Trade Study’s Rx: Good Stiff Shot of Reality
American business wants government help in meeting the high-tech challenge from Japan and other Asian countries. But American business doesn’t want the federal government to intervene very much in the free enterprise system to favor certain industries over others.
U.S. industry believes that the government should pursue a more aggressive trade policy. U.S. industry, however, opposes erecting trade barriers to foreign goods.
Confused? Don’t worry, you’re in good company. Most Americans--and that includes the business leaders surveyed by The Times and the Booz-Allen & Hamilton management consulting firm--are only beginning to grasp the various implications of being wedded to a global economy over which the United States likely will never again reign supreme.
One reason for the confusion is the mistaken belief that the health of the American economy depends on the United States remaining No. 1 in practically every industry. That’s an impossible dream. And attempting to pursue it, analysts point out, would ultimately prove self-defeating.
It does mean, though, that public policy and private industry need to create a climate where scientific innovation, quality education and business excellence in translating new technologies into competitive products can thrive.
Other Nations Catching Up
“Economic success,” said Erich Bloch, director of the National Science Foundation, “requires a well-developed and healthy science and engineering base--the people, institutions, equipment and facilities that make innovation possible.” And conversely, Bloch also noted, technological advancement is dependent on healthy economic policies that foster long-term investment.
For decades, the United States has enjoyed the most productive technological establishment on earth--an advantage that paid off in both unrivaled military strength and the highest standard of living in the world. It still does.
But other nations are inevitably catching up, with Japan leading the charge along a broad front of the high-technology battleground. The next decade of competition within the Pacific Basin promises to be even more intense than in the past.
The new era poses unprecedented challenges, not just for the United States but for Japan as well. With Japan having lost the advantage of lower wages while just about exhausting the possibilities of exploiting technology developed first in the United States and other Western countries, it faces the task of spurring innovations on its own. The United States, in contrast, is struggling to rebuild its manufacturing sector by focusing much greater attention on product quality and mastery of modern industrial processes--the foundations of Japanese success.
“Both the United States and Japan are discovering that they can’t rely on old formulas to ensure future success,” said Frank Press, head of the independent National Academy of Sciences. “We are observing that the two systems seem to be converging in some interesting ways.”
Reflecting this emerging convergence, the survey reveals the surprisingly similar attitudes of Japanese and American business executives on a range of public policy issues. At the same time, business leaders from many rapidly developing Asian economies frequently appeared to be at odds with their counterparts in Japan and the United States.
For instance, the overwhelming majority of business leaders in both the United States and Japan opposed any government operation or nationalization of industries to assist in developing new technologies. Indeed, both countries are moving away from government controls, with Japan, for example, selling the government-owned national telephone system to private investors to help NTT keep up with the rapidly changing telecommunications business.
In contrast, executives of other nations and Hong Kong are much more ambivalent about government takeovers, with one-third supporting at least some substantive industry nationalization and roughly half favoring that approach on occasion.
Some Like Incentives
Similarly, U.S. and Japanese firms share the same attitude toward government investment incentives, with each nation’s executives divided roughly down the middle over whether the government should provide substantial investment incentives for production facilities. Again by contrast, two-thirds of the Asian business leaders favored major government help from investment incentives.
But some important U.S.-Japan differences remain. About half the Japanese executives continued to support direct aid from the government to boost development of new technology--roughly similar to their Asian counterparts--while only 20% of the U.S. business leaders favored direct contributions in more than token amounts from the government.
Where the U.S. government should do much more, business leaders overwhelmingly agree, is in devoting more money and resources to improving the nation’s faltering educational system. The best American math and science students are unrivaled but that doesn’t apply to the broad range of young people in the classroom.
Lion’s Share for Military
Ranked against students around the world, a recent test showed that U.S. eighth-graders and high school students fell far short of their counterparts in Japan and Asia on mathematical abilities, the foundation of science and technology. Compared to students from 22 other countries, American students fell in the middle of the pack, but Japanese kids were at the head of the class, and students from Hong Kong and Korea were not far behind.
“I’m very concerned that our schools aren’t turning out people with the right kind of skills,” said Press. “Education is our weakest link. It’s our Achilles’ heel.”
While the U.S. commitment to research and development has soared in the past decade, officials are concerned that the growing emphasis on defense research does not provide the payoff that commercial innovation does. The federal government spends about $60 billion on R&D; annually, but 70% of that is devoted to military research, up from a 50% share only six years ago.
“People are still operating on the theory that military research has an enormous spillover to commercial applications. That’s fallacious,” said NSF’s Bloch. “If anything, we’re finding now that many new technologies really find their first application in commercial use.”
Bloch, who was a vice president at IBM before joining the government, argues that not only should commercial research support be increased, but also that the Pentagon should pay more attention to funding basic research with wider applications.
In contrast with the past, when nearly all government funding was devoted to basic research, officials are beginning to focus on projects that promise a more immediate payoff. The Commerce Department has helped launch more than 70 industrial R&D; consortiums and is also working to create about 20 model factories that would use flexible, computer-integrated technology to manufacture a wide range of products.
The federal government, said D. Bruce Merrifield, who supervises the Commerce Department’s efforts in this area, “should be non-interventionist. . . . But I do see government’s role as the pro-active agent of change that . . . provides specific incentives for the productivity-improving innovations.”
Surprisingly, some leading Japanese analysts are more optimistic about the renewed strength of the American industrial infrastructure than many U.S. academics.
Threat Could Diminish
“The postwar trend in direct investment, which saw U.S. capital flowing into Europe and Japan through the ‘50s and ‘60s, has been reversed,” Tadashi Nakamae, a Japanese economist who advises most of Tokyo’s giant financial institutions, said in the latest issue of the International Economy, a magazine based in Washington. “The U.S. is attracting more international capital, increasing its supply capacity at the expense of Japan and Europe. Industrial power clearly is shifting--toward America.”
If the nation can continue to boost overall investment to maintain the strong industrywide productivity gains of recent years, growing competition from abroad will pose less of a threat to the American economy.
“We don’t have a monopoly anymore, but that’s not necessarily bad,” said Dale W. Jorgenson, a Harvard economist who is one of the nation’s leading experts on technology and economic policy. “From here on out, the technology race can be a positive-sum game in which everyone will benefit from international competition.”
U.S. industry can’t afford to relax its efforts, though, if the nation is to remain as one of the leading participants in the race.
“Everybody’s waiting for another Sputnik to galvanize the nation, but the new Sputnik is here,” said NSF’s Bloch. “It may not go beep-beep over our heads, but the reality of international competition should be just as strong a warning signal. We can’t afford to fall behind because if you do, technology is moving so fast that it becomes extraordinarily difficult to catch up.”
