U.S. Competitiveness and New TVs

High-definition television has become a high-definition issue in U.S. policy circles. Congressional and business leaders have seized upon HDTV as an opportunity to rebuild American competitiveness. But before we rush headlong into developing a national policy for HDTV, it might be useful to address two important questions.

First, what are the links between American participation in HDTV and American competitiveness?

Second, how are we to define American participation? For the nation to benefit from the economic opportunities HDTV offers, must we use technology exclusively developed, produced and licensed by U.S.-owned companies? Or will production by foreign firms operating in the United States have comparable beneficial effects?

To answer these questions, we must begin with the fact that the U.S. television industry is no longer solely or even predominantly domestic. Of the firms producing television sets in the United States today, six are Japanese, two are European and four are South Korean. The sole remaining domestic producer is Zenith, with only 12% of domestic sales, and even this “domestic” company produces at least half of its television output abroad.

Moreover, foreign firms not only account for the lion’s share of the U.S. market--they are also the undisputed leaders in color television technology and they have a substantial head start in HDTV development.

To many, the loss of the American television industry to foreign competitors and America’s lagging position in HDTV are symbols of the nation’s eroding competitiveness. Therefore, policies to guarantee a share of HDTV markets to U.S. producers seem tantamount to policies to guarantee the nation’s economic survival.

Such symbolism is misleading. A case can be made for a national policy for HDTV, but the restoration of national competitiveness doesn’t qualify. America’s competitive position has not weakened because of problems specific to the television industry or to any other single industry. Rather, the American position in HDTV and other high-technology areas is weak owing to complex factors, including low rates of saving and investment, the high cost of capital, the pervasive shortsightedness of American business, the deficiencies in our educational system and insufficient public and private support for commercial research and development.

This environment has invited a competitive assault on many American industries. Unless we are prepared to address the fundamental problems, specific policiesto promote the American television industry--or any other industry--are doomed to failure.

This is not to deny that HDTV presents genuine economic opportunities. It is certain to become big business over the next two decades. If the United States fails to participate in HDTV production, as it failed to participate in the production of videocassette recorders, major output and employment opportunities will be lost, and the trade balance in consumer electronics will plummet even further.

Failure to participate in HDTV will also have negative spillover effects throughout the electronics industry. HDTV will provide a growing market for more sophisticated semiconductors as well as larger, more advanced video displays. Solutions to the problems of image and digital signal processing for HDTV will also apply to fast displays of color images on advanced computer workstations. Consequently, producers of high-resolution displays for HDTV are likely to gain a competitive edge in the computer industry. Finally, HDTV may speed the development of a national broad-band telecommunications network based on optical fibers.

Such spillover effects offer economic opportunities and potential economic jeopardy: If the United States misses out on HDTV production, it may suffer further losses in its already embattled semiconductor industry and may find its computer and telecommunications industries under siege.

But what does U.S. participation in HDTV mean? Does this country need a domestically owned industry to reap the direct and indirect economic benefits of HDTV production? There are no compelling reasons to think so.

Foreign companies have invested significantly in production and research in the United States, while domestically owned companies have moved offshore, scaled back and sold their domestic operations to their foreign competitors. Foreign companies in the United States have demonstrable advantages in HDTV technologies. And there is no evidence that U.S.-owned HDTV companies would rely more on domestic producers of semiconductors, displays and other electronic inputs than would foreign producers operating in the United States.

Given current conditions in the U.S. television industry, it would be unwise to delay the introduction of HDTV in order to build a domestically owned industry with the government’s help. Such a strategy would foster protected domestic producers unable to compete technologically with their Japanese and European competitors. It would discourage these competitors from further investment in production and technology for the U.S. market. It would limit consumer choice and raise the price of HDTV equipment.

And if U.S. suppliers of semiconductor and display technologies were driven by the needs of a protected domestic industry, it is unlikely that they would be able to serve more technologically advanced HDTV markets elsewhere. Thus, such a strategy could further harm U.S. competitiveness in electronics.

What, then, are appropriate policies to promote HDTV in the United States?

First, Congress, the Federal Communications Commission and other government agencies should work with domestic and foreign firms to speed the adoption of national standards for HDTV transmission and reception. As a recent FCC decision indicates, these standards will have to differ from the standards developed for the European and Japanese markets because they rely on satellite transmission to a far greater extent than does the United States with its dependence on terrestrial broadcasting.

But many questions about standards remain unanswered. These questions involve tough technological issues best addressed by industry participants. At most, the government can act as a catalyst to encourage and enforce industry consensus. It should not impose technological choices on the industry.

Second, the government should encourage the formation of research and development consortiums to remove technological roadblocks to the commercialization of HDTV. Because of possible spinoff effects on the rest of electronics, R&D; consortiums for HDTV-related components, displays and broad-band switching are particularly promising.

In addition to providing public funds, the government can encourage the commitment of private funds to such consortiums by extending the R&D; tax credit on a permanent basis and by easing antitrust restrictions on cooperative R&D; activity. Such policies would stimulate private R&D; in other areas of the economy as well.

Foreign firms operating in the United States should be allowed to participate in R&D; consortiums for HDTV that are supported by public funds. Some foreign firms will want to participate, and some domestic firms will welcome such participation because of their partners’ technological know-how. Government policy should not actively impede cooperative arrangements between domestic and foreign firms.

How the United States responds to the policy challenges of HDTV will presage how it responds to competitive challenges in other high-technology endeavors. In a world of global industries, we should strive to make this country an attractive location for the development and production of the best available technologies by both domestic and foreign firms.

In the television industry, the massive U.S. market is a magnet for foreign and domestic producers. The government should work with these producers to exploit the opportunities offered by the next generation of television technology.