manufactured products making up the bulk of that surplus. U.S. firms in a number of industries have faced formidable competition from Japan, and in the 1980s Japanese manufacturers solidified their export success with U.S. acquisitions and other direct investments. By the late 1980s, stagnant U.S. productivity growth, large trade deficits, and setbacks for U.S. high-technology companies in several global industries, combined with the rapid and marked success of Japan along these same parameters, gave rise to considerable concern and anxiety about the future among many Americans. The need for U.S. companies and the United States as a country to develop new ways to cope with the rise of Japan as an economic and technological superpower had become obvious and compelling to some.

Over the past few years, several factors have combined to produce a somewhat lower anxiety level in the United States regarding our economic and technological future and our standing relative to Japan. To begin with, the U.S. economy has enjoyed a cyclical recovery from the recession of the early 1990s at the same time that the Japanese economy has experienced its most prolonged economic recession since postwar reconstruction. In addition, a number of U.S. companies in industries that have faced intense pressure from Japanese competitors —such as automobiles and semiconductors—appear to have achieved significant turnarounds in terms of manufacturing prowess and product design.

However, large imbalances in U.S.-Japan technological and economic relations remain, as illustrated in Tables Table 3-1, Table 3-2, Table 3-3, and Table 3-4. Since these imbalances are caused by long-standing characteristics in the innovation and market systems of the two countries, it will likely require significant time and effort from both sides before imbalances are substantially ameliorated.

The U.S. innovation system, particularly since World War II, has been characterized by a number of interrelated structures and institutions that have served to establish and maintain U.S. leadership in basic science and technology development across a wide range of fields. 2 The main features of this system are (1) a high percentage of U.S. research and development (R&D) has been funded by the federal government during the postwar period (currently about 40 percent, but it has been as high as two-thirds); (2) a large proportion of this federal investment has been targeted at agency missions, with defense traditionally accounting for 50 percent or more; (3) in contrast to other countries, well over half of federally funded R&D has been performed in private institutions (primarily industry and universities) rather than in government laboratories; (4) while the proportion of funding devoted to basic, investigator-driven research in universities and private institutes is not large relative to the total federal R&D budget, the absolute amount is quite large, particularly in comparison with similar investments by other countries; and (5) new, start-up companies have played a major role in commercializing new technologies.3


For a concise overview, see David C. Mowery and Nathan Rosenberg, “The U.S. National Innovation System,” in Richard R. Nelson, ed., National Innovation Systems: A Comparative Analysis (New York: Oxford University Press, 1993), pp. 29-75.


For R&D funding and spending patterns, see National Science Board, Science and Engineering Indicators 1993 (Washington, D.C.: U.S. Government Printing Office, 1993), particularly Chapter 4. Although information necessary to make direct international comparisons of national government support for investigator-driven basic research is not available, U.S. government support for basic research performed in universities, nonprofits, and federally funded research and development centers administered by universities and nonprofits was about $8.5 billion in 1991, or roughly 14 percent of U.S. government R&D spending. Converted at market exchange rates, this would be equivalent to 45 percent of the Japanese government R&D budget and over 50 percent of the German government R&D budget.

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