightechnology industrysectors. The
la@_stslice ofaeronautical R&D isthe "D"phase ofgetting something towork to specification. However,
since the 1930s, development has been predicated on increased understanding of fundamental
aerodynamics (i.e., theoretical andexperimental) andthe technologies associated withthe RD&P ofLCA.
Such understanding requires, at a minimum, significant investment in an education system capable of
graduatinganappropriatelytrained workforce, includingscientists, engineers, and highlyskilledproduction
workers;research,testing,andproductionfadlitles;and bothfundamental and applied research, which itself
may bebestfacilitated bythe pmduclk)nof'technology demonstrators"tovalidate basicconcepts andbetter
aidthe transitionfrom designto production (European Union, 1992; Rosenberg, 1982).
Second,government intervention inthe market varies acrossatleast two dimensions: the level of
intensity--or degree of involvement anddirection proffered by the government--and preferred style--or
degree ofinterventiontransparency. Policymakers may actively guideand shape their national markets by
creatingconsumerdemand andbyencouragingcommoditysupply. Alternatively, policymakers may prefer,
rhetoricallyatleast,toremainat arms lengthandinterveneonly when itisperceived tobe absolutely critical.
In addition, govemments can employ a wide range of direct and indirect mechanisms as they seek to
influencebothsupplyanddemand, includingovertfundingofR&D, production andsale subsidies, regulatory
relief,taxincentives,enhancedintellectualpropertyfights,technical assistance, expedited approvals for new
products,antitrustroles,andsoforth. The consequences of each of these policies,aswell asmany others,
have been studied extensively by others. (For more on science and technology policy choices and
consequences, see Alic, 1986; Chiang, 1993; Cordes, 1988; Ergas, 1987; Golich, 1992; Heaton, 1989;
Logsdon,1986;Mansfield,1986; Mowery andRosenberg, 1989a; 1989b; Nelson, 1984; Pavitt andWalker,
1976; Rothwell,1982;Schacht,1998). MostEuropeanstatesintervene more aggressively, more frequently,
andwithasetof policiesthat are more transparent than those used bythe U.S. (For moreon intervention
instruments generally employed by European countries to influence market dynamics, see Gayle and
Goodrich, 1990; Nelson, 1984; Shepherd, Duchene, and Saunders, 1983; Vernon, 1976).
Golich&Pinelli---KnowledDgifefusionI'nsfluencoenAeronauticIanlnovation 5
Th/n/,nationalandregionalhistoneshelpexplainwhygovernments adopt distinctapproaches tothe
production,transfer, anduseof knowledge. The United States evolved intoa =regulatorystate" (Johnson,
1982), which, for the most part, focuses on implementing rulestoguide market activity and eschewsthe
establishmentofeconomictargets asagovernment responsibility.Most modem European states emerged
as political unitsduringthe era of economic mercantilism, when wealth and power were each considered
proper ultimate endsof national policy (Golich, 1992; Viner, 1958). The early feudal political structures
commontoalmostallantecedents oftoday's European nationsobligatedthe governing elitesto intervene
inlocaleconomies. Theclassical liberal economicswhich replaced mercantilism inthe late eighteenth and
eadynineteenthcenturiesstillarticulatedadear govemmental responsibilityfor providingkey infrastructures
tofadlitate trade(Kindlebe_ger,1978;Smith, 1958). Asa result,firmsinstrategic industries---typically those
relatedtotransportationandcommunication--were frequently state-owned orwere allowedto monopolize
productionandsales;despite the recenttrend toward privatizingthese firmsandexposing them to greater
competitionglobally,Europeangovernments--individually andcollectively--remain quitewillingto intervene
openlyandassertivelyto achieve economic orsocialgoals. Insofarasthe overall goal of European states
iseconomic growthorsocialwelfare, they can beconsidered =developmental" (Johnson, 1982).
European governments have adopted twobroad categories oftechnology strategies and policies:
general and selective subsidies (F/_lster,1991; Rothwell andZegveld, 1981). General subsidies are used
to promote the R&D activities of any firm, whereas selective subsidiestarget specific projects(e.g., the
creationandmaintenanceofAirbus Industrie). European governments have chosen to employ an array of
technologystrategiesandpoliciestoencourageinnovationfor five reasons:(a) to overcome the disincentive
toinvestinR&D whichdedvesfrom the fact thatfirmsare seldomabletoappropriate the benef'Csassociated
with the knowledge and technology they produce; almost by definition, knowledge and technological
innovationisdifficulttocontain; (b)tospread riskmorewidely---across society as awhole---since firmsmay
betoo riskavemetoengage inprojectsthat are costlyand have uncertain payoffs, hence government has
an ob#gat/ontoassumesome orallofthe risk; (c) to accelerate the diffusion of knowledge and technology
among firms because to do so will encourage the adoption of profdable new product and process tech-
nologies deemed vital to firm-, industry-, and, ultimately, national-level competitiveness; (d) to increase
returnsto scale inR&D by increasingfirmsize; and (e) to discourage competitive and duplicative R&D at
the firm level. (For a moredetailed discussionofthese points see FOlster,1992, pp. 26-30. For moreon
levelsof competitiveness, see EdenandMolot, 1996; Golich, 1996; Kudde, 1996; Moore, 1996; Rapkin and
Strand,1996. Formoreonthe effectof history,ideology, andcultureon national approaches to innovation
policy see Brander, 1987; Cemy, 1980; Chandler, 1977; Chandler and Daems, 1980; Chapman, 1991;
Chesnais, 1993; GiUispie, 1980; Gilpin 1968; Golich, 1992; Hoffman, etal., 1963; Keck, 1993; Markovits,
1986; Porter, 1990; Sorge, 1991; Talalay, Farrands, and Tooze, 1997; Underhill, 1997).
Fourth,policy choices are influenced bythe perceptions decision makers holdwith respecttotheir
state's position inthe international system (Golich, 1992; Haggard and Simmons, 1987; Ikenberry, 1986;
Katzenstein, 1985; Servan-Schreiber, 1968). Whereas the United States was motivated inthe 1980sto
explorethe useofpoliciesto promotetechnological innovation duetoa perceived crisisofcompetitiveness
(Golich, 1996; Kudrle, 1996; Heaton, 1989; Porter, 1990), Europeans grew concerned withtheir economic
competitivenessstatusasearlyasthe 1980s (see, e.g., Organization for Economic Cooperation and Devel-
opment, 1968; Scherer, 1992; Servan-Schreiber, 1988). Nevertheless, the publication ofthe =technology
Golich& Pinelli_Knowledge Diffusion'sInfluenceonAeronauticalInnovation 6
gap"seriesofstudiescommissionedbythe OECD (1968) andServan-Schreiber's TheAmerican Challenge
(1968) triggered an even more aggressive use of industrialandtechnology policiesdesigned to sustainor
reinvigoratetheircompetitivenessvis-_vis theU.S. (Scherer,1992). Since 1945, the U.S. has been aworld
leaderinaeronauticsand,assuch,hasprovidedthe competitive focus for European nations. Moreover, the
U.S. remainsthe singlemostimportantmarketfor many European andAsian companies---a fact that condi-
tionsmany coq0orateandnationaltechnology strategies. Europeans, concerned that they were "becoming
an economiccolony ofthe United States"(Thornton,1995, p.19), recognized=that abroadcapability inhigh-
technology was more than a necessary requisiteto militarypower;,it had become essential to statusasa
first-rateeconomic power"(Hochmuth, 1974, p.145). Aerospace wasa logicalfocusfor technolegy policy
becauseits"strategicpositionextends beyond the obvious militarysignificance of suchindustriesto overall
considerations of international status and predominance inthe future development of science and tech-
nology"(Todd and Simpson, 1985, p.33; emphasis added).
U.S. aeronautical leadership was obtained by close cooperation between state and industry.
Extensivefederal support forproduction,transfer,and useof aeronautical knowledge andtechnology began
in1917 underthe auspicesofthe NationalAdvisoryCommitteeforAeronautics(NACA). Itwas laterstrongly
influenced by extensive Cold War military procurement anddefense-related R&D, and managed by the
NACA's1958 replacement, the National Aeronautics andSpace Administration (NASA). inshort,thiswas
a "mission-oriented" technology strategy par excellence; itworked largely due to the range, scale, and
overlap of early U.S. civil and military "missions,=and to the flexibility of U.S. organizational structures
(Ergas, 1987). Europeans have consistently sought to remain competitive withthe U.S. inkey industrial
sectors. Inthe caseof aviation,threefactors motivatedtheir involvement: First,as inthe U.S., it isstrategic
to both the national defense andthe economy; second, by the end of the 1930s, they had yielded their
positionas awodd leader inaeronautics to the U.S.; andth/rd,they considerthe downstream and lateral
flows of technological discoveries into the broader economy as well as the upstream technological
developments criticalto LCA RD&P, as important elements inmaintaining healthy employment.
What followsisanoverviewofthe rolesplayed by France, Germany, andthe U.K. inpromotingthe
production,transfer,anduseof aeronauticalknowledgeandtechnologyrelevantto the RD&P of LCA. These
three countries have been selected because oftheir criticalpositioninthe RD&P LCA historically and of
Airbus Industrie aircraft currently. (It is important to note that the many countries which comprise the
Europeancontinent differsignificantlyinhistories,ideologies,cultures, traditions, governance structures, and
policyselectionandimplementation pattems. Fordiscussionsof other European national approaches see,
forexample, Chiang,1993; Guile and Brooks, 1987; Hart, 1992; Hayward, 1986; Hochmuth, 1974; Nelson,
1993; 1984; Vernon, 1970).
European Approaches to Knowledge and Technology Diffusion
Likemany high-cost,knowledge-intensiveindustries,aeronautics--and especially LCA production---
have lookedoutsideof apurelynationalbasefor capital andtechnology. With aeronautics heavily depend-
ent on the flow of "upstream"technological innovation--especially inmaterials, electronics, and process
technologies_the industry adopted a transnational approach to technology scanning and acquisition
(Rosenbe_, 1982). Unabletomatchthe U.Soinmarket size and R&D base, individual European firms and