The papers in this volume are revised versions of presentations made by the authors at a conference on economic reform in Russia, which was held at Stanford University on November 22 and 23, 1993. Professor Kenneth Arrow from Stanford chaired the confer­ence, which was sponsored by the university's Center for International Security and Arms Control ( CISAC), under the auspices of its project on Russian defense conversion, and by the Moscow-based Institute for the Economy in Transition. Speakers included all the authors in this volume, as well as other representatives of the Institute for the Economy in Transition, the World Bank, and the European Bank for Reconstruction and Development ( EBRD).

Stanford University's Center for International Security and Arms Control (CISAC) has undertaken a project to work with elements of the Soviet defense industry to help them convert production from military to civilian uses. In this project we refer to conversion as the use of defense industry facilities, personnel, and/or technology for the production of nondefense products and services. One aspect of this work is to facilitate cooperation between U.S. and Soviet companies. Representative Les Aspin, chairman of the House Armed Services Committee (HASC), asked the Center to initiate this project. The Institute of U.S.A. and Canada Studies (ISKAN) of the Soviet Academy of Sciences is coordinating the Soviet Union's participation.

In recent years issues in international security have been increasingly influenced by economic factors. This is evident in the defense budgets of the major powers as well as in arms transfers to regions such as the Middle East. Furthermore, arms control has taken on a broader meaning, involving unilateral cuts and confidence-building measures to supplement negotiated structural arms-control agreements.

The principal objective of this project is to assist the Soviet defense industry in their defense conversion activities by:

• Analyzing the conversion problem in the Soviet Union and, if appropriate, extracting lessons from the U.S. experience.
• Assisting the Soviets in contacting and exploring cooperative ventures with appropriate U.S. companies.
• Stimulating discussions among Soviet defense experts and U.S. government officials and academics on appropriate changes to trade policy.

The world is facing truly breathtaking changes, in particular from the socialist countries. The traditional rigidity of communist regimes and the preeminence of the communist parties in these countries are breaking down. Strong voices of nationalism within the Soviet Union are challenging the very integrity of the union itself. Thus, a bipolar world--where the North Atlantic Treaty Organization (NATO), led by the United States, and the Warsaw Treaty Organization (WTO), led by the Soviet Union, represent both .an ideological schism and a superpower confrontation--is no longer the basis or even a dominant force for threatened conflict.

The recognition is growing that such factors as economic strength, abundance of basic resources, productivity, and the health and morale of the population are in many respects stronger bases of national security than are military forces. This recognition conflicts sharply with the concept of national security as defined in the Dictionary of Military Terms (issued by the U.S. Joint Chiefs of Staff) as "a military or defense advantage over any foreign nation or group of nations."

In view of all these developments, the realization that military power and national security are not synonymous is becoming more prevalent in the United States.  More attention is focusing on internal threats from deficiencies such as those in education, from erosion of the country's infrastructure, drugs, and problems of the environment. This attention, in turn, has deflected public concern and attention from military issues. The decreased concern not only has diminished the priority given to military preparedness but also, unfortunately, has lessened the concern with arms control.

The national security strategy of the United States since World War II has changed frequently during the course of eight administrations and two wars. But it has also had an underlying consistency, driven by three major factors: the Cold War, the United States' position as leader of the Western world, and the economic strength of the United States. In the 1990s, however, U.S. national security strategy is likely to be very different as the Cold War abates, the United States' role with allies evolves from one of dominance to one of senior partnership, and the U.S. economy is stressed by actions to reduce the budget and trade deficits.

It is the American view that Japan has been totally dependent on the United States for its national security, and that this favorable condition has enabled the Japanese to dedicate themselves fully to economic development with no significant military burden. The competitive edge of many U.S. industries, including those of steel, shipbuilding, electrical appliances, motorcycles, office equipment, automobiles, and computers, has eroded considerably since the 1960s, and Japan has taken all the blame for the downfall. The U.S. semiconductor industry is on the verge of falling behind because of aggressive Japanese sales policies.  Moreover, Japan has for years protected its domestic industries so the U.S. industries have struggled in vain to penetrate the Japanese market.  Some U.S. critics argue that the disputes over a huge trade imbalance between the two countries can best be explained by these unfair Japanese advantages. The invisibility of the role of Japanese contribution toward western security has also intensified irritation in the U.S. Congress. The recent controversy over the FS-X (fighter supporter) project of the Japanese Air Self-Defense Force (JASDF) evolved out of these circumstances. The details of and epilogue to this controversy are discussed in this paper.