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OCR for page 1
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 protectionismr-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.
1
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2
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.
HISTORICAL EVOLUTION
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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3
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.
NATIONAL CAPACITY FOR INNOVATION
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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4
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.
MAINTAINING TECHNOLOGICAL STRENGTH
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.
GOVER~!ENT ' S ROLE
In the U.S. economy, institutional arrangements to foster
advanced technology operate primarily in the private
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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 come
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 alla, 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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6
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
trananational 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.
MANAGEMENT ' S RESPONSIBILITIE S
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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7
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.
ADVANCED TECHNOLOGY TRADE PRACTICES
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
n 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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8
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
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.
NEGOTIATIONS REQUIRED
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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9
only moderately successful, but such attempts should
continues 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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10
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.
C ONCLUSIONS
.
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 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
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11
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.
RECOMMENDATIONS
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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12
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 co Mete 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.
· 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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13
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.
Representative terms from entire chapter:
technological innovation
