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4 Capturing Benefits of Global Technical Advance: Policy Implications Most competitiveness studies of the past decade have focused on what U.S. industry, government, and universities need to do within the United States to improve the productivity, quality consciousness, and cost effective- ness of U.S. firms, thereby enabling them to compete more effectively with foreign firms at home and abroad. Three major implicit assumptions under- lie most of these studies: (1) the level of transnational technological interde- pendence is relatively low, that is, from the U.S. perspective, cross-border technology flows remain predominantly unidirectional out of the United States; (2) it is possible to distinguish one nation's technology, companies, products, and investments relatively neatly from those of its trading part- ners; and (3) the scope and impact of domestic and international policies remain relatively well delineated and discrete. The domestic policy recommendations of these studies have generally focused on ways to encourage more efficient and effective management of U.S. productive resources-human capital, technology, raw materials, phys- ical plant, capital, etc. International policy recommendations have tended to focus on issues regarding trade, intellectual property rights, and interna- tional standards while devoting little attention to issues raised by trans- national technology flows or foreign direct investment. During the past decade, however, the rapid advance of international tech- nological convergence and interdependence have recast the "competitive- ness" challenge to U.S. policymakers and the nation's technical community. Ten years ago it may have still made sense for U.S. lawmakers to focus attention almost exclusively on unilateral initiatives to strengthen the national technological base and open foreign markets to U.S.-engineered 71

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72 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY products and services. These measures, however, do not deal adequately with the high volume of intrafirm trade, foreign direct investment (both inward and outward), and extensive global technical networks that define the current international economic order. Nor is the traditional competitive- ness framework well equipped to deal with the changing character of com- petition among nations that has accompanied the globalization of tech- nology and industry. GLOBALIZATION OF ADVANCED TECHNICAL ACTIVITIES As the preceding chapters have shown, the globalization of advanced technical activities is a well-established trend driven by a number of power- ful economic, technological, and political imperatives. Indeed, there is con- siderable variation in the scope and character of globalization among indus- tries. The nature of each industry's technology, its product and production processes, the structure of its value-added chain, and the scale and scope of its market all play important roles in explaining interindustry variations. Likewise, the extent to which firms within a given industry have globalized their technical activities often varies significantly according to each firm's tenure in international markets, the size and openness of its home market, and the peculiarities of its historical development within a given national economy (see Appendix A). Nevertheless, the momentum and broad scope of the globalization trend are apparent. Today technological capabilities are much more widely distributed throughout the globe than they were 10 or 20 years ago. In this new multi- polar technological order, the activities of multinational corporations have contributed to the emergence of a transnational technology base in a grow- ing number of industries. As a result, it is becoming increasingly difficult to distinguish one firm's technology from another's or one nation's technology base from another 's. The economic and technological drivers of globalization are intimately linked. The diffusion of technological advance across national borders is rapid and accelerating. There are now multiple sources of technological advance dispersed throughout the globe. With the intensification of global competition, technology lifecycles are shortening in many sectors. This makes it increasingly difficult for firms to recoup investments in research and development, the costs of which have been spiraling upward in many industries. In this new environment, technological self-sufficiency is a pro- hibitively expensive luxury that almost no firm can afford. Moreover, tech- nological breakthroughs offer small prospect for enduring competitive advantage if they are not complemented by vigilance and vigor in the pur- suit of continuous product and process improvement and the reduction of product cycle time. To compete effectively in a global economy, corpora

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POLICY IMPLICATIONS 73 lions must be able to draw on the broadest possible range of technical capa- bilities worldwide, exploiting the special competencies and demands of many different national markets through foreign direct investment, trans- national corporate alliances, and trade. In short, corporate survival in an era of intense global competition and internationally dispersed technical capa- bilities demands global corporate strategies and conduct. The political imperatives of globalization are equally compelling. Many countries, developed as well as developing, are not willing to accept the cur- rent international division of labor. It is only natural that nations should aspire to higher levels of technical competence and the higher productivity and wealth-generating capability that are associated with high-tech or tech- nology-intensive industries. In consequence, many countries have devel- oped policies designed to persuade or compel multinational corporations to locate a greater share of their production and other advanced technical activ- ities within their borders. For example, local content requirements and other nontariff barriers to trade make it virtually impossible for a firm to penetrate certain foreign markets except through foreign direct investment, joint ventures, or other technology-transfer or production-sharing arrange- ments. THE CHANGING CHARACTER OF COMPETITION AMONG NATIONS The competition for economic and technological advantage among nations has intensified, not lessened, with the globalization of industry and corresponding growth of international economic interdependence. Governments have long intervened in their domestic economies in an effort to increase the productivity and international competitiveness of firms oper- at~ng, if not originating, within their borders. However, as more and more countries have come to recognize the importance of technological advance for economic growth and competitiveness, the quest for economic advan- tage among governments has come to focus more intensively on creating a domestic environment that is conducive to the development, adoption, adap- tation, and diffusion of advanced technology by private companies for com- mercial advantage. In this new competition, governments have, for the most part, eschewed the traditional, more transparent instruments of economic statecraft, such as tariffs and quotas. However, they continue to compete fiercely, if indirectly, to attract the resources and wealth-generating potential of private corpora- tions through more subtle "domestic" policy mechanisms such as subsidies, tax credits, deregulation, domestic content legislation, public procurement, or other public policies designed to strengthen their domestic economic or technical infrastructures.

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74 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY It is important to recognize, however, that in policy areas where no internationally accepted rules apply, competition for economic advantage among nations is by nature "unfair." Some nations are better at absorbing the technology of others or are more adept at closing their markets to for- eign competition. National "unfair" advantages may stem from specific policies or from "structural" differences, such as legal, institutional, or cul- tural characteristics. In any event, these national differences in industrial organization and political economy raise issues of equity-reciprocal access to national markets and technical resources, or the problem of "free-riders" on the global research base- that are bound to become more and more polit- ically contentious as the globalization trend gathers momentum. To deal effectively with the domestic and international political friction generated by the global integration of national or regional technology mar- kets, national governments are being called upon to negotiate sovereignty in areas of public policy traditionally viewed as exclusively matters of domes- tic concern. The changing corporate strategies of multinational corporations and the rapid growth of international economic and technical interdepen- dence underline the fact that the neat dichotomy of domestic and foreign policies the distinction between policy areas that are "legislated" domesti- cally and those that are "negotiated" internationally is breaking down. Domestic regulations regarding competition, health, safety, and the envi- ronment, fiscal and monetary policy, and a broad spectrum of science and technology policies, all are forcing their way onto the international negotiat- ing table despite the protestations of national governments. International variations in the regulation and enforcement of competition or antitrust poli- cy, for example, affect the relative accessibility of national markets to for- eign trade or investment. The Japanese keiretsu (cartel-like industrial groups), which are considered major barriers to foreign corporate entry into the Japanese home market and sources of potentially anticompetitive oligopoly power in global markets, clearly would not be tolerated under U.S. or European antitrust law. On the other hand, the regulatory maze that foreign firms in search of U.S. acquisitions are compelled to negotiate in the United States in industries such as insurance is also an impediment to cross- border investment and corporate activity. Similarly, international variations in health and safety policies, tax policies, or environmental standards influ- ence cross-border flows of goods, capital, technology, and people in com- plex, yet significant, ways. Indeed, the expanding scope of multilateral negotiations within the European Community and the General Agreement on Tariffs and Trade (GATT), and bilateral negotiations such as the U.S.- Japan Structural Impediments Initiative, all reflect the fact that "domestic" issues have become virtually inseparable from the established international policy debates concerning international trade and investment.

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POLICY IMPLICATIONS 75 IMPLICATIONS FOR THE UNITED STATES The rapid growth of international technological and economic interde- pendence in recent years poses a number of major opportunities and chal- lenges to the United States. As the preceding chapters have suggested, in many respects the United States is well positioned to benefit disproportion- ately from the positive-sum dynamic of globalization. The sheer size, tech- nical sophistication, and relative openness of the U.S. market, the superiori- ty of the U.S. basic research enterprise and national information technology network, the country's large pool of technical talent, and the overall attrac- tiveness of the American sociopolitical system are all tremendous sources of national strength in the emerging global economy. Nevertheless, as we have seen, the ability of the United States to take full advantage of and capture a fair share of the benefits of the emerging global technical enterprise is challenged by a number of factors and forces origi- nating both within and beyond the nation's borders. For more than half a century, the United States has been the world's dominant and most autonomous technological power. During this period, the competitive strength of the U.S. industrial base was generally understood to be the prod- uct of the superior R&D capabilities and the advanced product and process technology of U.S.-owned corporations. Technical leadership, along with abundant capital and extensive experience with large-scale distribution sys- tems, was thought to compensate for relatively high U.S. labor costs. The lessons learned by the United States during its era of unrivaled tech- nical supremacy have become singularly dysfunctional as the technology and income gaps between the United States and its trading partners have closed. To be sure, the United States remains the world's premier source of science and technology, excelling particularly in research and the applica- tion of sophisticated information technology to the integration of complex systems. Furthermore, the U.S. economy is arguably still less dependent on foreign technology than any other industrialized country. However, since the mid-1970s the rapid penetration of the U.S. domestic market through foreign direct investment and trade, the growing globalization of the advanced technical activities of U.S. multinational corporations, and the concurrent loss of world market share and relative technical capability by numerous U.S.-based industries have underscored the limitations and vul- nerabilities of the U.S. technical enterprise in its present state. The last two decades have shown that abundant scientific and technical resources and production of new knowledge or "cutting edge" technology by themselves do not add up to commercial success. For all of its pro- nounced advantage in research and invention, the U.S. technical enterprise as a whole has demonstrated considerably less aptitude than its Japanese

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76 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY counterpart in the rapid adoption, adaptation, and diffusion of technology for commercial gain. Furthermore, it is apparent that U.S. citizens and U.S.- based companies are, for the most part, relatively poorly equipped organiza- tionally, financially, culturally, and educationally to take advantage of new technology, domestic or foreign, originating outside of their own depart- ment, division, or firm. Clearly, not all of the challenges facing the United States in this regard are domestic in origin. The lack of international consensus or rules with regard to high-tech trade, foreign direct investment, antitrust policy, or the host of increasingly international-formerly "domestic" policy issues makes it increasingly difficult for U.S. and foreign legislators to resist the protectionist backlash that accompanies most structural adjustment and eco- nomic change. POLICY DIRECTIONS One major conclusion emerges from this study. The globalization of technology and industry has radically altered the nature of the industrial competitiveness debate. In this new global environment, the highest pri- ority for strengthening the technological foundations and thereby the long-term wealth-generating capacity of the U.S. economy must be to make the United States a more attractive and advantageous place for individuals, companies, and other institutional entities, regardless of national origin, to conduct the full complement of technical activities critical to the nation's long-term prosperity and security. To accom- plish this, the United States must develop the necessary human, finan- cial, physical, regulatory, and institutional infrastructures to compare more advantageously with other nations in attracting the technical, managerial, and financial resources of globally active corporations or intlivitluals. All sectors of U.S. society-industry, government, and both basic and higher education-have important roles to play in this effort. The commit- tee has focused primarily on public policy implications, but it does not believe that public policies are the only or even the most important determi- nants of national or corporate technical strength and competitiveness. Rather, the study's public policy focus has been shaped by the fact that the public sector is groping to formulate and implement a national agenda that can address the imperatives of a highly integrated global economic and technological order. The government must take action on many fronts to strengthen the foun- dations of the U.S. technical enterprise-the nation's work force, its social capital (i.e., educational system and public infrastructure), as well as its fis- cal and regulatory environment. Above all, state and federal policymakers

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POLICY IMPLICATIONS 77 must work together with corporate and academic leaders to develop a broad national consensus regarding the need to improve technology development, adoption, adaptation, and diffusion throughout the U.S. industrial economy. This consensus, in concert with other national poli- cies, can provide the necessary impetus, coherence, and operational guidelines for the many diverse private and public policy actions required to meet the challenges of globalization. Given the relative strengths and weaknesses of the U.S. technical enter- prise and inherent challenges and opportunities of the emerging global tech- nical enterprise, the following domestic and international policy directions represent, in the judgment of the committee, essential elements of a broad national technology strategy for the United States. Domestic Policy Directions It is imperative that the United States continue to build on the compara- tive strengths of the nation's technical enterprise its research capabilities; its system of advanced technical education; its large pool of elite technical talent; and its extensive, sophisticated information technology infra- structure. These comparative advantages find expression in continuing U.S. commercial leadership in highly science-intensive industries or industries in the infancy of their technology life cycle. Largely as a result of their exten- sive research activities, U.S. universities are able to provide critical high- quality human and intellectual inputs to many high-technology industries, most of it to U.S.-owned and U.S.-based firms. Because of its strength, the U.S. research enterprise has served as a magnet to foreign talent and foreign investment, both of which have contributed substantially to U.S. economic growth and prosperity in recent decades. Finally, the apparent trend in many industries toward a technological future that is increasingly science- based suggests that proximity to U.S.-based research capabilities and this country's superior information network will become increasingly important for domestic- and foreign-owned corporations alike. In this context it is cause for concern that the efforts of U.S.-based indus- try in basic and long-range applied research appear to have faltered in recent years. From 1974 to 1984, U.S. industry spending on basic and applied research grew at average annual rates of 23 and 27 percent, respec- tively. Yet between 1984 and 1989 the average annual rate of growth of corporate spending on basic research had fallen to 4 percent, while that for applied research dropped to 6 percent. A prolonged decline or stagnation in basic and long-term applied research in the private sector is almost certain to have negative long-term consequences for the technical strength and competitiveness of U.S.-based companies. Among other things, without a vital and expanding R&D effort, U.S.-based companies will find it increas

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78 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY ingly difficult to exploit the R&D efforts and capabilities of their foreign competitors, let alone enter into mutually beneficial technical alliances with them. Therefore, the committee believes it is essential that the federal government continue to help foster increased basic and long-term applied research by the private sector. Policy Initiatives to Enhance Technology Adoption, Adaptation, and Diffusion Nevertheless, the past two decades have also demonstrated for a broad range of manufacturing and service industries that as new knowledge flows more freely across national borders, the ability of a nation or a firm to exploit research results for commercial advantage depends increasingly on mastery of downstream technical activities associated with product and process development and production more generally. This trend is particu- larly troublesome for the U.S. technical enterprise, whose comparative weakness is most pronounced in the areas of product and process tech- nology development, adoption, adaptation, and diffusion weaknesses that find clear expression in the performance of many U.S. manufacturing indus- tries, particularly where the pace and direction of technological advance are less dependent on basic research or less prone to revolutionary technical breakthroughs. The relative decline in the ability of U.S. citizens to derive commercial benefits from an increasingly cosmopolitan technology base underlines the need for U.S. educators, industrialists, and policymakers to direct greater attention and resources toward the "relearning" of the less prestigious, yet equally vital, activities of technology adoption and adaptation. These are competencies, after all, that are closely associated with the production of goods and services in which the United States excelled from the late l8OOs well into the mid-19OOs. By highlighting these national vulnerabilities, the process of globalization has lent greater urgency to oft-repeated calls for public and private initiatives to bolster the nation's production engineering capabilities and its overall manufacturing base. Current federal science and technology policies are targeted toward basic research and "mission-oriented" technology development, mainly in the areas of national defense, public health, and space exploration areas gen- erally accepted as primary responsibilities of the federal government. While building on the comparative strengths of the nation's technical enterprise, this policy orientation neglects pressing national vulnerabilities that have less to do with an inability to create new technology than with a failure to adopt and adapt existing technology effectively for commercial benefit. Therefore, the committee recommends that policymakers expand sup- port for diverse initiatives at the federal, regional, and state levels to

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POLICY IMPLICATIONS 79 enhance the adoption, adaptation, and diffusion of industrial tech- nology and related know-how. Recent U.S. experience has demonstrated that low-cost, pragmatic state and federal policy initiatives can support pri- vate-sector progress in these areas. The National Science Foundation's Engineering Research Centers, Ohio's Thomas Edison Program, Pennsylvania's Ben Franklin Partnership Program, the Southern Technology Council, or the Industrial Technology Institute are promising means for pro- viding public support for a diverse set of initiatives and selectively broaden- ing the application of those that prove most successful (see National Academy of Engineering, 1990; National Governors' Association, 1988; National Research Council, 1990; Pennsylvania Department of Commerce, 1988). A New Approach to Generic Technology Development The intensification of international technological competition and inter- dependence underlines the need for the United States to develop a broader approach to the development and diffusion of commercially significant generic technologies. Such technologies involve concepts of design, fabri- cation, and quality control applicable to a class of products for which (a) the anticipated returns from development and commercialization cannot justify the expense and risk of investment by single firms or joint ventures, and (b) the returns to the economy and society as a whole warrant investment by the federal government. In addition, there may be areas in which national mili- tary strategic considerations make unacceptable the loss of U.S. technology position or market share. Promotion of commercially significant generic technologies need not require major investments in research and development programs. Indeed, obstacles to the diffusion of such technologies may be more important than any obstacle to their development. To be sure, significant public and private investment may be required in certain cases, as in the development of a new generation of semiconductors, when the cost of technological advance is so high, the time scale of technology development is so long, and the ability of any one firm to benefit from such large investments is so low or unpre- dictable that no few is willing to take the risk. For other generic technolo- gies, however, development costs may not be high-or the technology may already be available-yet there may be serious economic, regulatory, or cul- tural obstacles to the adoption, adaptation, and diffusion of the technology either within or across industries. For example, "total quality control" methods, computer-aided design, advanced construction techniques, and just-in-time production systems are all generic technologies that might fall into this category. Given the current extent of global technological interdependence and the

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80 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY relative strengths and weaknesses of the U.S. technical enterprise, a new, more inclusive approach to the development and diffusion of commercially significant generic technologies is needed. To begin with, such an approach should complement the development or relearning of specific technologies and technical competencies by U.S.-based firms with much more aggressive and methodical efforts at tracking and exploiting relevant foreign technical and managerial capabilities. Admittedly, the best way for the nation to assimilate new technologies or learn new ways to manage product and proc- ess technology development more efficiently and effectively is for corpora- tions based within its borders to scale the learning curves associated with the relevant technologies themselves. In other words, these are technical competencies better acquired actively than passively through the acquisition of "off-the-shelf' product or process technologies. This does not, in itself, argue against the participation of foreign-owned firms in the national tech- nology regeneration process. On the contrary, given the high level of tech- nical and managerial competence demonstrated by foreign firms in any number of high-, medium- and low-tech industries, it is all the more urgent that the U.S.-based corporations improve their ability to identify and draw on significant technical and managerial innovations, whatever their origin, in a more timely manner. This can be accomplished through arm's-length transactions technology licensing, technology tracking, or transnational managerial and technical personnel exchanges-or by encouraging foreign firms to participate in consortia or other collaborative arrangements. Second, a more inclusive approach to generic technology development should recognize that the indirect benefits of public investments in generic technology development are frequently as beneficial to U.S. national inter- ests as the specific technical processes or products that might result from such ventures. Potential by-products of collaborative public-private generic technology programs include the cultivation of local or regional technical networks; the resulting diffusion of "best practice" technical, managerial, and organizational capabilities; and the enhanced intercorporate organiza- tional learning that enables participating firms to translate related technolo- gies into commercial products rapidly and effectively. In this context, public policies in support of generic technology should be more attentive to the broader economic and regulatory factors that might amplify or diminish the direct and indirect benefits of generic technology programs. Such factors include the quality and quantity of human, finan- cial, and physical capital; the health of the local, regional, or national sup- plier and customer bases; and the nature and extent of competition within the affected industry sectors. In other words, targeted policy initiatives should be better coordinated with and balanced by efforts that ensure the availability of the complementary resources necessary for U.S.-based corpo- rations to profit from the output of more focused generic technology efforts. These efforts would not prevent the benefits of publicly funded precompeti

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POLICY IMPLICATIONS 81 live research from flowing to foreign-based corporations; however, they would help ensure that U.S.-based firms are better equipped to capture their fair share of the commercial returns. There is at present considerable debate regarding the proper government role in support of generic technologies. In the opinion of the committee, the primary role of government should be as convener and catalyst of activities undertaken in the private sector. In some cases this may involve federal matching of a significant amount of private funding. However, in most instances the government should be prepared to serve as the "pathfinder," providing more indirect fiscal or regulatory support to private-sector partici- pants. Ultimately any effort to provide government support for the develop- ment and diffusion of generic technology in the United States will depend on the credibility of the public and private institutional mechanisms desig- nated to assess and identify those technologies most in need of attention and to chart an appropriate policy response. The committee notes that there have been several attempts by federal agencies to identify "critical" tech- nologies in recent months, most notably by the departments of Commerce (1990) and Defense (19904. The mixed reception of these efforts in the U.S. policy community, however, emphasizes that institutions that perform this function should be perceived as technically expert, responsive to the inter- ests of all U.S. citizens-consumers, producers, and suppliers and predis- posed to operate in a manner consistent with emerging global economic and technological realities. In summary, U.S. public policy should acknowledge the need for a stronger public role in support of generic technological capabilities for the benefit of the nation, and establish credible mechanisms for trans- lating this commitment in principle into specific actions. The Issue of National Treatment The rapid increase in foreign direct investment in U.S. technology-inten- sive manufacturing and service sectors and the extensive involvement of U.S.-based firms in transnational technical alliances has blurred the distinc- tion between "U.S. firms" and "foreign firms" to the point that it has become nearly impossible for the government to find purely "indigenous" corporate partners with which to pursue national industrial, technological, and economic objectives. In light of the current contribution of foreign cor- porations to U.S. economic growth and technological strength and the trans- national character of many U.S.-owned companies' technical activities, is seems only appropriate that public sector assistance to, or collaboration with, private corporations (domestic or foreign) in pursuit of national objec- tives should be governed by common standards for the corporate role in the U.S. economy.

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82 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY It is perfectly reasonable and correct for the federal government to expect and require all corporations that benefit from access to the U.S. market or participate in publicly supported technology initiatives to demonstrate good corporate citizenship, that is, to abide by their host government's laws and regulations. Furthermore, it is entirely appropriate that policymakers charged with advancing the interests of all U.S. citizens should develop cri- teria consistent with that charge regarding corporate participation in any venture involving public funds or legal exemptions. However, in a global economy with globally active corporations, corporate nationality is a poor measure of a f~'s real or potential contribution to the U.S. economy. This is not to say that the issues of corporate ownership and control have become totally irrelevant to the pursuit of national economic and technology interests. There may be circumstances in which the U.S. government should discriminate against foreign-owned firms temporarily to achieve reciprocal equitable "national treatment" of U.S. companies doing business overseas or to safeguard national security. Nonetheless, recent growth in foreign techni- cal capabilities and international technological interdependence suggest that as U.S. lawmakers assess the relative costs and benefits of discriminatory policies, they should attach greater weight to the many benefits U.S. citizens derive from foreign participation in the domestic market through increased employment, real wages, technology transfer, and competition. In sum- mary, public policy initiatives that seek to strengthen the nation's com- mercial technology and industry base should be guided by the extent to which a corporation genuinely contributes to the national economy. With rare exceptions such policies should not discriminate among cor- porations on the basis of nationality of ownership or incorporation, provided there is sufficient reciprocity in the large. improving the Nation's Work Force and Economic infrastructure The globalization of technology and the intensification of competition among firms and nations impart a new sense of urgency to long-standing recommendations regarding state and federal government support for mod- ernizing and improving the quality of the nation's human and social capital (Council on Competitiveness, 1988; National Academy of Engineering, 1988a, 1988b; President's Commission on Industrial Competitiveness, 19851. Clearly, new or more technology by itself will not generate the wealth or productivity increases necessary to increase the standard of living of U.S. citizens and strengthen U.S. national competitiveness. These objec- tives demand that the United States devote greater attention to the social and human capital that supports the technological capabilities and commercial vitality of corporations based or operating within U.S. national borders.! Government has a critical role to play both directly, through public invest

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POLICY IMPLICATIONS 83 ment in the nation's educational system and physical infrastructure, and indirectly, through leadership in encouraging industry and universities to become more involved in efforts to improve the quality of the U.S. work force. Similarly, government plays an important role in creating a fiscal and regulatory environment that will encourage private industry to make invest- ments in plant, equipment, and organizational learning that will enable it to adopt, adapt, and create value from technological advances. Therefore, the committee urges state and federal governments to redouble their efforts to modernize and strengthen the nation's work force and public infra- structure, and to encourage private industry to modernize its plant and equipment. Technical Competence in Government The development and commercialization of technology are not a discrete policy issue, but an integral part of many broader areas of domestic and for- eign policy. Until recently, there has been insufficient appreciation across agencies of the implications that various policy initiatives hold for science and technology. There has been even less communication and cooperation among those responsible for formulating and implementing domestic and foreign policies that bear on the health of the nation's commercial tech- nology base. This situation argues for expanding agencies' recruitment of technically competent personnel to formulate and implement domestic and international economic policy; it also points up the need for greater organi- zational focus at the national level on the policies affecting commercial development and application of technology. The committee notes with guarded optimism the positive steps taken by the current administration to provide more organizational focus through the President's Science and Technology Adviser, recently elevated to the posi- tion of Assistant to the President, the President's Council of Advisers on Science and Technology, the Office of Science and Technology Policy, the newly created Office of Technology Policy in the Department of Commerce, and Commerce's National Institute of Standards and Technology. These bodies clearly have the potential for improving intragovernmental commu- nication and coordination across a range of domestic and international poli- cy areas related to technology and economics. Ultimately, it is of secondary importance whether the necessary organizational focus is located in a single independent agency (existing or to be created) or finds expression in more institutionalized interaction among the many agencies and committees that currently influence the nation's technology base. What is critical is that those seeking to develop greater organizational focus acknowledge the growing synergies between what have traditionally been viewed as discrete policy areas.

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84 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY In summary, the committee recommends that the federal govern- ment devote greater attention to the technological dimensions of international trade, investment, competition, and other critical issues not traditionally associated with science and technology concerns. To this end, government should seek to cultivate greater technical expertise in agencies responsible for domestic and international economic policy and to improve interagency communication and coordination regarding science and technology issues. International Policy Directions The increasingly global character of corporate technical activities has made it essential that policies aimed at developing and better managing the nation's technical endowments be outward looking-consistent with an international policy framework that fosters and structures technological competition, cooperation, and exchange among nations and firms. Ultimately, the nation's ability to capture a fair share of the benefits of the global technical enterprise will depend primarily on the extent to which pri- vate corporations operating within its borders seize the opportunities pre- sented by the emerging global technology base. Their success or failure, however, will be conditioned by the extent to which U.S. policymakers rec- ognize the interdependence of domestic and international policies that influ- ence technology development, diffusion, and commercialization. In foreign relations, there are a number of things the United States can do to complement domestic efforts, promote more reciprocal technical exchange, and attenuate tendencies toward technology-based protectionism. There is an obvious need for continued efforts to liberalize world trade as well as greater public and private involvement in the international standards- setting process, and in the quest for a more effective international intellectu- al property rights regime. Yet, these high-profile concerns are distracting policymakers from equally important issues raised by the rapid growth of foreign direct investment and transnational corporate alliances and technical networks over the past decade. From the perspective of the U.S. technical enterprise, one of the important challenges to U.S. foreign economic policy relates to national disparities in the treatment of foreign direct investment and competition policy. Mutual Obligations of Multinational Corporations and Governments In an effort to improve the nation's trade balance, and to respond more forcefully to a lack of reciprocity overseas, some recent U.S. legislation raises issues related to the free flow of foreign direct investment and to the treatment of the subsidiaries of foreign-owned corporations.2 The rapidly

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POLICY IMPLICATIONS 85 increasing foreign penetration of the U.S. economy in the past two decades has stimulated concern among many segments of the American electorate. Furthermore, the discriminatory treatment of U.S.-owned corporations appears to be a fact of life in Japan and to be increasing in Western Europe as the countries of the European Community search for ways to come to terms with intensifying global competition and the consequences of EC 1992. Nevertheless, discriminatory policies are not consistent with global economic and technological realities and may be counterproductive in the long run. In the committee's judgment, such policies would be detrimental to U.S. national interests. Given the extent of U.S. global technological interdependence, and the many contributions of the U.S. subsidiaries of for- eign firms to the U.S. economy and technical enterprise, it is particularly important that the U.S. market remain open to foreign direct investment and that, as far as possible, such open-market policies be reciprocal. The committee recognizes that there are many troubling issues raised by the recent growth in foreign control over U.S. industrial assets and the extent to which foreign multinationals draw upon the U.S. research enter- prise. It does suggest, however, that it is time for a more multilateral approach to foreign direct investment-an approach that acknowledges the pervasive character and positive contributions of foreign direct investment while seeking to define mutually beneficial "rules of the game" for both transnational corporations and their home and host countries. Good corpo- rate citizenship is becoming ever harder to define as the operations of U.S. and foreign-owned firms become increasingly transnational. Such an effort would do much to reduce tendencies toward technology-oriented protection- alism as well as expand international technology exchange. Therefore, the committee urges the United States to seek more aggressively to forge multilateral consensus on the mutual obligations of multinational cor- porations and their home and host governments. Greater Uniformity in Antitrust Policy at the International Level There is mounting pressure on public policymakers throughout the indus- trialized world to revise or reinterpret national antitrust law or competition policy to fit the realities of global competition and avoid disadvantaging their indigenous firms in the global marketplace. Nevertheless, in the con- text of the current surge of world foreign direct investment and the prolifer- ation of transnational corporate alliances and mergers, often in already high- ly concentrated industries unilateral approaches to antitrust regulation and enforcement pose two major hazards. On the one hand, the relaxation of antitrust requirements by the world's leading economies may increase opportunities for monopoly abuse in cer- tain industries and actually impede technical advance. Although there is at

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86 NATIONAL INTERESTS IN AN AGE OF GLOBAL TECHNOLOGY present little evidence of anticompetitive behavior in manufacturing and ser- vice industries at the international level, the establishment of alliances among former competitors in certain industries and the rising barriers to market entry in several industries as a result of the spiraling cost of techni- cal advance create an environment in which the threat of anticompetitive behavior is increasingly credible. Despite the potential, if not proven, bene- fits of interf~rm cooperation and collaboration, it is essential that we not lose sight of the fact that competition is a major driver for technical advance and structural adjustment. On the other hand, there is growing evidence that national competition or antitrust laws are becoming significant obstacles to cross-border mergers and acquisitions that do not undermine competition. Such policy-induced impediments to international competition in the name of enhancing compe- tition may also be harmful to technical advance arid economic growth. Both the danger of anticompetitive abuse by global companies and the costs of protectionist antitrust regulation underline a growing need for greater international cooperation in antitrust policy. Discussions currently under way within the multilateral forums of the GATE and the Organization for Economic Cooperation and Development on this issue warrant greater attention and resolve from all industrialized nations, including the United States. In summary, U.S. policymakers should strive for greater unifor- mity in antitrust policy at the international level. NOTES Research by Munnel (1990) suggests that public infrastructure is as important as the knowledge stock in stimulating productivity growth. 2. Consider, for example, the Exon-Florio amendment to the Omnibus Trade and Competitiveness Act of 1988, or the spate of bills currently pending in Congress, includ- ing the American Technology Preeminence Act (H.R. 4329), Technology Corporation Act of 1990, and others that seek to spell out in legislation specific "special" requirements for foreign-owned or foreign-controlled firms' participation in publicly funded research and development initiatives. REFERENCES Council on Competitiveness. 1988. Picking Up the Pace: The Commercial Challenge to American Innovation. Washington, D.C.: Council on Competitiveness. Munnel, Alicia H. 1990. Why has productivity growth declined? Productivity and public investment. New England Economic Review. (Jan-Feb):3-22. National Academy of Engineering. 1988a. Focus on the Future: A National Action Plan for Career-Long Education for Engineers. Washington, D.C.: National Academy Press. National Academy of Engineering. 1988b. The Technological Dimensions of Inter- national Competitiveness. Committee on Technology Issues That Impact International Competitiveness. Washington, D.C.

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POLICY IMPLICATIONS 87 National Academy of Engineering. 1990. Assessment of the National Science Foundation's Engineering Research Centers Program. Washington, D.C.: National Academy Press. National Governors' Association. 1988. State-Supported SBIR [Small-Business-Innovation- Research] Programs and Related State Technology Programs. Marianne K. Clarke, Center for Policy Research and Analysis. Washington, D.C.: National Governors' Association. National Research Council. 1990. Ohio's Thomas Edison Centers: A 1990 Review. Commission on Engineering and Technical Systems. Washington, D.C.: National Academy Press. Pennsylvania Department of Commerce. 1988. Ben Franklin Partnership: Challenge Grant Program for Technological Innovation Five Year Report. Board of the Ben Franklin Partnership Fund. Harrisburg, Pa.: Pennsylvania Department of Commerce President's Commission on Industrial Competitiveness. 1985. Global Competition: The New Reality. Washington, D.C.: U.S. Government Printing Office. U.S. Department of Commerce. 1990. Emerging Technologies: A Survey of Technical and Economic Opportunities. Office of Technology Administration. U.S. Department of Defense. 1990. Critical Technologies Plan. Prepared for the Committees on Armed Services, United States Congress. March 15.

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