INTERNATIONAL COMPETITION IN ADVANCED TECHNOLOGY: DECISIONS FOR AMERICA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85M00364R001001530027-6
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 80
• Document Creation Date: December 20, 2016
• Sequence Number: 27
• Content Type: REPORT

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International Competition in Advanced Technology:
Decisions for America
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International Competition
in Advanced Technology:
Decisions for America
A Consensus Statement Prepared by
the Panel on Advanced Technology Competition
and the Industrialized Allies
Office of International Affairs
National Research Council
NATIONAL ACADEMY PRESS
Washington, D.C. 1983
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NOTICE: The project that is the subject of this report was
approved by the Governing Board of the National Research Council,
whose members are drawn from the Councils of the National Academy
of Sciences, the National Academy of Engineering, and the
Institute of Medicine. The members of the committee responsible
for the report were chosen for their special competences and with
regard for appropriate balance.
This report has been reviewed by a group other than the
authors according to procedures approved by a Report Review
Committee consisting of members of the National Academy of
Sciences, the National Academy of Engineering, and the Institute
of Medicine.
The National Research Council was established by the National
Academy of Sciences in 1916 to associate the broad community of
science and technology with the Academy's purposes of furthering
knowledge and of advising the federal government. The Council
operates in accordance with general policies determined by the
Academy under the authority of its congressional charter of 1863,
which establishes the Academy as a private, nonprofit,
self-governing membership corporation. The Council has become
the principal operating agency of both the National Academy of
Sciences and the National Academy of Engineering in the conduct
of their services to the government, the public, and the
scientific and engineering communities. It is administered
jointly by both Academies and the Institute of Medicine. The
National Academy of Engineering and the Institute of Medicine
were established in 1964 and 1970, respectively, under the
charter of the National Academy of Sciences.
This study was supported by the Executive Office of the
President, Office of Science and Technology Policy, and the
National Academy of Sciences. The NAS contribution was drawn
from funds used for Academy-initiated studies; funds were
provided by a consortium of private foundations. Consortium
members include the Carnegie Corporation of New York, the Charles
E. Culpeper Foundation, the William and Flora Hewlett Foundation,
the John D. and Catherine T. MacArthur Foundation, the Andrew W.
Mellon Foundation, and the Rockefeller Foundation.
NATIONAL ACADEMY PRESS
2101 Constitution Avenue, NW
Washington, DC 20418
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Panel on Advanced
Technology Competition and the
Industrialized Allies
HOWARD W. JOHNSON, Chairman of the Corporation,
Massachusetts Institute of Technology, Chairman
HARVEY BROOKS, Benjamin Peirce Professor of Technology
and Public Policy, Harvard University
ROBERT A. CHARPIE, President, Cabot Corporation
RICHARD N. COOPER, Maurits C. Boas Professor of
International Economics, Harvard University
ROBERT A. FULLER, Corporate Vice President, Johnson &
Johnson
RALPH E. GOMORY, Vice President and Director of Research,
IBM Corporation
NORMAN HACKERMAN, President, Rice University
N. BRUCE HANNAY, Vice President, Research, Bell
Laboratories (retired)
THEODORE M. HESBURGH, President, University of Notre Dame
WILLIAM R. HEWLETT, Chairman of the Executive Committee,,
Hewlett-Packard Company
WILLIAM N. HUBBARD, JR., President, The Upjohn Company
SHIRLEY M. HUFSTEDLER, Partner, Hufstedler Miller Carlson
& Beardsley
ROBERT S. INGERSOLL, Former U.S. Ambassador to Japan
CARL KAYSEN, David W. Skinner Professor of Political
Economy and Director, Program in Science, Technology &
Society, Massachusetts Institute of Technology
ALLEN E. PUCKETT, Chairman and Chief Executive Officer,
Hughes Aircraft Company
DAVID V. RAGONE, President, Case Western Reserve
University
JOHN S. REED, Vice Chairman, Citibank
WALTER A. ROSENBLITH, Institute Professor, Massachusetts
Institute of Technology
ROBERT M. SOLOW, Institute Professor, Department of
Economics, Massachusetts Institute of Technology
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JOHN E. STEINER, Vice President, Corporate Product
Development, The Boeing Company
WILLIAM J. WEISZ, Vice Chairman of the Board, Motorola,
Inc.
LEONARD WOODCOCK, Former U.S. Ambassador to China
ANNE G. KEATLEY, Project Director
NORMAN METZGER, Editor
NANCY L. GARDNER, Staff' Associate
PAUL KRUGMAN, Consultant
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Preface
A central new policy concern--international trade and
competitiveness in advanced technology--is asserting
itself in the United States and in each of its closest
allies and trading partners. This concern is likely to
remain in the forefront of American debates for many
years because of its ongoing importance in questions of
national security and national economic prosperity. In
the United States, this concern is accentuated by forces
that are affecting the competitiveness of American
advanced technology, both within our own vast economy and
in world trade. Some shortcomings of our own and con-
certed actions on the part of other nations are both
involved. Leaders in all of the world's most techno-
logically advanced democratic nations are beginning to
focus urgent attention on their nations' abilities to
marshal their innovative capacities. All appreciate the
need for prompt responses to the problems besetting the
extensions of advanced technology. They also know that
those responses must reflect the increasingly close
interrelationships among nations that are, simultane-
ously, allies, partners, and competitors. Hence, any
responses must take into account extremely complex
interrelated factors--social and economic and political
as well as technical. Given the urgency and complexity
of the issues, it was essential for the organization
representing the American scientific and technical
community, with the special charge of aiding national
policy deliberations, to organize intensive studies of
the situation in international technological competition
as a contribution to the wider multinational debate that
has been building up for several years.
Accordingly, advanced technology competition among the
industrialized allies was one of a number of national
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issues on which the National Academy of Sciences and
National Academy of Engineering initiated policy studies
during the past 2 years.
The Academies assembled in late 1981 a study panel of
experts on technology, industry, labor, education, eco-
nomics, and foreign affairs; to consider the set of prob-
lems associated with advanced technology. The panel was
composed of 22 members including former senior federal
officials, senior members of the academic community, and
leaders of advanced technology industries and of the
scientific and legal communities.
The Academies asked the panel to describe, in broad
terms, the nature of technology in the context of inter-
national competition and to recommend fundamental guide-
lines for national actions that would aid policymakers
today and in the years to come. The panel's work was to
focus on relations among the major industrialized
nations--Canada, the Federal Republic of Germany, France,
Japan, the United Kingdom, and the United States. Ques-
tions of trade and technology relations with the devel-
oping nations, the Soviet Union, and Eastern bloc nations
were excluded. Issues and problems of mature industries
were to be considered only as they were affected by new
technologies.
The panel was asked to consider how frontier tech-
nological development comes about and how it affects
nations economically and socially; how governments view
new technologies; and attempt to draw on technological
development to serve national needs; and how technologi-
cal development--and government's responses to it--may
affect relations among nations. Finally, the panel was
asked to propose a course of action for America's
policymakers.
In work that involved monthly working sessions
extending over at period of 14 months, the panel heard
many public and private sector expert witnesses and
reviewed policy papers and analyses developed in the
United States and abroad. In addition, the panel
commissioned special studies by experts in a wide range
of fields and discussed with the authors their findings
and conclusions. The process of deliberation took place
during a period in which issues of international tech-
nological competition increasingly became front-page news.
In setting forth conclusions and recommendations,
panel members have attempted to contribute in a timely
way to current discussions while at the same time convey-
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ing judgments that will be a useful basis for policy-
making in years to come.
The panel believes the descriptions of the nature of
technological development, of the manner in which advanced
technology industries carry out their work, and of how
government actions may affect innovation globally will be
of special relevance. The panel's report should be
viewed as a white paper--a consensus statement by a group
of experienced individuals who approached the problem
from diverse points of view.
Their concern reflects the importance to the nation,
not only of this issue, but also of the urgent need for
wise and far-sighted policy actions as we compete
internationally for advanced technology markets.
The panel wishes to express its gratitude to each of
those who prepared special studies for its inquiry and
who appeared before it to inform the members on issues
that were always complicated and often subtle. We wish
to express special thanks to Frank Press, President of
the National Academy of Sciences; Courtland D. Perkins,
President of the National Academy of Engineering; and
Philip M. Smith, Executive Officer of the National
Academy of Sciences, for their help and support. I wish
especially to extend my thanks to Anne Keatley, Project
Director; Nancy Gardner, Staff Associate; and Norman
Metzger of the Office of Information for their competent
support. I thank Paul R. Krugman of the Massachusetts
Institute of Technology, now on the staff of the
President's Council of Economic Advisors, for his help
during the panel's early deliberations, and Victor K.
McElheny of MIT for his counsel.
I wish particularly to thank each member of the panel,
not only for dedicated service, but also for exceptional
efforts in marshaling objectivity and a sense of national
interest on subjects where views frequently diverge.
Because of their work, the public purpose in this complex
and difficult subject may be advanced.
HOWARD W. JOHNSON
Chairman
Panel on Advanced Technology
Competition and the
Industrialized Allies
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Contents
EXECUTIVE SUMMARY
Historical Evolution, 2
Technology and the Nation's Economic Well-Being
and Military Security, 3
National Capacity for Innovation, 3
Maintaining Technological Strength, 4
Government's Role, 4
Management's Responsibilities, 6
Advanced Technology Trade Practices, 7
U.S. Objectives, 8
Negotiations Required, 8
Conclusions, 10
Recommendations, 11
1 ADVANCED TECHNOLOGY: ITS NATURE AND IMPORTANCE
TO THE UNITED STATES
What is Advanced Technology?, 20
The Innovation Process, 21
Why is Advanced Technology Important to the
United States?, 22
Advanced Technology and National Security, 22
Advanced Technology and Trade, 23
Advanced Technologies--Core Technologies in the
Economy, 24
Need for National Attention, 25
Advanced Technology and the Nation's Future, 26
2 NATIONAL POLICIES AFFECTING ADVANCED TECHNOLOGY
CAPACITY AND COMPETITION
Basic Research, 28
Applied Research and Development, 29
Production, 31
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Distribution, 31
The Emerging Market, 32
Nontariff Barriers and Procurement Policies, 32
National Practices--Positive and Negative
Consequences, 33
U.S. International Negotiating Strategies, 37
3 POLICIES AND PRACTICES AFFECTING U.S. COMPETITIVENESS
IN ADVANCED TECHNOLOGY 39
Government Policies, 40
Macroeconomic Environment, 40
Antitrust Policy, 41
Capital Supply, 42
Export Policies, 43
Tax Policy, 43
Regulatory Policy, 44
Private Sector Policies, 44
Management, 44
University-Industry Relations, 45
Government and Private Policies, 46
Human Resources, 46
Precollege Education, 47
University Education and Research, 47
Engineering Education, 48
Monitoring International Technology, 48
Support of Basic Research and Development, 49
What Policies Are Appropriate?, 49
4 CONCLUSIONS AND RECOMMENDATIONS
SELECTED BIBLIOGRAPHY
BIOGRAPHIES OF THE PANEL MEMBERS
COMMISSIONED PAPERS OF THE PANEL
PRESENTERS
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Executive Summary
The health of U.S. advanced technology industries and
their international competitive vigor are central issues
in current economic and trade policy debates. The United
States, like its major industrialized allies, views the
ability to generate and use advanced technologies as
essential, both to national economic well-being and to
military strength. Many governments--most notably Japan
and France--have designed comprehensive national policies
to help promote successful technology and trade devel-
opment in major sectors--telecommunications, biotech-
nology, computers, microelectronics, and aerospace, for
example. The United States has no such defined indus-
trial policy.
U.S. policymakers today must respond not only to a
growing anxiety that U.S. leadership in advanced tech-
nology and trade is in jeopardy, but also to fears of
mounting protectionism. Spurred by global economic ills,
domestic unemployment, and loss of traditional markets to
newly industrialized countries, governments are attracted
to economic nationalism and protectionism--policies that
can seriously endanger the international trading system,
political alliances, and global technological progress.
It is these concerns and the issues surrounding them that
are addressed in this consensus statement by the Panel on
Advanced Technology Competition and the Industrialized
Allies.
The panel discusses the nature of advanced technology
and its extensive contributions to U.S. economic welfare
and military security; the importance of maintaining a
strong national capacity for technological innovation,
including a vigorous international trade position; and
the domestic and international measures required to
sustain this effort.
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The panel describes U.S. government and private sector
advanced technology policies and practices, as well as
those of its major trading partners. Finally, the panel
discusses how various national practices may be evaluated
and negotiated among nations in support of a healthy
mutual international trading system--and what steps the
United States must take to protect its interests should
international negotiations fail.
While the panel recognizes that contending policy
objectives may at times take precedence over the require-
ments for national strength in technological innovation
and trade competitiveness, it concludes that the U.S.
advanced technology enterprise has been undervalued in
the past in the national scheme of priorities and must be
held as one of the country's most valued objectives.
The United States' economic and social well-being over
the last 100 years has derived substantially from the
processes of discovery, invention, and entrepreneurship,
which Americans have come to value so highly. The
nation's capacity for technological innovation became
especially apparent in the :20 years following the Second
World War, when the United States was acknowledged
worldwide as possessing across-the-board technological
superiority. Throughout the postwar decades, however,
the major industrialized allies combined their recovery
from wartime destruction with a rapid rate of techno-
logical progress. The result was a progressive narrowing
of American technological leadership. While the United
States continued to maintain a higher overall produc-
tivity level, Europe and Japan enjoyed far higher rates
of productivity growth. Today, the allies vie for
positions at economic and technological frontiers that at
one time seemed reserved for the United States. In many
sectors, other industrialized nations are now the first
to expand these frontiers.
The United States could not have expected to preserve
its vast technological leadership. What it must preserve,
however, is a strong capacity for technological innovation
that is vital to the future growth of the entire American
economy. Domestic weaknesses and damaging practices of
other nations can endanger this innovative capacity, the
basis for advanced technology development and inter-
national trade competitiveness. The United States must
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now adopt measures designed to preserve this vital
capacity.
TECHNOLOGY AND THE NATION'S ECONOMIC WELL-BEING
AND MILITARY SECURITY
The national capacity to generate and use advanced tech-
nology is fundamental to the economic well-being and
military security of the United States. Advanced tech-
nologies serve to increase productivity in services,
manufacturing, and agriculture. The United States has
the potential for a new economic surge fueled by advanced
technology--a dramatic increase in the productivity of
workers utilizing new information-processing technol-
ogies, new materials, and new manufacturing technologies.
In addition, the U.S. positive trade balance in
technology-intensive products and services contributes to
domestic employment and economic health.
The nation's innovative capacity is vital to military
as well as economic security. A major fraction of
defense hardware is procured from technology-intensive
companies. Advanced weapons employ frontier electronics
gear, and verification methods fundamental to arms
control agreements rely on advanced technologies. The
interrelationships between the U.S. commercial and
military advanced technology systems are complex, but it
is clear that military systems rely on a strong civilian
industrial base and that many commercial efforts benefit
from defense and space research and development expen-
ditures and procurement.
Our capacity for technological innovation is commonly
perceived in terms of industrial sectors--micro-
electronics, computers, new materials, robots, tele-
communications, aerospace, and, most recently,
biotechnology. This list is, in fact, a transitory
one--changing over time. A new list may supersede this
one in a decade or two. The nation's innovative capacity
should not be thought of only in terms of specific
products; it should be understood as the continuous
capability, widely diffused throughout the economy, to
produce and put to use pioneering technological resources.
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This national innovative capacity is manifested pri-
marily in a system of interrelated activities leading to
commercial sales of products, most frequently referred to
as the innovation process. This dynamic system not only
involves basic research and product development, but also
encompasses manufacture, marketing, and distribution.
Each part of the process must function effectively to
ensure success.
The United States' capacity for technological innovation
and competitiveness in world markets is an essential
national resource, requiring a sophisticated and thorough
understanding of the innovation process--what it is, how
it works, what influences it, and what is necessary for
its strength. Maintaining a world-class research struc-
ture is essential in the effort to expand technological
frontiers. Research is a vital first requisite, but it
is only one part: of a complex, interwoven process.
Product planning requires knowledge of new technologies
in the research phases; development of commercially
successful products requires links with marketing
assessments; and successful. commercialization pays for
the next round of technological advance.
The innovation process, then, is an interlocking
system that must be strong throughout. Its requirements
include technologically sophisticated managers, quality
research personnel, and a technically competent labor
force. The process of innovation also requires a healthy
supply of capital--both venture capital for starting up
new enterprises and growth capital for established
firms. Large-scale economies utilizing world markets are
necessary to support succeeding rounds of technological
advance.
A more elusive but major influence on the innovation
process may be the government's role in establishing a
climate that fosters entrepreneurial risk-taking. Stable,
informed government policies can lessen uncertainty for
innovative entrepreneurs.
In the U.S. economy, institutional arrangements to foster
advanced technology operate primarily in the private
I
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sector--in small innovative firms, national and multi-
national companies, banking and financial communities,
and the research universities. The United States has had
no national plan nor even a loose coordinating mechanism
linking the efforts of these private actors to federal
government actions.
The government's primary role in fostering the nation's
innovative capacity has been in education and support of
basic research. There is, however, a range of government
instruments to address broad national objectives that
affect various stages of the innovation process, including
market development. These instruments--which are com-
patible with our culture and style (as total government-
industry coordination in the manner often attributed to
Japan is not)--include tax policies fostering research,
development and investment in production facilities,
patent laws, regulation and deregulation, antitrust
measures, export/import bank loans, and government
procurement, among others. Beyond these measures,
uncoordinated actions taken by various governmental
agencies, designed to serve other purposes, affect the
innovation process--unintentionally helping it in some
instances, but hindering it in others. The nation's
capacity to perform well in advanced technology and trade
is, in fact, affected by decisions that are made inde-
pendently, inter alia, by the Food and Drug Administra-
tion, the Environmental Protection Agency, the antitrust
division of the Department of Justice, the Departments of
Commerce, State, Agriculture, and Defense, the National
Security Assistant, the Special Trade Representative, the
President's Science Advisor, the National Aeronautics and
Space Administration, the National Science Foundation,
and the National Institutes of Health. Yet the heads of
these executive branch entities rarely if ever have
joined together to consider the totality of their separate
actions on the nation's advanced technology capabilities
and international competitiveness--either what it is or
what it should be.
If the United States is to maintain its innovative
vitality over time, it is essential that executive and
congressional policymakers periodically evaluate both the
U.S. comparative international trade position and the
health of the nation's innovative capacity. They should
do so by means of a broad analysis, conducted at cabinet
level, of all the variables impinging on our capacity to
innovate--both domestic and foreign. These periodic
assessments would require support by a continuing source
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of expertise drawn both from within the government and
from outside.
Reviews should be comprehensive. They should assess:
? the impact of U.S. government policies on the
nation's innovative capacity and international trade
competitiveness;
? the nation's standing with regard to research and
development, manufacturing, and marketing;
? the effectiveness (in comparison with other
countries) of U.S. elementary and secondary educational
systems, postsecondary institutions, and continuing
education programs, especially in maintaining and
renewing our technological and scientific manpower and
knowledge;
? the trends in our comparative international trade
standing; and
? the policies of major trading partners and their
effects on the United States and the international
trading system.
The process of periodic evaluation could result in
recommendations, at the national level, to coordinate
actions across agencies, to rationalize government
policies, or to ensure consistency over time in govern-
ment practices, as well as recommendations at the
transnational level to initiate coordinated negotiations
or actions with. industrialized trading partners and
allies. In addition, the assessment process should
stimulate congressional hearings to seek the views of
leaders from industry, labor, and other sectors. An
opportunity for comprehensive and coherent review of U.S.
innovative capacity and international trade competitive-
ness by representatives of all sectors contributing to it
should help to elevate technological innovation goals in
the scheme of national priorities.
A coordinated decisionmaking process is essential, but
the nation's performance in advanced technology develop-
ment and trade will be determined in large part by the
efforts of individual firms. Successful firms are those
whose managers have long-range vision of how technology
affects the growth of their business. They understand
the state of technology in their industry worldwide; they
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respond to the international climate when planning for
research, development, manufacturing, and marketing; and
they are open to developing new institutional arrange-
ments to foster technological growth--such as industry-
university research relationships, cooperative research
ventures among groups of firms, or consortia to seek
information and ideas systematically from abroad.
U.S. firms face a mixed international trading system in
which they are operating independently as private
entities, yet are frequently competing with foreign
firms, singly or in consortia, that either are government
entities or have strong government backing. This mixed
international trading environment often effectively places
an American company in competition against a country. By
"targeting" certain advanced technology sectors, a
country may provide its firms with a range of support--
from direct and indirect subsidies for research and
manufacturing through help in penetrating foreign
markets. Such practices are not within the U.S. arsenal
of policies. Traditionally, U.S. philosophy has stressed
private sector initiatives within a competitive framework.
U.S. firms are understandably concerned about the
tactics other countries use to develop markets--both at
home and abroad. American firms have difficulty pene-
trating European and Japanese markets when they are faced
with intentional collective actions excluding them. At
the same time, too, U.S. businesses must compete with
European and Japanese firms for new and potentially
lucrative emerging nation markets. Often foreign firms
have strong support from their home governments, an
advantage U.S. firms do not enjoy to a comparable extent.
To lose out in this competition could be extremely
damaging, not only for American advanced technology
industries, but eventually, because of intersectoral
linkages, for other areas of the economy as well.
There is considerable dispute among the industrialized
allies regarding which trade practices are acceptable and
which are not. Actions that are consistent with one
nation's traditions and attitudes may be inimical to
another. Friction is exacerbated worldwide by current
conditions of slow growth, excess capacity, obsolete
plants, and lingering inflation. These conditions make
politically more difficult and financially more costly
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structural adjustments that would shift financial, man-
power, and other resources from less to more competitive
industries. Many nations are suffering from record
unemployment levels that cause significant domestic
political problems.
U.S. objectives in advanced technology trade must take
into account both the needs of our own industries and
those of our principal allies. Innovation proceeds most
rapidly and efficiently when new products have access to
the widest possible markets, thus spreading the costs and
risks of innovation over more units and generating the
cash flow for follow-on improvements and fresh innovation.
The United States should negotiate in international
forums to secure the openness of world markets to innova-
tive entrepreneurs wherever they may be based and to
discourage large-scale distortions of free markets. Such
a policy is required, both to preserve the U.S. position
as a major source of innovation and to ease growing
tensions among the industrialized allies, tensions that
threaten not only international economic and political
management, but also mutually beneficial cooperation in
science and technology.
Nowhere is our national welfare more interwoven with
that of our allies than in the fields of science
cooperation and high-technology trade. The costs and
risks of protectionist policies and market fragmentation
are probably greater than in almost any other economic
field except energy. Paradoxically, the international
coordination of trade practices is more backward in
advanced technology than in many other fields at a time
when both nations and regions within nations are looking
more and more to advanced technology as a primary source
of economic salvation.
Protectionist: pressures are strong in today's very
difficult economic times. Furthermore, international
negotiations on trading practices are complicated by
differing viewpoints among allies on what national
practices are acceptable. Attempts to sort practices
into acceptable and unacceptable categories have been
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only moderately successful, but such attempts should
continue. Progress may be slow and agreements difficult,
but the health of the international trading system is at
stake. Negotiations should consider the consequences of
actions and place value on maintaining open markets, for
they reward innovators by offering innovative products
globally.
To foster healthy, mutual competition in advanced
technology is a primary objective. Negotiations, though
protracted, will serve the interests of the United States
and her allies better than precipitous actions. Proposals
for legislative action to protect advanced technology
industries, currently before the Congress, require careful
analysis and consideration in light of the findings of
this report.
Cooperation among industry, government, labor, univer-
sities, financial, and other sectors is essential in deal-
ing with these exceedingly complex problems in technology
and trade. Most difficult will be those circumstances in
which U.S. capacities are well nurtured and strong, yet
key industries essential to the national welfare-are
nonetheless endangered. Vulnerability could develop
because of successful aggressive policies of our allies,
which individually may or may not be considered as unfair,
but which together endanger U.S. major technology indus-
tries and fundamental advanced technology capacity deemed
essential to economic well-being and military security.
Where such broad national resources are in jeopardy, the
United States must take action.
A first step is to seek to renegotiate multilaterally
agreed rules in forums such as the GATT in order to estab-
lish clearer guidelines for government actions in high-
technology sectors. A basic requirement of such negotia-
tions would be that countries, including the United
States, be prepared to consider altering traditional
practices.
When there is a specific threat to U.S. interests from
a particular country's government policies, the U.S.
government should initiate bilateral consultations within
the framework of GATT and other appropriate multilateral
institutions. The goal of such negotiations would be to
reach agreements on a time scale that would prevent or
reverse damage to U.S. capacity for technological innova-
tion. If these bilateral consultations are unsuccessful
in resolving issues, the U.S. government should utilize
formal multilateral dispute settlement procedures to seek
a resolution. If those procedures in turn fail or if the
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threat of damage is imminent, the United States would be
required to take unilateral action to protect the
national interest as a step of last resort.
? The United States must act now to preserve its
basic capacity to develop and use economically advanced
technology. This innovative capacity is essential for
the self-renewal and well-being of the economy and the
nation's military security. Trade in advanced technology
products and services will contribute enormously to our
economic health. Advanced technology products and
processes not only permeate the economy, increasing
productivity, but also form the basis of modern defense
hardware.
? The nation"s capacity for technological
innovation is vulnerable both from domestic weaknesses
and from damaging practices of other nations. Measures
designed to maintain this vital aspect of the American
economy within a healthy international trading system
will include both domestic actions and international
negotiations.
? Effective actions require a sound understanding
of the nature of innovative capacity and of the innova-
tion process through which it is primarily manifest.
Innovative capacity is the capability, widely diffused
throughout the economy, to produce continuously forefront
technological resources, and to use those resources for
the national benefit. The innovation process includes
not only basic research and development but also prcr
duction, marketing, and distribution in domestic and
foreign markets. Each part of the process must be sound
for success.
? Some of the elements that support our nation's
innovative capabilities include a strong national research
base, technically educated manpower and a technically
literate population, capable and farsighted industrial
managers, a financial base that provides capital to both
new and established firms, and sizable markets. Essen-
tial, too, are a national understanding of and attention
to advanced technology as a vital contributor to the
national welfare..
? The U.S. government has in effect a range of
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policies and practices including tax policies, patent
laws, regulation and deregulation, antitrust measures,
export/import bank loans, government procurement, and
others that, although designed to serve other national
objectives, also affect the U.S. technological enterprise
and international trade position. These policies and
practices and the other domestic and international
elements affecting U.S. technology and trade must be well
understood by senior policymakers. If viewed in ensemble,
existing government instruments may become powerful means
to support U.S. technology and trade interests.
? Responsibility for improving U.S. performance in
advanced technology and trade rests to a large degree
with the individual firm and its management. Successful
managers increasingly will have to be cognizant of fron-
tier technologies as they build businesses and compete in
an international world.
? Our major industrialized allies--most notably
Japan and France--have designed comprehensive national
policies to help ensure successful technology and trade
development in major sectors. Thus, individual U.S.
firms often find themselves competing internationally,
not with firms acting alone, but with countries or with
consortia of firms with country backing.
? There is considerable dispute among industrialized
allies regarding which practices are acceptable and which
are not. Efforts to evaluate practices are protracted
and difficult, but essential.
Accordingly, the panel recommends the following:
? Advanced technology development and trade must be
considered as among the highest priorities of the nation.
These vital interests must be well understood domestically
and conveyed to our trading partners. The United States
must initiate a two-part strategy: to maintain the
nation's capacity for technological innovation and to
foster an open healthy international trading system.
? The federal government should initiate a biennial,
cabinet-level review that comprehensively assesses U.S.
trade competitiveness and the health of the nation's
innovative capacity in both relative and absolute terms.
This review should consider the nation's overall perfor-
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mance: the private sector activities and the totality of
government actions on technology and trade, as well as the
effects of other governments' practices. These assess-
ments would consider the strength of key technological
sectors across all stages of the innovation process--
research, development, manufacture, and distribution. In
addition, assessments would evaluate broad elements as
they affect innovation, such as the macroeconomic environ-
ment, regulatory policy, patent policy, and antitrust
policy. Careful. attention would be given to maintaining
the health and effectiveness of both university- and
industry-based research, education, and training. The
cabinet-level review should be supported by a continuing
mechanism that would draw on expertise both from within
the government and from outside.
Managers of private firms must be cognizant of
technological trends as they make renewed efforts to build
businesses and compete in an international context. Man-
agers should consider new institutional arrangements--the
growing, mutually supportive, industry-university research
relationships, cooperative research ventures among groups
of firms, or consortia to seek information and ideas
systematically from abroad.
Internationally, the United States should negotiate
in existing forums to encourage a healthy mutual trading
system. This should include continued efforts to evaluate
national trade practices and to agree on criteria for
acceptability. An objective must be to encourage open
markets and healthy competition.
? Countries, including the United States, throughout
negotiations should be prepared to alter fundamental
policies so that each country may maintain advanced tech-
nology capacities fundamental to its individual welfare.
0 The United States should review the content and
application of its trade laws to ensure that U.S. indus-
tries can obtain timely and meaningful trade and/or other
relief in the U.S. market when imports from particular
countries, based on unreasonable or excessive foreign
industrial policies, threaten them.
If key technology industries essential to national
economic welfare and military security are considered
endangered by the actions of another country, even with
all necessary domestic efforts to strengthen these
sectors, then the United States should negotiate with the
other country requesting immediate relief. Negotiations
should take place first in existing forums, explaining
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our country's vital interest in preserving advanced
technology capacity. If such mechanisms prove ineffec-
tive or too slow to prevent damage to essential U.S.
capabilities, then the United States should negotiate
directly with the country in question. If those bilateral
negotiations fail or if the threat of damage is imminent,
the United States should take immediate unilateral actions
as a step of last resort.
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Introduction
The requirement that the United States maintain
strong domestic capacity for technological innovation--to
benefit its domestic economy, its national security, and
its competition for global markets in technological
products and services.
The need to reduce trade frictions that trouble
economic and political relations among the major indus-
trialized allies--principal.ly, Canada, the Federal
Republic of Germany, France, Japan, the United Kingdom,
and the United States.
The leading industrial nations believe that their
future economic growth depends on their abilities to
create advanced technologies and to sell the resultant
products and processes in at global market. Consequently,
international trade in advanced technology is a high
priority.
International competition has led to concern within
the United States about our capacity to create advanced
technologies and to develop them into commercially suc-
cessful products in international and U.S. markets.
Competition also has led to frictions among countries
because of their differing national practices in sup-
porting development and international trade.
Frictions among the industrialized allies may be
inevitable now that many nations can adopt or innovate
frontier technologies and can manufacture and market
advanced technology products. Realistically, the United
States cannot expect to maintain the overwhelming market,
share in advanced technologies that it had during much of
the postwar period. The United States, however, must
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preserve a strong capacity for technological innovation
that is vital to the entire American economy and to its
growth. The United States must adopt measures designed
to preserve this vital aspect of the American economy
within a healthy international trading system.
Trade frictions among the allies have developed in
part because of the measures that different countries use
to promote their advanced technologies. There are charges
that some countries use "nontariff" barriers and other
market distorting practices to exclude the products of
other countries from their home markets, charges of
"dumping" (selling below cost) advanced technology
products in order to gain rapidly a substantial share of
a foreign market, charges that foreign companies are
capable of underbidding American manufacturers through
major subsidization by their governments, and charges
that governments use so-called side inducements to cap-
ture sales in third-country markets. These perceptions,
whatever their validity, weaken the bonds among the
industrialized allies and may threaten the economic and
military strength of all countries of the alliance.
Government and industry are partners in many coun-
tries, each with a role in developing globally competi-
tive advanced technologies. In the United States, the
private sector traditionally has carried the responsibil-
ity for trade development. One result is that many
American companies perceive an international system in
which they are competing not against individual foreign
companies acting alone, but rather against foreign
companies and company groups operating in concert with
their governments.
While differences in governmental and industrial rela-
tions among various countries are to be expected, there
is a marked difference between the American style and
that of other countries. That difference leads to the
prevalent American perception that the forms of guidance
and direct support that other governments offer specific
industries is "unfair," in the sense of distorting the
free market and making it difficult for American com-
panies to compete on equal terms. Ill feelings are
exacerbated by the depressed economic environment. The
U.S. economic picture currently includes unemployment
that exceeds 10 percent, a recorded rate of utilization
of our industrial capacity of only 70 percent, depressed
corporate profits, and widespread business bankruptcies.
Comparable conditions prevail in other industrialized
countries. Industrial production in France, Germany, and
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the United Kingdom declined in 1982. The unemployment
rates in Canada and the United Kingdom are over 12 percent
and are-projected to exceed 13 percent in 1983. In Japan,
export market demand declined substantially in 1982, and
only a modest growth in export volumes is predicted for
1983.' As a result. of these unfavorable economic con-
ditions, orders for new production are depressed, and
competition--including competition from imports--is
exceptionally stiff. The U.S. trade position has been
made more vulnerable by the very strong dollar relative
to other currencies, as well as by the 1982 high U.S.
interest rates.
In our approach to advanced technology competition in
international trade, we have tried to see beyond this
current economic trauma. Certainly much of the distress
that American firms now fee:L arises from these general
economic conditions. But we believe that some of the
problems the country faces in advanced technology go
deeper than these adverse economic conditions and need to
be addressed directly.
As stated above, each country creates different pol-
icies and stratagems to enhance the global competitive-
ness of its advanced technology industries. Advanced
technology sectors are important to the United States and
other industrialized countries because their future eco-
nomic growth depends in large part on the disssemination
of advanced technology throughout their economies. In
addition, advanced technology industries contribute sig-
nificantly to productivity growth and product innovation.
In the United States, ten industries' that in 1980
accounted for only 5 percent of U.S. employment and 13
percent of the value of manufacturing product shipments
were responsible for more than 60 percent of total private
industrial R&D spending. These industries employed more
than 25 percent of the nation's scientists and engineers.
In addition, these ten industries had a $31 billion fav-
orable balance of trade. During the 1970s, labor produc-
tivity in these industries grew more than six times as
fast as in the business sector as a whole. Growth in
advanced technology industries benefits the entire
economy because it results in rapid employment growth in
other industries..'
Measures of shares of world exports for products and
services embodying advanced technology indicate a deter-
ioration in the U.S. competitive position. Between 1962
and 1980, the U.S. share of the industrialized countries'
exports of advanced technology products declined from 30
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to 24 percent. During the same period, Japan tripled its
industrial country export market share, while West Ger-
many's and France's shares increased slightly."
Underlying these trends in the aggregate are significant
changes in individual technologies. In electronics,
particularly semiconductors, Japan has made dramatic
inroads into the U.S. market;5 in aircraft, the
European consortium, Airbus Industrie, has captured a
substantial share of the commercial jetliner market in
which U.S. firms held a 97 percent share in 1976.6
These changes stem from many elements that have
affected international trade at different periods--for
example, the postwar renaissance of European science,
technology, and industry; long-term structural changes;
and the well-planned effort by the Japanese to raise the
technological intensity of their economy. Other factors
contributing to a diminishing of U.S. global market shares
include the extraordinarily high value of the dollar
relative to other countries in 1980 and other years.
There is some evidence, for example, that the pattern of
trade tensions between Japan and the United States has
tracked exchange rate developments.' In 1970-71,
1976-77, and again in 1981, a strong dollar against the
yen produced large favorable trade surpluses for Japan.
In the first two instances, subsequent appreciation of
the yen against the dollar reduced the imbalance after a
couple of years. In recent months, there has been some
strengthening of the yen, but it is too soon to know if
it has gone far enough, or how much of the current
Japanese surplus will be eliminated, or how any improve-
ment will be distributed across industries.
This setting of intensifying competition, rising fric-
tions among allies, and, for the moment, a bleak economic
outlook frames this consensus statement by the Panel on
Advanced Technology Competition and the Industrialized
Allies.
The panel discusses the extensive contributions of
advanced technology to U.S. economic welfare and military
security; the importance of maintaining a strong national
capacity for technological innovation, including a vig-
orous international trade position; and the domestic and
international measures required for this effort. It
describes the many variables affecting the nation's
advanced technology enterprise, including U.S. government
and private sector policies and practices, as well as the
actions of major trading partners. Finally, the panel
discusses how various national practices may be evaluated
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and negotiated among nations in support of a healthy
mutual international trading system and what steps the
United States must take to protect its interests should
international negotiations fail.
The panel recognizes that the United States has many
domestic and foreign policy objectives in addition to the
requirements for national strength in technological inno-
vation and trade competitiveness and that these, at times,
may take precedence with regard to allocation of resources
and policymaking. It concludes, however, that the U.S.
advanced technology enterprise has been undervalued in
the past in the national scheme of priorities and must be
held as one of the country's most valued objectives.
'Organisation for Economic Co-operation and
Development, OECD Economic Outlook, No. 32 (Paris: OECD,
1982), pp. 12, 15, 35.
2Electrical equipment and components; aircraft and
parts; computer's and office equipment; optical and
medical instruments; drugs and medicines; industrial
chemicals; agricultural chemicals; professional and
scientific instruments; engines and turbines; and plastic
and synthetic materials. "An Assessment of U.S.
Competitiveness in High-Technology Industries," a study
prepared for the Cabinet Council on Commerce and Trade,
revised draft, October 1982, p. 4. Statistical evidence
on U.S. competitiveness in advanced technology relies on
the isolation of technology-intensive industries, defined
as industries that have either high R&D-to-sales ratios
or industries with a high proportion of scientists and
engineers in their work force. Such evidence is useful,
but it must be used with caution for several reasons:
The match between technologies and industries is
not perfect. Large parts of an apparently advanced
technology industry may involve routine production of
traditional products; on the other hand, seemingly
"low-technology" industries have components that are at
the forefront of technical advance.
. The classification of technologies as advanced
ought to be, in principle, a dynamic one since it largely
depends on how new the technology is. Today's advanced
technology becomes tomorrow's traditional method; on the
other hand, an industry that is low-tech now may become a
technological leader in the future. Statistical compari-
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son based on a fixed list of technology-intensive
industries are, therefore, potentially misleading.
? All available statistical evidence focuses
exclusively on manufacturing. Yet, service exports
should in many cases be regarded as technology-
intensive. This applies both to financial services and
to the overseas earnings of multinational firms, much of
which can be viewed as a return to technology.
9lbid., pp. 4-5, 29.
"Ibid., p. 10.
5For a discussion of the nature of Japan's competi-
tive challenge in semiconductors, see Semiconductor
Industry Association, The International Microelectronics
Challenge: The American Response by the Industry, the
Universities, and the Government (Cupertino, Calif.:
SIA, 1981), pp. 33-35.
'Airbus Industrie orders represented 3 percent of
the total market for commercial aircraft in 1976 and 32
percent in 1980. Aerospace Industries Association of
America, Inc., The Challenge of Foreign Competition to
the U.S. Jet Transport Manufacturing Industry, an ad hoc
study project of the Civil Aviation Advisory Group,
Aerospace Technical Council (Washington, D.C.: Aerospace
Research Center, 1982), p. 41.
7C. Fred Bergsten, "What to do About the U.S.-Japan
Economic Conflict?", Foreign Affairs, Summer 1982, pp.
1065-1067.
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Advanced Technology:
Its Nature and Importance
to the United States
The nation's capacity for technological innovation is an
essential national resource that permeates and strengthens
the entire economy. Advanced technology products and
processes are central to a range of domestic economic
activities and serve to increase productivity. In
addition, advanced technology is vital to the military
security of the United States and, thus, to the defense
of the Western Alliance.
Examples of advanced technology industries are extensive,
yet changing. They include microelectronics, computers,
new materials,, robotics, telecommunications, aerospace,
and biotechnology. The list of technologies deemed
"advanced" changes over time. A new list may supersede
this one in a decade or two.
Integrated circuit chips perhaps best illustrate
advanced technology's broad impact. Their role is to
process data and signals--and hence information, a
capacity that is critical not only to all scientific and
technological fields, but increasingly to all economic
sectors. Microelectronics has become a primary component
of technological advance.
It is misleading, however, to describe advanced tech-
nology through its products--the computer or the laser.
The essential national resource is the capacity for
technological innovation--the ability to continuously
discover, refine, and produce frontier technologies and
to use those technologies throughout the industrial,
agricultural, and military enterprises.
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The capacity for technological innovation is manifested
in the innovation process, an integrated complex system.
Competition in advanced technology is not simply a matter
of generating the best ideas. New ideas are only one
essential part--among several crucial components--of what
is necessary for a nation to be technologically competi-
tive. The innovation process includes not only research
and development, but also manufacture, marketing, and
distribution. It may be described roughly in four parts:
Research--whether in a university setting, in research
institutes, government laboratories, or in industry--
generates new scientific knowledge and new ideas for
application. One innovation leads to another by sug-
gesting new directions for further technological invest-
ment. In industry, company interests usually dictate
research; in universities and research institutes,
individual scientists choose whatever scientific leads
they deem both important and capable of attracting
financial support.
Development translates a new discovery or idea into a
usable product aimed at a defined market demand. It
encompasses the steps between research and completion of
the design of a product. It includes a validation phase,
where elements emerge from a research environment to one
having risk low enough to be used in a product, and an
application phase which integrates such elements into a
product design suitable for production. The former
frequently proceeds before the application product is
known, and certainly long before it is defined. The
latter phase, application, occurs after the product is
known. It can include prototype or pilot scale tests on
either product or process. Development responds both to
research results and to feedback from the marketplace.
Manufacturing or production takes the product or
process from a single prototype to quantity production
that promises the consumer reliable quality and con-
trolled cost. The line between development and manu-
facturing is expressed in the comment that it's always
possible to make one of anything; regular production
demands reliability, competitive costs, serviceability,
often retooling of the manufacturing plants, setting and
enforcing criteria for suppliers, and more.
Distribution entails marketing, delivery, customer
training, and support services. It addresses the require-
ments of the consumer in using the product.
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The innovation process is a dynamic and intricately
interrelated system: there are interactions and feedbacks
among the four stages. Early efforts in development, for
example, may reveal gaps in basic knowledge that require
the launching of a new research effort, or user experience
with a new product. may call for redesign at the develop-
ment level to better adapt the product to consumer needs.
Thus successful innovation is characterized by constant
rethinking, adaptation, and organizational learning; only
rarely is there an orderly, logical process that can be
completely foreseen in advance. Indeed, the difference
between success and failure often depends precisely on
sufficient flexibility and "fast footwork" in changing
course to respond to new information.
WHY IS ADVANCED TECHNOLOGY IMPORTANT
TO THE UNITED STATES?
Advanced technology has been called the "fuel" of the
economy. New technologies--such as microelectronics,
computer-aided design, computer-aided manufacturing,
robotics, and advanced computer capabilities--spark a
surge of economic growth by increasing worker produc-
tivity. Military security relies on pioneering tech-
nologies for defense systems and for verification of
limitations on weapons systems specified in arms control
agreements. Advanced technology is perceived as a strong
part of our national self image: the United States is
thought to excel through "'Yankee ingenuity."
National defense relies on advanced technology products
for sophisticated military hardware. Technologies used
in defense systems can often be exploited for commercial
purposes. Very-high-speed integrated circuits, digital
telecommunications, and new high-performance materials
all were developed for defense or space purposes yet now
have commercial spin-offs.
New processing and fabrication methods may also apply
to both military and civilian efforts. A goal of the
manufacturing technology program of the Air Force was to
demonstrate that computers can reduce cost in all phases
of manufacturing aircraft and thereby enhance manufac-
turing flexibility. The driving force behind this program
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was the high cost of relatively small production runs
typical of military aircraft, but civilian aircraft
manufacture benefited as well.' The Defense Depart-
ment's Very-High-Speed Integrated Circuit Program
(VHSIC),Z designed to produce electronic devices that
are faster and more reliable than circuits now in use, is
being developed for the military but is expected to have
important commercial uses.3
Military sources of R&D support, however, do carry
some disadvantages for the commercial sector. Classifica-
tions, export controls, and rigid criteria for research,
as well as the drawing away by the military of scientific
and engineering personnel, sometimes inhibit, rather than
promote, commercial developments.
Advantages flow from commercial research to the mili-
tary as well. The military's ability to obtain the tech-
nology and hardware it requires often stems from the
development and production strength that contractor com-
panies have derived from competition in civilian markets.
Healthy competition among companies selling semiconduc-
tors, lasers, commercial aircraft, computers, and other
advanced technology products to a mass market, for
example, sped the development of useful military applica-
tions of these products. The greater the civilian sales,
the lower the per-unit R&D cost for both civilian and
military requirements.
The nation must retain both excellence and self-
sufficiency in military technology. To that end, a
strong domestic technological enterprise is essential.
A U.S. positive trade balance in technology-intensive
products and services contributes not only to employment,
but also to the general health of the nation's economy.
In 1980, advanced technology products showed a positive
trade balance of $31 billion, compared to a deficit of
more than $50 billion for all other manufactured goods."
The U.S. currently holds the highest market share of
the industrialized countries' exports of high-technology
products. That share declined, however, from 30 percent
in 1962 to 22 percent in 1978 and has increased only
marginally since.3 Figure 1 shows that, in absolute
terms, the U.S. trade balance in high-technology products
increased over eightfold from 1962 to 1980. The statistic
is less heartening when compared to the trade balances of
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FIGURE 1 Relative changes in the balance of trade in
high-technology products: United States, Japan, West
Germany, and France, 1962 to 1980.
SOURCE: U.S. Department of Commerce, International Trade
Administration, from U.N. Series D Trade Data, as reported
in "An Assessment: of U.S. Competitiveness in High-
Technology Industries, a study prepared for the Working
Group on High-Technology Industries of the Cabinet Council
on Commerce and Trade, final. draft, May 19, 1982.
Japan and West Germany during the same period. Their
positive balances increased more than two-hundredfold and
ninefold, respectively, starting from a much lower 1962
base.
Advanced Technologies--Core
Technologies in the Economy
The benefits of advanced technologies extend beyond the
military and trade spheres to virtually all sectors of
the American economy, including the service sector, manu-
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WEST GEFIMANY
Imports
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facturing, and agriculture. Electronics is one core
technology arena in the form of integrated circuitry of
increasingly higher density, digital devices for communi-
cation, an enlarging array of computers, and increasing
sophistication in "user-friendly" software. Another
emerging core technology, embraced by the umbrella term
of biotechnology, includes not only modern-day fermenta-
tion techniques using recombinant DNA methodology, but
also new biological techniques for the manufacture of
hormones and drugs.
Core technologies have far-reaching influence upon the
state of the American economy. The rapidly improving
performance and falling costs of these advanced technology
products are key to rising productivity. In 10 years,
productivity in advanced technology industries has risen
5.6 percent, compared to 0.9 percent for business
generally--a sixfold difference.6 In addition, produc-
tivity in mature industries may be increased through the
application of advanced technology throughout the manu-
facturing and distribution processes. Also, seemingly
low-technology industries such as ceramics or glassware
have components that are at the forefront of technical
advance.
The diffusion of advanced technologies throughout the
economy can be subtle. For example, the service sector
in America is growing. Employment in service industries
(banking, health care, insurance, transportation, util-
ities, etc.) between 1940 and 1980 grew from 46 percent
of total employment to 68 percent.7 Pressured by the
need to improve productivity and to serve a growing
population, service industries draw increasingly on new
technologies: electronic tellers, word processors, and
small stand-alone computers have become commonplace only
a few years after their introduction.
The advanced technology enterprise has special
characteristics that strengthen its claim to national
attention. Even small companies can be technologically
innovative and economically viable, but a new innovative
product is subject to cumulatively increasing returns to
scale over time, that is, with research and production
experience there is a reduction in average cost. On the
other hand, temporary setbacks, if severe, can cripple
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future efficiency by starving the scientific and tech-
nological roots of the innovation process. It is easier
to stay at the frontier than to achieve it.
Were the United States to lose its capacity to inno-
vate core technologies, it might still benefit from
foreign innovations, just as other countries have bene-
fited from advanced technologies originating in the
United States? It is the innovating country, however,
that has the best access to new technologies and, thus,
the best opportunities to use them. The rapidity of
change in many important technological fields requires
knowledge of technological innovation in progress and
immediate access to new technologies. Without that
knowledge and access, a country's capacity to plan for
new products would lag those of the innovating country.
The effects of such a lag could be felt throughout the
U.S. economy, affecting not. only advanced technology
industries, but also others that require the products of
these industries for advancement, including the now
widespread service industries.
The social fabric of a nation is knitted by its citizens'
common purposes and widely shared beliefs in the integrity
and stature of their country and in the belief in a strong
future. Throughout our history, Americans have believed
in the capacity of the United States to adapt to new cir-
cumstances, to use native skills and resourcefulness--
"Yankee ingenuity",--to create practical objects of
commercial value. That belief endures as a national
assumption that the country will continue to expand tech-
nological frontiers and thus ensure the well-being of its
people. The capacity of Americans to innovate and to
adapt to change is thus important to sustain, as much for
the national optimism, as for the technological benefits
that flow from technological prowess.
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'See National Research Council, Innovation and
Transfer of U.S. Air Force Manufacturing Technology:
Three Case Studies (Washington, D.C.: National Academy
Press, 1981), pp. 6-18.
2For descriptions of the scope and goals of the
VHSIC program, see Jim Martin, "Very-High-Speed
Integrated Circuits--Into the Second Generation, Part I:
The Birth of a Program," Military Electronics/Counter-
measures, December 1981, pp. 52-58, 71-73.
3National Research Council, An Assessment of the
Impact of the Department of Defense Very-High-Speed
Integrated Circuit Program (Washington, D.C.: National
Academy Press, 1982), p. 13.
4"An Assessment of U.S. Competitiveness," p. 44.
'Ibid., p. A-38.
6Ibid., p. 45.
'Service sector is defined in the broadest sense to
encompass all enterprises not engaged in the production
of goods. Unpublished data from the Department of Labor,
Bureau of Labor Statistics.
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2
National Policies Affecting
Advanced Technology
Capacity and Competition
The innovation process, as we have seen, embraces
research, development, manufacturing, marketing, and
distribution.. A wide variety of government policies
affect this process--those explicitly intended to
strengthen it, such as federal support of basic research;
those framed for a broader impact, such as the nation's
fiscal and monetary policies; and those aimed at other
objectives that may unintentionally adversely affect the
process, such as export controls. In this chapter we
consider how national policies affect a nation's advanced
technology capacity and international trade position.
Many governments have designed comprehensive policies
to ensure successful technology and trade development.
Their efforts span the whole of the innovation process.
The U.S. system supports basic research applicable to
broad national goals but does not systematically support
the other parts of the process leading to commercial
sales. Responsibility for product development, produc-
tion, marketing, and distribution are left to the indi-
vidual firm. This system of free enterprise has worked
remarkably well. However, as other governments
coordinate--and provide increasing support to--their
advanced technology industries, American firms find
themselves competing internationally with government
aided firms or groups of farms. U.S. industry feels
burdened by an unfair disadvantage.
Governmental support of basic research may serve broad
national needs--for national defense, for food produc-
tion, for medical care, and for energy availability, but
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current spending on basic research is only tenuously
linked to current competition for markets for advanced
technologies.
Investment in basic research is a capital investment
with a payback period measured in decades rather than
years. Because the results of basic research are quickly
available globally, governmental support does not spark
international conflict. Each country's research benefits
others. Indeed, the United States is a major beneficiary
not only of its own research but of the research abroad
as well.
Strength in a nation's research infrastructure,
however, is no guarantee of successful technological
competition. A country may lead in basic science, but
lag in the process of making innovative ideas commer-
cially profitable. On the other hand, a country may lag
in research, but draw on research conducted abroad as a
base for creating commercially successful advanced
technologies. Japan has followed this strategy with
remarkable success. Japanese leaders recognize, however,
that an economically and technologically advanced country
must develop a strong domestic research base in order to
excell at making world class technological advances.'
France, too, has chosen to increase support of basic
research. The United States has one of the strongest
research bases in the world, but this base is not invul-
nerable. Federal support for basic research rose rapidly
in the United States from 1960 to 1968 discounting
inflation, but has increased only marginally against
inflation since then (Figure 2).
National practices diverge more sharply with regard to
support for applied research and development than with
regard to basic research. The three most prominent
positions favoring some support follow.
First, a traditional U.S. position held by many indus-
trial leaders and recent administrations is skeptical of
any government effort to select particular sectors of
industrial R&D for support. It holds rather that deci-
sions on investing in development and the subsequent
stages of industrial innovation are best made by private
industry. This view, however, does espouse government
support through tax credits for industry determined
research.
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Total
Federal
Industry
Universities and Colleges
Other Nonprofit Inst.
6.0
< 5.0
_j
0
4.0
z
Lu 3 . 0
cc
M
Z) 2.0
L)
7:7=*
.-T-*- 0
0 L
1960 1970 1980 1960 1970 1980
YEAR YEAR
FIGURE 2 Basic research expenditures by source, 1960 to
1981. Estimates are shown for 1979-81. GNP implicit
price deflators used to convert current dollars to
constant 1972 dollars.
SOURCE: National Science Foundation, Science indicators
1980.
Another view, occasionally argued in the United States
but practiced primarily in other countries, suggests that
the diffuse benefits, or "spillovers," of technological
development warrant federal targeted support to particular
technologies,. It is argued that such support leads to
commercially successful products--indeed, that favorable
technological spillovers are likely even if the targeted
products or processes are unsuccessful.
A third position, taken by some foreign governments,
is that government support is warranted for those tech-
nologies for which there is a national need and in which
the private market would tend to underinvest, either
because of high risks and costs or because the benefits
likely to result from research and development are not
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easily captured. Certainly, in the United States and
elsewhere, defense and those space technologies where the
government is the prime customer receive full governmental
research and development support.
France and Japan, among others, believe that government
support for new technologies should in part assure produc-
tion of the new industrial products. Proponents of this
view stress that experience gained in manufacturing is
crucial, that there is no clean break between development
and production, and that, in any case, intervention by
governments in advanced technology is justified by enhanc-
ing employment and making broad contributions to the
national economy. Support can take a number of forms,
including direct subsidies, low-interest loans for produc-
tion facilities, and governmental absorption of potential
losses.
Governmental actions affecting production costs also
include regulatory policies--factory environmental
standards, worker safety procedures, or production
standards.
Government programs that support new technological devel-
opments politically may require support for the succeeding
stages of innovation, including marketing and distribu-
tion. It is in the distribution stage that government
intervention can be most damaging to free trade. Govern-
ments may protect domestic markets through procurement
policies or nontariff barriers. They also may attempt to
ensure third-country markets through below-market export
credits* or political inducements. Such practices frag-
ment international markets, denying the economies of scale
that drive the continuing evolution of advanced
technologies.
*Any form of financial assistance, direct or indirect,
intended to provide financing in whole or in part for a
transaction.
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The latest area for intense competition in advanced
technology industries is the Third World's emerging
market--the some 113 countries that account for about 40
percent of the world's GNP. Sales to the newly indus-
trializing nations--Brazil, Korea, Mexico, Taiwan, etc.--
are a powerful determinant of success in international
competition in advanced technologies. The nations or
firms that make initial sales to an emerging nation tend
to continue as preferred sources. There is concern that
competing exporting governments may offer special induce-
ments for commercial sales such as weapons, nuclear tech-
nology, export credits, or bilateral agreements favorable
to the purchasing nation. The perceived use of such
inducements has already provoked bitter conflicts.
Explicit barriers to trade currently are not the major
tools for protecting markets. Tariffs for advanced
technology trade are quite low among the industrialized
countries. Formal quantitative restrictions are ruled
out by the General Agreement on Tariffs and Trade (GATT).
The "voluntary restraints" and "orderly marketing agree-
ments" through which exporting nations agree to curtail
sales in another country are familiar in traditional
industries, but are absent in the advanced technology
area. Instead, protected markets are created through
national procurement policies, through suspension of
antitrust enforcement, and through nontariff barriers to
imports, such as customs delays and regulations. These
barriers can be quite effective. For example, national
procurement policies limit trade in telecommunication
products between the large European countries, even though
the advantages of large-scale production and the costs of
duplicative research and development may justify special-
ization and free trade.2
Nontariff barriers may be institutional and attitu-
dinal factors, such as national loyalties inclining
nations to support domestic industries, which effectively
prevent import of foreign goods.
Imports of foreign goods that compete with domestic
products may be ensnared in complex bureaucratic customs
procedures, or marketing of products may be blocked by
the interlocking control of business. For example, mar-
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keting and distribution firms may be owned by or have a
special relationship with domestic manufacturing firms
and thus refuse to serve foreign suppliers, or local
lending institutions may deny financing for foreign
product distribution.
Investment barriers, like trade barriers, may take the
form either of overt legal restrictions or more subtle
pressures. A country may limit foreign direct investment
in certain domestic businesses.
In addition, a government may deny foreign-owned firms
"national treatment," i.e., the same privileges as domes-
tically based firms, or foreign subsidiaries may be denied
access to low-interest loans, excluded from local procure-
ment, or denied the right to participate in collaborative
R&D. In many cases, firms investing in countries seek
local participation, perhaps at a majority level, to avoid
this "second-class" treatment.
There are several other ways in which governments' re-
strictions on foreign investments may be to the disadvan-
tage of firms attempting import:
? firms may be unable to invest in necessary com-
plements to advanced technology exports, such as local
parts and service facilities;
? "offset" requirements or "local content" laws may
force firms to produce products in-country (occasionally
at low volume and high unit cost) as a condition for
access to the local market;
? firms may suffer unfavorable conditions of tech-
nology transfer--e.g., licensing at disadvantageous
terms--because the preferred route of direct investment
is closed.
NATIONAL PRACTICES--POSITIVE AND NEGATIVE CONSEQUENCES
The extent to which our national welfare is interwoven
with that of our allies in the fields of science coopera-
tion and advanced technology trade is not generally
appreciated. The costs and risks of protectionist
policies and market fragmentation are probably greater
than in almost any other economic field except energy.
Paradoxically, the international coordination of trade
practices is more backward in advanced technology than in
many other fields at a time when both nations and regions
within nations are looking more and more to advanced
technology as a primary source of economic salvation.
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Innovation proceeds most rapidly and efficiently when
new products have access to the widest possible markets,
thus spreading the costs and risks of innovation over
more units and generating the cash flow for follow-on
improvements and further innovation. Thus, the United
States should negotiate in international forums to secure
the openness of world markets to innovative entrepreneurs
wherever they may be based and to eliminate those national
actions practiced by other countries that distort the free
market operation in the United States. Such a policy is
required, both to preserve the U.S. position as a major
source of innovation and to ease growing tensions among
the industrialized allies, tensions that threaten not only
international economic and political management, but also
mutually beneficial cooperation in science and technology.
There are a number of practices that effectively close
markets in a given country to the advanced technology
products of another country. Government intervention to
force purchase of products from domestic suppliers is an
example. Such practices reduce the total size of the
market open to an innovator, reduce the rewards for the
innovating firm, and limit. the distribution of innovative
products globally. Other practices may result in one
country rapidly acquiring a larger share of the market in
another country than would occur under conditions of free
competition. Export credits on highly concessionary
terms is an example. Some practices may not be outlawed
by international agreement, but may be injurious to trad-
ing partners. An example would be the suspension of
antitrust policy for specific advanced technology indus-
tries in order to accelerate product innovation and
foreign sales.
Commercial and financial practices that are generally
agreed to be harmful to the world trading system as a
whole, even if at least temporarily advantageous to the
perpetrating country, are not necessarily the ones that
cause the most damage. While it may be easiest to elimi-
nate by agreement the practices that are acknowledged to
be unfair and which add nothing to aggregate world produc-
tion, it may be more urgent to take aim at some more
debatable tactics that cause clear danger. These tactics
are difficult to categorize, but they may be the most
important and call for the most immediate hard bargaining.
They may be protectionist, trade distorting, or harmful
to world welfare. Examples of such practices are:
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? Predatory pricing sales abroad at prices below
the domestic selling price or below cost. (Below-cost
pricing may be defined as pricing that does not permit
recovery of production costs over any plausible projec-
tion of the learning curve. This may be very hard to
define for advanced technology products because of the
steepness of the learning curve and because of the
subjectivity of business judgments as to how long a time
is reasonable for recovery of "front end" costs.) When
systematically applied, predatory pricing can be used to
"pick off" one sector after another. Protection against
this practice is not readily available from either GATT
rules or traditional domestic policies of the U.S.
government.9
? "Targeting" of specific U.S. advanced technology
markets by foreign countries through governmentally
orchestrated industrial strategies that suspend normal
business or regulatory practices with respect to the
targeted product line, such as cartelization. Coor-
dinated "picking off" of particular U.S. markets through
a concentrated effort is especially pernicious.
? Nontariff type barriers that effectively exclude
U.S. products from fair competition with local products
in local markets.
? Government intervention to force purchase of
products, especially advanced technology capital goods,
from domestic suppliers despite competitive price and/or
performance of foreign products. (This would include
"Buy American" requirements on U.S. federal or state
government contractors.)
? Restrictions on foreign direct investment, par-
ticularly those that effectively deny distribution
outlets for U.S. advanced technology products in the host
country.
? Exclusion of U.S. foreign subsidiaries from
"national treatment" equivalent to that afforded national
firms.
? Use of political leverage or concessions to
influence purchasers in third-country markets to buy a
foreign product in competition with a U.S. product. This
includes tying sales to trade agreements, military
weapons support, nuclear development projects, economic/
regional assistance, and similar programs.
? Official or unofficial preferential government
procurement favoring domestic producers when contrary to
GATT rules.
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? Capital or operating subsidies, including conces-
sionary loans that result in extra market penetration of
foreign advanced technology products into U.S. markets or
world markets. Invocation of the GATT subsidy rule may
provide some protection for the injured party. Unfor-
tunately, unless it is vigorously pursued by the firms
and country affected within the framework of the GATT
rules for subsidies, redress is obtained too late to
prevent substantial damage.
? Export credits on highly concessionary terms,
based on government subsidies. In the absence of inter-
national agreement on what constitutes a reasonable
concessionary interest rate, however, it is difficult to
fix a criterion unilaterally that would trigger retalia-
tory action. Such retaliation might be equal or better
concessional terms.
Practices that stimulate innovation by relaxing
various domestic rules in the exporting country may
nevertheless have some positive spill-over effects. They
might be best matched by adopting similar modifications
of domestic ground rules for the competing industries in
the importing country. If the rule changes were rela-
tively mild--for example, exempting research consortia
from antitrust regulations, or permitting patent or other
information exchanges among competing domestic firms--the
net effect might even be positive.
? R&D subsidies to accelerate the development and
commercialization of particular products. Such targeting
is considered difficult by many, yet the Japanese record
of success seems to be good.
? Exchange of technical information and agreed
product specialization (or "market sharing") among com-
petitive firms in a broad technological area. It is
frequently pointed out that Japanese law and adminis-
trative interpretation permit a degree of both market
sharing and technical cooperation in domestic markets
that would be illegal under U.S. law and/or regulatory
policy. While this may be "unfair practice" from an
American point of view, it is within the traditions of
the Japanese system.
? Mutual support among independent firms belonging
to industrial "groups" whose members enjoy preferential
financial and intellectual or other cooperative relation-
ships with each other. Such "group strategy" gives the
practitioner a relative competitive advantage in the
American market. It represents the kind of rationaliza-
tion pursued by large U.S. corporations in the early
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twentieth century that U.S. antitrust policy was designed
to prevent. It may be acceptable, however, when viewed
from some standpoints, e.g., buyers in the emerging market
rather than from the standpoint of "fair competition"
with the United States.
In the preceding discussions, we have described govern-
ments' practices affecting their respective advanced
technology industrial systems and suggested criteria for
assessing those actions according to their consequences
for the international trading system. These criteria
place value on maintaining open markets, thus rewarding
innovators, and making innovative products available
globally. We believe that the United States must con-
tinue to negotiate in international forums to maintain
international systems that foster healthy, mutual com-
petition in advanced technology. Such competition will
be to the ultimate economic advantage of the world.
The United States must give immediate attention to
efforts to strengthen its advanced technology capacity
and international trade competitiveness. Such efforts
will require both a national focus on the importance of
advanced technology to U.S. military and economic inter-
ests and the need to compete vigorously in international
markets. Recommendations for domestic actions will be
discussed in Chapters 3 and 4.
We recognize that there may be circumstances in which,
although our domestic advanced techology capacities are
well nurtured and strong, still a few key technological
sectors essential to our national welfare may be endan-
gered. Successful aggressive policies of our allies
could create such vulnerability. If capabilities in a
significant advanced technology sector, deemed essential
to U.S. economic and military interests, are seriously
endangered because of the loss of markets, the United
States must take remedial actions. Damage to the nation's
total innovative capacity, however, is far more pernicious
than adverse impact on a particular product or firm.
A first step is to seek to renegotiate multilaterally
agreed rules in forums such as the GATT. Such negotia-
tions should seek to establish clearer guidelines for
government actions in high-technology sectors. A basic
requirement of such negotiations would be that countries,
including the United States, be prepared to consider
altering traditional practices.
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When there is a specific threat to U.S. interests from
a particular country's government policies, the U.S.
government should initiate bilateral consultations within
the framework of GATT and other appropriate multilateral
institutions. The goal of such negotiations would be to
reach agreements on a time scale that would prevent or
reverse damage to U.S. capacity for technological innova-
tion. If these bilateral consultations are unsuccessful
in resolving the issues, the U.S. government should
utilize formal multilateral dispute settlement procedures
to seek a resolution. If those procedures fail or if the
threat of damage is imminent, the United States would be
required as a last resort to take unilateral action to
protect the national interest.
'Japan Committee for Economic Development, Building
an Industrial Structure for the 21st Century (Tokyo:
JCED, 1982), pp. 14-15.
2 Organisation for Economic Co-operation and
Development, Telecommunications Equipment Industry Study
(Paris: OECD, 1981), p. 19.
3The negotiations in the Tokyo Round of GATT on
subsidies developed criteria for "material injury" caused
by such subsidies.. Such criteria would probably define
the limits of acceptable practice even when a theoretical
argument might, conclude that the causative practice
resulted in a total mutual :benefit that exceeded the
injury to one of the parties. Certainly in the case of
subsidies to advanced technology industries, the machinery
of GATT should be available, although the standards of
proof of injury may be harder to apply in the case of
advanced technology than for other goods. Richard Rivers
and John Greenwald, "Subsidies and Counterveiling
Measures," Law and Policy in International Business, 2
(1979), pp. 1465-1495.
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3
Policies and Practices
Affecting U.S. Competitiveness
in Advanced Technology
Three conclusions emerge in examining the varying prac-
tices of nations toward advanced technology development
and trade: (1) other nations do indeed have comprehen-
sive national plans supporting technology and trade
objectives; (2) the United States does not take a
cohesive and coordinated look at its policies and
practices and those of our trading partners regarding
advanced technology; and (3) the United States has
available to it tools for addressing the needs of its
advanced technology enterprise, to strengthen both its
capacity for technological innovation and its inter-
national trade competitiveness.
Such tools include federal programs for support of
research and education; governmental policies and prac-
tices with regard to taxes, antitrust, patents,
regulation, and technology exports; and broad national
economic policies.
Clearly many of these policies and practices are
designed to support other national objectives. In the
processes of policymaking and allocation of resources,
however, the nation's technological capacity and inter-
national competitive strength must be highly valued among
national objectives. Furthermore, the variables affecting
the U.S. advanced technology enterprise must be well
understood. This may be accomplished by a high-level
assessment reviewing domestic governmental and private
actions, the industrial and trade policies of other
nations, and the broad global environment. The United
States has no adequate assessment process now. In
consequence, governmental policies evolve without any
broad assessment of how they will affect the strength of
U.S. advanced technology capacity and trade.
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One reason for this oversight is that the United
States views technology and trade policies differently
from its competitors. The United States formulates its
trade policy in terms of a process; it sets rules for
competition and lets the private sector operate within
that framework. Some other countries tend to choose a
desired outcome and then define policy accordingly.
Furthermore, the United States views international
competition as having rules defining a "level playing
field" for firms from different countries--the game
should then be left alone. But some other countries,
having decided on desired outcomes of the competition in
terms of, say, market share or employment, feel the rules
allow them to intervene if their national firms are not
doing as well as they would like. This difference in
approach makes negotiation difficult.
The often adversarial relationships of U.S. government
and business, evolved early in the country's history,
also may impair U.S. competitiveness. Industry and
government have to be prepared to work more cooperatively
in order to achieve national goals.
A further problem is that policymakers are rarely
people experienced in the industrial innovation process--
those who through active experience know the difficulties
of creating, producing, and marketing new products and
processes embodying advanced technologies. Maintaining a
continuing expertise, through a highly qualified and
stable governmental career staff, is a corollary
difficulty.
Finally, U.S. companies often see themselves competing
against national systems rather than individual foreign
companies--U.S., aircraft manufacturers see their competi-
tor as a government-supported consortium; individual
semiconductor, robotics, and computer manufacturers here
face a cooperative network of Japanese companies working
with a governmental agency. So mixed an international
trading system complicates international negotiation and
agreement.
While the depressed worldwide macroeconomic environment
intensifies the pressures we have been describing for
every nation, the effects may be greater in the United
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States than elsewhere. Some of the erosion of the U.S.
lead in advanced technology may be blamed on macroeconomic
factors, particularly the low rate of investment and the
consequent slackening of demand for new technologies.
U.S. macroeconomic policies obviously serve a range of
national needs beyond those of the advanced technology
enterprise, but their impact on U.S. technological devel-
opment should be well understood. Slack domestic demand
reduces the current profits of all firms, their ability
to finance investment, and the expected profitability of
new investments in capital or technology. The problem is
intensified in the advanced technology sector because the
payoff to new investments is more uncertain and comes
after a longer delay than in traditional industries.
Further, advanced technology industry is unusually
vulnerable to high real interest rates that work differ-
entially against long lags in cash flow. The mix of
macroeconomic policy in the United States has caused
interest rates to be high and volatile for a long time.
Apart from the effect already mentioned, this choice has
caused the dollar to appreciate substantially against
other currencies. The strength of the dollar relative to
the yen, especially, makes U.S. firms less competitive
precisely in those markets that are endangered for other
reasons. Finally, inflation may have inhibited invest-
ment in long-range planning and new technology.
While U.S. antitrust policy has begun taking international
competition into account, its implementation still fails
to give sufficient weight to international trade consid-
erations. The manner in which antitrust statutes are
interpreted and applied is charged with interfering in
international competitiveness. For example, firms have
difficulty retaining the benefits of research that are
the product of multifirm collaboration; prospective
"safe-harbor" rulings are not readily available; and
there is a general uncertainty regarding what corporate
actions may elicit legal actions on the basis of anti-
trust legislation.
Because of this uncertainty, management cites anti-
trust policy as creating excessive risk for a range of
activities that may benefit innovation and trade, such as
pooling research efforts, pooling information on the work
of international competitors, or pooling development
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programs whose costs are too large for any one firm in an
industry to undertake. By contrast, foreign governments--
for example, Japan and France--encourage cooperation
among firms through mergers or cooperative programs.
U.S. antitrust policy, however, has successfully
fostered beneficial domestic competition. Any changes
must be carefully considered. But, in the context of the
new era marked by increased relative importance of inter-
national trade, by offshore production and investment, by
the emergence of world-scale markets, and by the differ-
ing policies of other nations, antitrust regulation and
enforcement should be reexamined in the light of the
international context in which U.S. firms must compete.
Cost and availability of financing are major factors,
both in the start-up and growth of new companies and in
the modernization of established firms. Over the past
decade, capital costs have been 50 to
100
percent
higher
in the United States than in Japan.'
The
supply
of
venture capital for new U.S. firms, however, is large and
flexible; that contributes significantly to the abundance
of small advanced technology firms here.
Technological innovation by large established firms
requires both the capital and the incentive to make large-
scale investments. Japan appears to have an advantage
over the United States in this area because the cost of
capital in Japan (in real terms) is lower due to more
thrifty savings habits and superior macroeconomic perfor-
mance. The difference is aggravated by the economic
volatility that has characterized the United States during
the last decade. Also, financing of large firms in Japan
is less dependent on open capital markets than is true
for their American counterparts; thus, Japanese firms'
abilities to invest are not dependent on promises of
short-term results.
To take one example, Japanese semiconductor firms,
some of which are part of large industrial groups that
include banks, tend to be heavily financed from within
the group.2 U.S. firms are competing with foreign
firms that receive their capital at reduced rates from
their governments or from banks encouraged by their
governments.
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Ideally, we would prefer a world without corruption,
without trade restrictions against our allies, without
government financial support for exports. We would like
to expand U.S. trade in a free-market environment. At
the same time, we would like to limit the military tech-
nological development of our potential adversaries. How-
ever, our pursuit of these objectives must be tempered by
our interest in the health of U.S. industry.
U.S. advanced technology firms operate in an increas-
ingly competitive world market. Americans should be
conscious of the impact of U.S. policies on U.S. exports
as they help or hinder viability of advanced technology
firms. This competitive environment need not deter
American pursuit of their major objectives, but such
pursuit must acknowledge what is realistically attainable
and may entail compromises with this reality.
For example, some of our leading competitors justify
using official export credits because they protect jobs
and nurture industrial development. Until we can achieve
agreement to minimize government sponsorship of export
credits, we should be prepared to provide similar support
for our own industries as we have done in the past
through the Export-Import Bank.
Similarly, the United States imposes on exports to
currently out-of-favor nations controls for both foreign
policy and national security reasons. In the past, these
restrictions have been partly based on the questionable
assumption that the United States had an effective monop-
oly in providing the products in question. The conse-
quence may be a loss of U.S. sales; the foreign policy
goals may not be achieved. To be in the best interest of
the nation, the economic and political costs and benefits
of controls must be carefully assessed, and they must be
undertaken multilaterally--consulting and cooperating
with other leading industrial or agricultural countries.
Because technological progress diffuses throughout the
economy, there is a strong case for special tax treatment
for research and development. Indeed, the Economic
Recovery Tax Act of 1981 offered several incentives to
business investment, including subsidies for a 5-year
period for research and development expenditures and
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accelerated write-offs for capital expenditures. The
United States is not alone in providing tax incentives
for industrial research and development, though many
nations prefer to provide direct subsidies. Sometimes
new and rapidly growing advanced technology firms are
targeted for benefits such as accelerated depreciation
and tax benefits during their start-up phases. Policy
assessments of the effectiveness of current tax policy in
support of research and development (for example, the
actual effect of the 5-year limit mentioned above) would
be welcome.
Health, safety, environmental, and other regulations have
been criticized for raising the costs of product develop-
ment and manufacture, and thus raising prices of American
products. The counterargument is that added costs are
warranted because of their benefit.
There is now a general mood in this country for reex-
amination of regulatory policies. That reexamination
should include consideration of the effect of regulatory
policies on the capacities of U.S. industries to innovate
and to compete in world markets.
Nongovernmental variables affecting the advanced tech-
nology enterprise may be influenced by government
policy. These include the nature of corporate manage-
ment, university-industry relationships, and financial
resources.
American industrial management, long regarded as the
standard for excellence, has recently come under criti-
cism. Failure to maintain product quality, searches for
short-term market payoffs, and failure to invest in
long-term technological innovations are some of the
alleged faults. Management has been accused of placing
undue emphasis on short-term financial goals, yet our
system requires companies to fund their own growth--even
and especially in a recessionary period.'
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Short-term financial concerns have come to dominate
many U.S. corporations for various reasons--among them,
the increased size and complexity of corporate structure,
the harsher macroeconomic climate, the uncertainty in
government regulation and policy, and (somewhat ironi-
cally) the intensifying international competition.
Managers equate this near-term emphasis with the need to
survive, yet the result--a reluctance to take long-term
risks--sacrifices major technological innovations. A
blanket indictment of American management is simplistic
and erroneous, of course. Examples abound of techno-
logically astute management willing to take risks and
invest in an innovative future.
Effective application of American styles of management
coupled to a deeper understanding of the critical role of
technological innovation in future economic growth may be
more appropriate than studying Japanese or other manage-
ment models. The rapid evolution of advanced technologies
offers remarkable opportunities for corporate exploita-
tion and growth. Despite the recession, U.S. industry
has seen those opportunities and responded by increasing
its research and development spending by 15 percent in
1981."
Historically, the federal government has provided the
majority of funds for academic research. Industry has
contributed only modestly--4 percent to 6 percent yearly
of total academic research and development expenditures
from 1960 to 1981.5
University-industry collaborations can be, never-
theless, remarkably effective in improving the transfer
of advanced technology research results to commercial
applications. An obvious example is the influence of MIT
and Stanford University in contributing to the growth and
success of advanced technology enterprises populating
Boston's Route 128 and Palo Alto's Silicon Valley.
New university-industry relationships are emerging in
such fields as biotechnology and electronics. Stanford
University's Center for Integrated Systems and Carnegie-
Mellon University's Robotics Institute have benefited
from corporate support in establishing multimillion
dollar research facilities.
We applaud such efforts, and we encourage universities
and industry to continue to enter into collaborative
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arrangements that may create new knowledge, quicken its
commercial translation, and strengthen components of the
nation's advanced technology capacity. It is crucial,
however, that those involved must ensure that research
findings in the university are generally open and avail-
able to the entire scientific community. Deviations from
this rule should be fully disclosed, should be under
constant scrutiny and review by the universities and
companies themselves, and should be based only on the
most compelling short-term reasons. This need not obviate
targeted industrial research grants to universities con-
sistent with rewards to the sponsor. In addition, such
openness will maintain the concept of free scientific
communication and open university.
The following are areas for which both government and
private sector actions affect national capabilities.
The U.S. educational system, public and private, is
complex. It involves local, state, and federal gover-
nance, and its funding sources range from state subven-
tions to indirect cost charges against research. A
coherent examination of the educational system within a
broader review of policies and practices affecting the
nation's technological capacities would not be easy, but
it is necessary.
A diverse set of human skills is essential to national
technological innovative capacity: a technically com-
petent labor force, a first-rate and constantly freshened
basic research force, and well-trained baccalaureate and
graduate engineers, scientists, and technologically
sophisticated managers.
Advanced technologies are powerful tools, but their
power is realized only through individual imagination
applying them in novel ways. This requires that some
technological sophistication be prevalent throughout the
population. To illustrate, about half of research and
development done in the manufacturing sector flows to the
service sector--insurance, banking, utilities, transporta-
tion, education, etc.6 Such flows--and the economic
gains they provide---occur because of the technological
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understanding and imagination of those working in both
sectors.
The United States still has the Western world's largest
technologically sophisticated population, both absolutely
and in the numbers of scientists and engineers as a pro-
portion of the total work force. Since the early 1970s,
however, it has been adding to its pool of scientists and
engineers more slowly than Japan and West Germany.7
The American primary and secondary high school system for
teaching science and mathematics is in trouble. State-by-
state statistics show insufficient numbers of qualified
science and mathematics teachers. A 1981 survey revealed
a shortage of high school chemistry teachers in 38 states,
of mathematics teachers in 43 states, and of physics
teachers in 42 states.? American high school graduates
have quantitative skills and understanding of science and
technology that is today inferior to those of their coun-
terparts in Japan, Germany, and the USSR. The higher
productivity growth of the Japanese economy has been
attributed, in part, to the high quality of Japanese
secondary science and mathematics education.9
The close coupling of research and graduate education is
the core of the strength of the American research system.
The system is now suffering not only a virtual stasis in
research funding, but also squeezes on endowments of
private universities and diminished governmental support
for state universities.
Total national basic research spending averaged 4.4
percent annual growth from 1975 to 1980, with the federal
government accounting for 70 percent of that increase.10
Growth has tapered off since then and would be negative
but for increased research spending in defense and space.
The effect on universities of diminished growth in
resource funding is direct, given that they accounted for
half of all basic research expenditures in 1981 and given
that basic research was 69 percent of all academic R&D
expenditures.1' A direct result of this funding lag
has been a deterioration in the utility and availability
of scientific instrumentation in university research
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laboratories. It is estimated that modernizing univer-
sity equipment alone would cost at least $1 billion.12
While the federal government historically has dis-
tinguished support of research from support of univer-
sities per se--in contrast to the dual-support systems of
France, West Germany, and the United Kingdom--that dis-
tinction is necessarily somewhat arbitrary in the case of
the research universities.
Problems in training future! scientists and engineers are
apparent in U.S. engineering education. While Japan,
with a population less than one-half of the United States,
graduates more engineers than does the United States,13
the deeper issue is the quality of education received by
American engineering students, both at the baccalaureate
and graduate levels. The large number of unfilled engi-
neering faculty positions--estimated in 1980 to be at
least 1,80014--spells serious trouble for the quality
of engineering education, particularly because under-
graduate engineering enrollments are at an all-time
high. The unfilled positions are commonly attributed to
higher salaries in industry than academe. Industry
attracts bachelor-degree engineers in ever greater
numbers--a process that has been aptly termed "eating our
seed corn." And, as with the sciences, university
engineering education is beset by deteriorating and
obsolescent instrumentation.
Many nations have developed mechanisms for monitoring
foreign technological developments and reporting them
back to their domestic industries.'5 Nothing compar-
able exists in this country. Several facets of the issue
might be examined, including any barriers to industrywide
collaboration in acquiring and sharing foreign techno-
logical intelligence and mechanisms for public and
private cooperation in acquiring and disseminating
technical information.
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We have emphasized earlier the various approaches that
the United States and other nations take to the support
of research and of various stages of development. The
U.S. federal government has accepted its role as the
patron of basic research in the United States, and the
issue, therefore, is the level of support and the
relative emphasis given to various fields.
Support for development, as well as for applied
research, is a more difficult matter, involving not only
levels of support but even whether support for these
endeavors is a federal responsibility. Development is
supported in defense, many areas of space technology and
aeronautical research, agriculture, and some areas of
energy. Some advocate broadening support to include
advanced technologies; others oppose this on the grounds
that the federal government does poorly in choosing which
technologies to support.
The traditional U.S. position on the government role in
supporting advanced technology development and trade has
been that governments should restrict their intervention
to basic research and education and leave the other
components (development, production, distribution, etc.)
to the marketplace. Our competitors, however, do not
accept this view; they intervene to support the advanced
technology system at all stages--research through mar-
keting. The traditional U.S. instruments used to foster
technological industrial performance still may be
adequate in the face of the more intrusive policies of
other countries; but they can only be truly effective
with a coordinated and national focus on strengthening
the nation's trade competitiveness and advanced tech-
nology capacity.
Certainly, any change in the use of existing instru-
ments, or the addition of others, means a major departure
in governmental policies toward the industrial economy.
However, given the intervention of other governments in
international competition, such a departure should be
widely debated. For the reasons cited in the first
chapter of this report, the United States must maintain
the strength of its national capacity for technological
innovation. That capacity can be damaged by weak
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domestic policy. it can also be damaged through prac-
tices of our industrialized allies. The problem in
responding is to define policies that maintain our
technological strength and comport with our national
character and values.
'"An Assessment of U.S. Competitiveness," p. 79.
2See M. Therese Flaherty, "Determinants of Market
Share in International Semiconductor Markets," a pre-
sentation to the Panel on Advanced Technology Competition
and the Industrialized Allies, Washington, D.C., February
9, 1982, pp. 1-13.
3Robert J. Hayes and William J. Abernathy, "Managing
Our Way to Economic Decline," Harvard Business Review,
July-August 1980, pp. 67-77.
"National Science Foundation, National Patterns of
Science and Technology Resources 1981 (Washington, D.C.:
U.S. Government Printing Office, 1981), p. 10.
slbid., p. 21.
6F. M. Scherer, "Research and Development, Patenting,
and the Microstructure of Productivity Growth," a report
to the National Science Foundation, June 1981.
7 National Science Board, Science Indicators 1980,
p. 4.
6Paul Hurd, "The State of Precollege Education in
Mathematics and Science," presentation to a Convocation
on Science and Mathematics in the Schools, National
Academy of Sciences, Washington, D.C., 1982.
9New York Stock Exchange, Office of Economic
Research, People and Productivity: A Challenge to
Corporate America (New York: New York Stock Exchange,
Inc., 1982), pp. 10-13.
"Calculated from data on basic research expen-
ditures by source, National Science Board, Science
Indicators 1980, p. 255.
"National Science Foundation, National Patterns of
Science and Technology Resources, p. 12.
12National Research Council, Revitalizing Laboratory
Instrumentation, the report: of a workshop of the Ad Hoc
Working Group on Scientific! Instrumentation (Washington,
D.C.: National Academy Press, 1982), p. 1.
13Business-Higher Education Forum, Engineering
Manpower and Education: Foundation for Future
Competitiveness (Washington, D.C.: Business-Higher
Education Forum, 1982), p. 13.
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"John D. Kemper, "Graduate Enrollments in Engineer-
ing: Meeting National Needs for Productivity and
Innovation" (University of California, Davis, July 1980),
p. 7.
"For a discussion of some of the mechanisms used by
Japan and Western Europe in the field of computer science,
see National Research Council, International Developments
in Computer Science (Washington, D.C.: National Academy
Press, 1982).
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4
Conclusions and Recommendations
In this consensus statement, the Panel on Advanced
Technology Competition and the Industrialized Allies has
described why the United States must elevate, in the
scheme of national priorities, efforts to strengthen the
nation's capacity for technological innovation, including
a vigorous international trade position. The panel
believes that the U.S. advanced technology enterprise has
been undervalued in the past and now must be placed as
one of the nation's most valued objectives. The panel
has described also how the United States may negotiate
internationally to strengthen the international trading
system in harmony with healthy, mutually beneficial
trading relations, and how the United States may respond
should these international efforts fail.
The following is a summary of the panel's conclusions
and recommendations.
The United States must act now to preserve its
basic capacity to develop and use economically advanced
technology. This innovative capacity is essential for
the self-renewal and well-being of the economy and the
nation's military security. Trade in advanced technology
products and services will contribute enormously to our
economic health. Advanced technology products and
processes not only permeate the economy, increasing
productivity, but also form the basis of modern defense
hardware.
The nation's capacity for technological innovation
is vulnerable both from domestic weaknesses and from
damaging practices of other nations. Measures designed to
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maintain this vital aspect of the American economy within
a healthy international trading system will include both
domestic actions and international negotiations.
? Effective actions require a sound understanding
of the nature of innovative capacity and of the innova-
tion process through which it is primarily manifest.
Innovative capacity is the capability, widely diffused
throughout the economy, to produce continuously forefront
technological resources, and to use those resources for
the national benefit. The innovation process includes
not only basic research and development, but also pro-
duction, marketing, and distribution in domestic and
foreign markets. Each part of the process must be sound
for success.
? Some of the elements that support our nation's
innovative capabilities include a strong national research
base, technically educated manpower and a technically
literate population, capable and farsighted industrial
managers, a financial base that provides capital to both
new and established firms, and sizable markets. Essen-
tial, too, are a national understanding of and attention
to advanced technology as a vital contributor to the
national welfare.
? The U.S. government has in effect a range of
policies and practices including tax policies, patent
laws, regulation and deregulation, antitrust measures,
export/import bank loans, government procurement, and
others that, although designed to serve other national
objectives, also affect the U.S. technological enterprise
and international trade position. These policies and
practices and the other domestic and international
elements affecting U.S. technology and trade must be well
understood by senior policymakers. If viewed in ensemble,
existing government instruments may become powerful means
to support U.S. technology and trade interests.
? Responsibility for improving U.S. performance in
advanced technology and trade rests to a large degree
with the individual firm and its management. Successful
managers increasingly will have to be cognizant of
frontier technologies as they build businesses and
compete in an international world.
? Our major industrialized allies--most notably
Japan and France--have designed comprehensive national
policies to help ensure successful technology and trade
development in major sectors. Thus, individual U.S.
firms often find themselves competing internationally,
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not with firms acting alone, but with countries or with
consortia of firms with country backing.
? There is considerable dispute among industrialized
allies regarding which practices are acceptable and which
are not. Efforts to evaluate practices are protracted
and difficult, but essential.
Accordingly, the panel recommends the following:
? Advanced technology development and trade must be
considered as among the highest priorities of the nation.
These vital interests must be well understood domestically
and conveyed to our trading partners. The United States
must initiate a two-part strategy: to maintain the
nation's capacity for technological innovation and to
foster an open healthy international trading system.
The federal government should initiate a
biennial, cabinet-level review that comprehensively
assesses U.S. trade competitiveness and the health of the
nation's innovative capacity in both relative and absolute
terms. This review should consider the nation's overall
performance: the private sector activities and the
totality of government actions on technology and trade,
as well as the effects of other governments' practices.
These assessments would consider the strength of key
technological sectors across all stages of the innovation
process--research, development, manufacture, and distri-
bution. In addition, assessments would evaluate broad
elements as they affect innovation, such as the macroeco-
nomic environment, regulatory policy, patent policy, and
antitrust policy. Careful attention would be given to
maintaining the health and effectiveness of both
university- and industry-based research, education, and
training. The cabinet-level review should be supported
by a continuing mechanism that would draw on expertise
both from within the government and from outside.
Managers of private firms must be cognizant of
technological trends as they make renewed efforts to
build businesses and compete in an international context.
Managers should consider new institutional arrangements--
the growing, mutually supportive, industry-university
research relationships, cooperative research ventures
among groups of firms, or consortia to seek information
and ideas systematically from abroad.
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? Internationally, the United States should negotiate
in existing forums to encourage a healthy mutual trading
system. This should include continued efforts to evaluate
national trade practices and to agree on criteria for
acceptability. An objective must be to encourage open
markets and healthy competition.
? Countries, including the United States, throughout
negotiations should be prepared to alter fundamental
policies so that each country may maintain advanced
technology capacities fundamental to its individual
welfare.
? The United States should review the content and
application of its trade laws to ensure that U.S. indus-
tries can obtain timely and meaningful trade and/or other
relief in the U.S. market when imports from particular
countries, based on unreasonable or excessive foreign
industrial policies, threaten them.
? If key technology industries essential to national
economic welfare and military security are considered
endangered by the actions of another country, even with
all necessary domestic efforts to strengthen these
sectors, then the United States should negotiate with the
other country requesting immediate relief. Negotiations
should take place first in existing forums, explaining
our country's vital interest in preserving advanced tech-
nology capacity. If such mechanisms prove ineffective or
too slow to prevent damage to essential U.S. capabilities,
then the United States should negotiate directly with the
country in question. If those bilateral negotiations fail
or if the threat of damage is imminent, the United States
should take immediate unilateral actions as a step of
last resort.
The panel concludes that the advanced technology enter-
prise has the potential to contribute significantly to
economic and social welfare, both in the United States
and throughout the world. It is essential that the indus-
trialized allies work individually and cooperatively
toward advanced technology development and a healthy free
trade system for their mutual benefit.
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Aerospace Industries Association of America, Inc. The
Challenge of Foreign Competition to the U.S. Jet
Transport Manufacturing Industry. An ad hoc study
project of the Civil Aviation Advisory Group,
Aerospace Technical Council. Washington, D.C.:
Aerospace Research Center, 1981.
Baranson, Jack, and Harald B. Malmgren. Technology and
Trade Policy: Issues and an Agenda for Action.
Washington, D.C.: Developing World Industry and
Technology, Inc., 1981.
Bergsten, C. Fred. "What to Do About the U.S.-Japan
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1059-1075.
Caves, Richard E., and Masu Uekusa. Industrial
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Center for Science and Technology Policy. Current Issues
in Export Controls of Technology: Background
Information and Summary of Discussion. New York: New
York University, 1981.
Commission of the European Communities. The Competi-
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Commission of the European Communities, 1982.
. Report of the Study Group on Industrial Policies
in the Community: State Intervention and Structural
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Defense Science Board. An Analysis of Export Control of
U.S. Technology--A DoD Perspective. Washington,
D.C.: U.S. Government Printing Office, 1976.
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de Saint Phalle, Thibaut. U.S. Productivity and
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Diebold, William. Industrial Policy as an International
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Elston, C.D. "The Financing of Japanese Industry." Bank
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Forester, Tom, ed. The Microelectronics Revolution: The
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Gray, Paul E. "Technology Transfer at Issue: The
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Japan-United States Economic Relations Group. Report of
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Supplemental Report of the Japan-United States
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Government Printing Office, 1981.
Kaiser, Karl, Winston Lord, Thierry de Montbrial, and
David Watt.. Western Security: What Has Changed?
What Should be Done? New York: Council on Foreign
Relations, Inc., 1981.
Lesson, Kenneth. Trade Issues in Telecommunications and
Information: United States Trade in the Merchandise
of Information Industries, 1. Washington, D.C.: U.S.
Department of Commerce, 1981.
Maddox, John. "'Science in West Germany." Nature, 297,
May 1982, pp. 261-297.
Malmgren, Harald B. Changing Forms of World Competition
and World Trade Rules. Significant Issues Series, 3.
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Martin, Jim. "Very-High-Speed Integrated Circuits--Into
the Second Generation, Part 1: The Birth of a
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"Very-High-Speed Integrated Circuits--Into the
Second Generation, Part 2: Entering Phase 1."
Military Electronics/Countermeasures, January 1982,
pp. 60-66.
Ministry of International Trade and Industry. The Vision
of MITI Policies in 1980s. Tokyo: Ministry of
International. Trade and Industry, 1980.
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National Academy of Engineering. Antitrust, Uncertainty,
and Technological Innovation. Washington, D.C.:
National Academy of Sciences, 1980.
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symposium sponsored by the National Academy of
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Organisation for Economic Co-operation and Development.
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Industrial Policies for Promising Activities: A
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Innovation Policy: Trends and Perspectives.
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International Implications of Government Support
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(S 2094). 97th Cong., 2nd Bess., 10 April
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Senate. Reciprocal Trade, Services and Investment
Act of 1982 (S 2071). 97th Cong., 2nd sess., 4
February 1982.
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Industrial Innovation, Final Report. Washington,
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with Projections for 1986. Washington, D.C.: U.S.
Government Printing Office, 1982.
Vanderheim, Robert M. "VHS:IC: Midterm Report on a
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March 1982, pp. 285-304.
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Biographies of the Panel Members
HOWARD W. JOHNSON, Chairman, is Chairman of the Corpo-
ration of the Massachusetts Institute of Technology.
An economist and an authority in management science,
Mr. Johnson joined the faculty of MIT in 1955 and was
appointed Dean of the Sloan School of Management in
1959. He became President of MIT in 1966 and served
in that capacity until 1971, when he was appointed to
his current position. Mr. Johnson serves as Director
of several major companies and as Director or Trustee
of several not-for-profit organizations.
HARVEY BROOKS is Benjamin Peirce Professor of Technology
and Public Policy at Harvard University. Dr. Brooks,
an educator and physicist, was formerly Dean of
Engineering and Applied Physics at Harvard. From 1959
to 1964, he was a member of the President's Science
Advisory Committee. Dr. Brooks is a member of the
National Academy of Sciences and National Academy of
Engineering and a senior member of the Institute of
Medicine.
ROBERT A. CHARPIE is President of the Cabot Corporation.
Before joining Cabot in 1969, Dr. Charpie was President
of the Bell & Howell Company, Chicago. From 1961 to
1968, he served in numerous management positions with
the Union Carbide Corporation. Dr. Charpie is a
physicist and a member of the National Academy of
Engineering.
RICHARD N. COOPER is Maurits C. Boas Professor of
International Economics at Harvard University. From
1961 to 1963, Dr. Cooper was a Senior Staff Economist
with the Council on Economic Advisers. He served as
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Deputy Assistant Secretary of State for International
Monetary Affairs from 1965 to 1966 and was Under
Secretary of State for Economic Affairs from 1977 to
1981. Dr. Cooper is a member of the Council on
Foreign Relations, and is the author of numerous
articles on economic policy.
ROBERT A. FULLER is Corporate Vice President of Johnson &
Johnson. Dr. Fuller, a biochemist, joined Johnson &
Johnson (Canada) Ltd. in 1955 as a research chemist.
He was named Director of Pharmaceutical Research in
1958 and Director of Research and Development in
1961. In 1966, Dr. Fuller was appointed Director of
Research and Development for Johnson & Johnson
Domestic Operating Company and became Vice Chairman of
Johnson & Johnson International in 1975. He was
appointed to his current position in 1981. Dr. Fuller
is a Fellow of the American Institute of Chemists and
a member of the Board of Directors of the Oak Ridge
Associated Universities.
RALPH E. GOMORY is Vice President and Director of
Research for the IBM Corporation. He is responsible
for IBM's research laboratories in Yorktown Heights,
N.Y.; San Jose Calif.; and Zurich, Switzerland. Dr.
Gomory joined IBM in 1959 as a research mathematician
at Yorktown Heights. In 1964 he was made an IBM
Fellow, a rank conferred on a small number of scien-
tists and engineers by ]:BM. In 1970 he was named
Director of Research and was elected a Vice President
in 1973. Dr. Gomory is a member of the National
Academy of Sciences and National Academy of Engineer-
ing. He is a Chairman of the Advisory Council of the
Department of Mathematics, Princeton University, and a
member of the Advisory Council, School of Engineering,
Stanford University.
NORMAN HACKERMAN is President of Rice University. Dr.
Hackerman joined the faculty of the University of
Texas, Austin, in 1944 and served as Chairman of the
Chemistry Department from 1952 to 1961 and President
from 1967 to 1970. Dr. Hackerman was Chairman of the
National Science Board from 1974 to 1980. He is a
member of the National Academy of Sciences and Defense
Science Board.
N. BRUCE HANNAY is the retired Vice President for
Research and Patents for Bell Laboratories. Trained
I
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as a chemist, Dr. Hannay's career with Bell Labs
spanned almost four decades. Dr. Hannay has served
extensively in an advisory role to academia and the
government. He currently is active in board and
consulting activities with a number of corporations.
Dr. Hannay is a member of the National Academy of
Sciences and serves as Foreign Secretary of the
National Academy of Engineering.
THEODORE M. HESBURGH has been President of the University
of Notre Dame since 1952. Father Hesburgh has served
on numerous commissions, including the Civil Rights
Commission (1957-1972); the Carnegie Commission on the
Future of Higher Education; and the Commission on an
All-Volunteer Armed Force (1970). He is a Trustee of
the Rockefeller Foundation, the Carnegie Foundation
for the Advancement of Teaching, and the Woodrow
Wilson National Fellowship Foundation and is Chairman
with rank of Ambassador to the U.S. delegation, U.N.
Conference on Science and Technology for Development.
In 1964, he was awarded the Presidential Medal of
Freedom.
WILLIAM R. HEWLETT is Chairman of the Executive Committee
and co-founder of the Hewlett-Packard Company. From
1969-1977, he was President, Chief Executive Officer,
and Director of Hewlett-Packard. Mr. Hewlett was a
member of the President's Science Advisory Committee
from 1966 to 1969 and is currently a Trustee and
Chairman of the Carnegie Institution of Washington.
He is a member of the National Academy of Sciences and
National Academy of Engineering and holds patents on
several electronic devices.
WILLIAM N. HUBBARD, JR., is President of The Upjohn
Company. Dr. Hubbard received his M.D. degree in 1944
and served as Dean of the University of Michigan
Medical School (1959-1970) and Professor of Internal
Medicine (1964-1970) before joining The Upjohn Company
in 1970. He was elected President of Upjohn in 1974.
Dr. Hubbard is a member of numerous medical honorary
societies and currently serves as a consultant to the
National Science Board.
SHIRLEY M. HUFSTEDLER is a Partner with the law firm of
Hufstedler Miller Carlson & Beardsley. Judge
Hufstedler was admitted to the California bar in 1950
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and served as Judge, Superior Court, Los Angeles from
1961-1966. In 1968, she was appointed Circuit Judge,
U.S. Court of Appeals. In 1979, President Carter
appointed her as Secretary of the Department of
Education. Judge Hufstedler is a Trustee of the
California Institute of Technology and the Aspen
Institute for Humanistic Studies.
ROBERT S. INGERSOLL served as Deputy Chairman of the
Board of Trustees for the University of Chicago from
1976 to 1981, following 4 years of service with the
Department of State, first as U.S. Ambassador to Japan
(1972 to 1973), then as Assistant Secretary for East
Asian and Pacific Affairs (1974), and finally Deputy
Secretary of State (1974 to 1976). Before his service
in Japan, Mr. Ingersoll spent 33 years with the Borg-
Warner Corporation. He was Chairman of the Board and
Chief Executive Officer of Borg-Warner at the time of
his appointment to Japan. In June of 1979, President
Carter apointed Mr. Ingersoll Co-Chairman (for the
United States) of the Japan-United States Economic
Relations Group. Mr. Ingersoll is a member of the
Council on Foreign Relations and is Chairman, Japan
Society, Inc.. (NYC).
CARL KAYSEN is the David W. Skinner Professor of
Political Economy and Director of the Program in
Science, Technology, & Society at the Massachusetts
Institute of Technology. Dr. Kaysen received his
Ph.D. in economics in 1954 and was a Senior Fulbright
research scholar at the London School of Economics
from 1955 to 1956. He served as Deputy Assistant to
President Kennedy for National Security from 1961 to
1963. Before joining the faculty at MIT, Dr. Kaysen
was Director of the Institute for Advanced Study
(1966-1976). Dr. Kaysen was also the vice Chairman
and Director of Research for the Sloan Commission on
Government and Higher Education from 1977 to 1979.
ALLEN E. PUCKETT' is Chairman of the Board and Chief
Executive Officer of the Hughes Aircraft Company and
has been in key management positions with the company
for nearly three decades. Prior to joining Hughes,
Dr. Puckett was a research associate in aerodynamics
at the California Institute of Technology, Technical
Consultant at the U.S. Army Ordnance Aberdeen Proving
Ground, and Chief of the Wind Tunnel Section for the
California Institute of 'Technology's Jet Propulsion
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Laboratory. He has served on numerous industry and
government committees, including the Defense Science
Board and the Aerospace Industries Association. Dr.
Puckett is a member of the National Academy of
Sciences and National Academy of Engineering and is
the author of several technical papers on high-speed
aerodynamics.
DAVID V. RAGONE is President of the Case Western Reserve
University. Dr. Ragone was a member of the faculty of
the Department of Chemical and Metallurgical
Engineering at the University of Michigan, Ann Arbor,
from 1953 to 1962. He joined the General Atomic
Division of General Dynamics as Chairman of the
Metallurgy Department in 1962 and was appointed
Assistant Director of the John J. Hopkins Laboratory
for Pure and Applied Science in 1965. In 1972, Dr.
Ragone returned to the University of Michigan to
assume the position of Dean of the College of
Engineering. Dr. Ragone is a member of numerous
professional engineering societies.
JOHN S. REED is a Vice Chairman of Citibank. Mr. Reed
joined Citibank in 1965 and was named Head of the
Consumer Services Group in 1974. In 1980, he was
appointed Senior Executive Vice President of
Citicorp/Citibank and was in charge of the
corporation's worldwide banking business with
individuals. He was appointed to his present position
in 1981. Mr. Reed is a member of the Corporation of
the Massachusetts Institute of Technology.
WALTER A. ROSENBLITH is Institute Professor at the
Massachusetts Institute of Technology. Professor
Rosenblith joined the faculty of MIT in 1951 as an
Associate Professor of Communications Biophysics and
was appointed Professor in 1957 and Institute
Professor in 1975. From 1971 to 1980, he served as
Provost of MIT. Professor Rosenblith was a member of
the President's Science Advisory Committee from 1961
to 1966. He is a member of the National Academy of
Sciences, the National Academy of Engineering, and the
Institute of Medicine and currently serves as the
Foreign Secretary of the National Academy of Sciences.
ROBERT M. SOLOW is Institute Professor at the
Massachusetts Institute of Technology. He joined the
faculty of MIT in 1949 and was appointed Professor of
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Economics in 1958 and Institute Professor in 1973.
Dr. Solow was Senior Economist for the Council on
Economic Advisers from 1961 to 1962 and a consultant
from 1962 to 1968. He has been a member of several
presidential commissions and is a member of the
National Academy of Sciences.
JOHN E. STEINER is Vice President for Corporate Product
Development for The Boeing Company. Since 1941, he
has been active in the technololgy, development,
design, testing, certification, product evaluation,
and program management of virtually all Boeing
airplanes. During his career with Boeing, Mr. Steiner
has served in numerous management positions, including
Design and Program Head of the initial 727 airplane
program (1960-1964). He has represented the air
transport industry through his many appointments and
congressional testimonies in the areas of R&D,
industrial productivity,, safety, regulations, airline
economics, and military procurement. Mr. Steiner is a
member of the National Academy of Engineering and the
Royal Aeronautical Society of Great Britain.
WILLIAM J. WEISZ is Vice Chairman of the Board and Chief
Operating Officer for Motorola, Inc. Mr. Weisz joined
Motorola in 1948 following receipt of a degree in
electrical engineering. He was elected a vice
President in 1961, President in 1970, and in 1972
became Chief Operating Officer. In 1980, he was
elected Vice Chairman of the Board, continuing as
Chief Operating Officer. In 1981, Mr. Weisz was
presented with the Electronics Industries
Association's highest personal recognition, the Medal
of Honor, for his outstanding contributions to the
advancement of the electronics industry.
LEONARD WOODCOCK served as Ambassador to China from 1978
to 1981 and Chief of Mission with rank of Ambassador
for the U.S. Liaison Office in Peking from 1977 to
1978. Mr. Woodcock was International Vice President
of the United Auto Workers from 1955 to 1970. He was
elected President of the UAW in 1970 and President
Emeritus in 1977.
I
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Commissioned Papers of the Panel
"Determinants of Market Share in International Semicon-
ductor Markets," by M. Therese Flaherty, Assistant
Professor, Graduate School of Business Administration,
Harvard University
"Industrial Policies and International Competition in
High Technology Industries," by Richard R. Nelson,
Director, Institution for Social and Policy Studies,
Yale University
"International Competition in High Tech Industries: A
Framework for Discussion," by Carl Kaysen, David W.
Skinner Professor of Political Economy and Director,
Program in Science, Technology & Society,
Massachusetts Institute of Technology
"Making U.S. Trade Policy: Government Organization,
Politics, and Interest Groups--A Survey," by Harold P.
Luks, International Trade Consultant
"Picking Winners: Who Wins?", by William Nordhaus,
Professor of Economics, Yale University
"A Presentation to the Panel on Advanced Technology
Competition," by Robert A. Swanson, President,
Genentech, Inc.
"Technological Innovation and Industrial Competition," by
William Perry, Partner, Hambrecht & Quist (Former
Under Secretary for Research and Engineering,
Department of Defense)
"U.S. Technological Leadership and Foreign Competition:
De Te Fabula Narratur?", by Nathan Rosenberg,
Professor of Economics, Stanford University
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"U.S. Trade Policy and Industrial Policies: Separate
Issues but. Related Problems Regarding U.S.
International Competitiveness," by Harold P. Luks,
International Trade Consultant
(Photocopies of the commissioned papers of the Panel on
Advanced Technology and the Industrialized Allies are
available from the Office of International Affairs,
National Academy of Sciences, 2101 Constitution Avenue,
NW, Washington, DC 20418.)
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Presenters
NAOHIRO AMAYA, Special Adviser to the Japanese Minister
of International Trade and Industry
JOHN COPELAND, Director, International Projects,
Motorola, Inc.
CLAUD GINGRICH, Trade Counsel, Subcommittee on
International Trade, Senate Finance Committee
MARVIN GOLDBERGER, President, California Institute of
Technology
ROBERT D. HORMATS, Vice President for International
Corporate Finance, Goldman, Sachs & Co. (Former
Assistant Secretary of State for Economic and Business
Affairs)
DAVID R. MACDONALD, Partner, Baker & McKenzie (Former
Deputy U.S. Trade Representative)
ALAN Wm. WOLFF, Partner, Verner, Liipfert, Bernhard, and
McPherson
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National Acadei~y Press
The National Acadenly Press was created by the National Academy of
Sciences to publish the reports issued by the Academy and by the
National Academy of Engineering, the Institute of medicine, and the
National Research Council, all operating under the charter granted to
the National Academy of Sciences by the Congress of the United States. ISBN 0-309-03379-9
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