Difference Between ‘Us’ and ‘Them’ Blurs in a Global Economy

“Made in America” no longer means what it once did.

Take the television industry. Two decades ago, American companies controlled 90% of the domestic market. Today, only one U.S.-headquartered firm, Zenith, is still struggling to survive in the business--and its largest factory is in Mexico.

But wait. Nearly all of the color television sets sold here by roughly 20 companies are once again being made in the United States. America even exports more color TV tubes than it imports. Despite the collapse of American firms, the television manufacturing industry in the United States is actually thriving again--but this time largely under foreign ownership.

Like it or not, what has happened in the making of television sets is only an extreme example of the United States’ advancing economic integration with the rest of the world. Fraught with fear and misunderstanding, the rise in foreign investment in American industry and the continued expansion of U.S. business abroad are part of an unstoppable trend that will transform traditional ways of looking at the U.S. economy.

“Today, it’s becoming all but impossible to determine the difference between ‘us’ and ‘them,’ ” says Robert Reich, an economic analyst at Harvard’s John F. Kennedy School of Government. “Increasingly, there is no such thing as a pure ‘American’ company or a pure ‘foreign’ company. In many ways, they behave the same.”

Global markets have thrown policy-makers in Washington into disarray. Government officials and lawmakers are just beginning to grapple with the implications of a world in which so-called transnational corporations are loosening their ties to their native countries.

Even more challenging, the U.S. government will have to keep up as world commerce increasingly ignores national borders. Money, information and technical services can now be flashed around the globe at the speed of light with little regard for the once-powerful tools of national economic management.

“These economic and social transformations are moving faster than the ability of governments to address and cope with their consequences,” says Harald Malmgren, a leading Washington trade adviser to corporations here and abroad. “Traditional powers of national governments are being rapidly eroded by the globalization of industry and technology.”

“Economic nationalism,” whose advocates urge overt government support for U.S. companies, is emerging as a popular response to the uncertainties generated by global markets and global production facilities. U.S. firms, in this view, need government guidance to steer them through new and stormy seas.

But to their critics, the economic nationalists have missed the point. The reality, in this view, is that many “American” companies farm out much of their production overseas, while “foreign” firms are locating more and more sophisticated work in the United States. In such cases, why should U.S. government policy favor the American corporation over its foreign competitor?

Economic nationalism, according to its critics, fails to recognize that the nation’s prosperity rests not so much with the success of corporations headquartered in America as it does with the skills and knowledge of all those who work here, regardless of whose name is on the building.

The television industry--more specifically, high-definition television--provides a crucial battleground in the debate over the best ways to sustain American industrial competitiveness.

A decade after U.S. companies largely abandoned the consumer electronics business to foreign competitors, a group of American firms now wants to dive into HDTV, a new generation of technology that promises to bring ultra-sharp images and crystal-clear stereo sound to the home television set.

These firms contend that if America is to compete with Japanese and European manufacturers, which are already far advanced in developing HDTV for their own markets, the U.S. government must provide an umbrella industrial group with more than $1.3 billion.

The stakes are potentially much greater than just HDTV. Advocates of U.S. support for HDTV see it as the opening shot in a broad industry-led and government-funded strategy to revive U.S. competitiveness in a wide range of advanced technologies, such as semiconductors, robotics and new materials.

Warnings Issued

Electronics industry experts say there are several important reasons for American firms to try to gain a foothold in the developing HDTV industry.

In particular, advances in making computer chips and building display screens for the next generation of televisions could spill over into computers, related semiconductor products, telecommunications and defense electronics, where hundreds of pioneering U.S. firms remain ahead of the pack. Those seeking government help for HDTV development warn of a future in which the Japanese will dominate not only consumer electronics but also defense electronics.

This argument has found a sympathetic audience in Washington. To many federal officials, HDTV is so crucial that the government must somehow ensure that U.S. firms are in the race to develop the technology. Lawmakers from both political parties have rallied to the cause.

“If we do not have a viable domestic HDTV industry,” says California Rep. Mel Levine (D-Santa Monica), “we’ll be held hostage to those entities that do.”

“If you miss out on HDTV,” says Rep. Don Ritter (R-Pa.), “you miss out on the 21st Century.”

But for all their reliance on futuristic technology, the HDTV techno-nationalists seem to their critics to be curiously backward looking. In the view of many close observers of high-technology industries, the advocates of government help for HDTV are maintaining a nostalgic vision of an all-American economy that is gone for good.

Global Economy

“There are a lot of people who see this just as a red, white and blue issue,” says Jeffrey Hart, an HDTV specialist at the UC Berkeley Roundtable on International Economics. “But it’s not so black or white at all.”

The key, but often ignored, question is whether the goal of trying to create an all-American HDTV consortium makes sense in today’s increasingly close-knit global village. The answer reflects just how much the U.S. economy has changed in recent years.

Foreign television manufacturers such as Sony of Japan and Dutch-based N. V. Philips are already well established in America, and many analysts are convinced that it would be a mistake to try to rope them off from HDTV development.

A Berkeley Roundtable report--prepared for the Electronics Industries Assn., which includes both foreign and domestic manufacturers--highlights the predicament:

“The HDTV issue reveals the increasingly global nature of many high-technology industries and the difficulties of making public policies to foster national participation. To limit such policies to domestically owned companies is likely to delay the development and introduction of HDTV technology in the U.S. market and to discourage foreign-owned producers from expanding their production and R&D; operations in the U.S.”

That does not necessarily rule out some privately sponsored high-tech joint ventures, such as the new plan of IBM and six other leading U.S. electronics firms to develop a computer memory chip company that would compete against the Japanese, who dominate the industry. IBM, alone among U.S. semiconductor manufacturers, has stayed ahead of the Japanese in each leap forward in memory capacity, but it had not previously been willing to sell its output or designs to other firms.

But in the case of HDTV, some analysts say, the U.S. government should give up trying to beat the Japanese and Europeans at a game that they are already operating effectively in the United States. Instead, these experts say, the government should encourage U.S. firms to form a host of alliances that could often involve joining with their foreign competitors.

“The U.S. is a billion dollars short and 10 years too late,” says James Abegglen, a leading Tokyo-based management consultant. “What kind of sense does it make to throw away another billion reinventing the wheel? How did the Japanese get in the television business? They licensed our technology and built an industry. Fair enough. Now go license theirs.”

Some American business leaders are planning to do just that. “Whatever the technology that is developed, in whatever country, we’ll be going after it for our products,” says John Young, chief executive of Hewlett-Packard, the big Palo Alto manufacturer of electronics equipment.

Even without any new American entrants in the business, the Robert R. Nathan consulting firm estimates that more than 90% of the 13 million advanced-technology television sets expected to be sold in the United States in the year 2003 will be manufactured domestically. And while some components will come from abroad, at least 85% are likely to be made in this country.

Gaining Footholds

Several U.S. firms, including Ampex Corp. and a host of small, innovative companies, remain strong competitors in the production of professional broadcast equipment, high-quality displays and other related technologies.

But some of the manufacturers will be foreign-owned. And American engineers complain that foreign companies are likely to locate production of HDTV display panels and cabinets in the United States but keep for themselves the development and manufacture of the tiny electronic components that are at the heart of the new technology.

Many Americans fear that Japanese and European firms could use their advantages in large-scale production of electronic components for HDTV sets to gain new footholds in the computer and telecommunications markets, where U.S. electronics firms are concentrated.

“Do we want to be just hewers of wood and blowers of glass?” asks David Staelin, a leading consumer electronics engineer at the Massachusetts Institute of Technology. “If we don’t produce the most advanced goods for the world, we’re going to become a poorer society.”

Key government officials share concern about the future of U.S. microelectronics firms, which are the building blocks of the giant $300-billion-a-year electronics industry. Electronics has surpassed autos in recent years to become the nation’s largest manufacturing industry.

“HDTVs will consume large quantities of semiconductors,” says Craig Fields, director of the Defense Advanced Research Projects Agency at the Pentagon, which is planning to spend a modest $10 million a year to promote HDTV research in the United States. Those who supply such electronic chips, he adds, “will enjoy a significant economy of scale of production and will have the massive revenues needed for refining manufacturing and the ever-increasing expense of R&D; required for developing next-generation semiconductor products.”

Some industry experts are so worried about the dangers of foreign dominance in HDTV that they believe that the federal government may need not only to provide financial support but also to protect potential U.S. entrants from foreign competition.

“Unless much of the demand could be satisfied domestically,” says William Shreiber, head of MIT’s advanced television program, “we would be better off without any advanced television system at all.”

‘Prescription for Failure’

The plan for HDTV developed by the American Electronics Assn. follows Shreiber’s guidelines. It would require those firms building equipment for the U.S. market to pay far more for access to patents if they manufacture offshore rather than in the United States.

But such a tariff scheme, coupled with the AEA’s proposal for a single, government-subsidized advanced television consortium, raises the dangerous possibility that the United States would end up putting all its eggs in only one technological basket.

Walter Finkelstein of FAI Industries, a small Rockville, Md., firm working on an innovative flat panel display screen for HDTV, calls the AEA plan “a prescription for failure” because it requires all U.S. firms to pool their resources on a single approach rather than explore a number of alternatives.

T. J. Rodgers, president of Cypress Semiconductor of San Jose, contends that government-sponsored consortiums will damage the most successful entrepreneurial companies in the United States. They will “be hobbled not only by competition from Japan, but also from a U.S. government-subsidized, Japanese-like cartel,” he said.

William Connolly, a vice president of Sony Corp. of America, warns that such an approach would do little more than create a “hothouse” industry that could not thrive in open competition.

“Once you set up a system based on an exclusive technology, you run the risk of having nothing to export,” he says. “It’s crazy to turn your back on the rest of the world.”

Moreover, compelling firms to produce HDTV equipment in the United States would probably undermine U.S. efforts to pry open foreign markets to other American high-tech products.

“HDTV proponents talk about the necessity of guaranteed markets, mandated U.S. production and essentially exclusive licensing of U.S. companies,” says Claude Barfield, director of technology policy studies at the American Enterprise Institute. “These policies are in direct conflict with U.S. international trade goals and will inevitably work against U.S. national and corporate interests.”

The ultimate danger in trying to wrap a favored HDTV industry in a nationalistic cocoon is that it ignores the far more difficult challenges facing the federal government in developing policies to enhance competitiveness over a much wider range of technologies.

No Reason for Financing

Instead of trying to isolate American firms from global competition, many experts say Washington should allow companies to share the costs and risks of developing new technologies. These efforts need to be undertaken, however, in ways that do not undermine smaller enterprises, which have blazed many of the trails that larger firms have been reluctant to follow.

That might mean, in some cases, allowing firms to receive antitrust exemptions to form joint manufacturing ventures as well as the research consortiums allowed under current law. But most experts see no reason to provide official sponsorship or financing, which would place the government in the role of endorsing and nurturing only certain ventures.

“If we want to succeed in the global economy, Americans must be sure that whatever we’re doing is equal to the world’s best practices, wherever that may be,” says Richard Lester, an MIT nuclear engineer who was executive director of the university’s recent comprehensive study of U.S. industrial strengths and weaknesses. “You can’t do that if you’re protectionist.”

By far the most important role that the government could play, nearly all analysts contend, is to substantially enhance support for education and training, so that Americans become better able to use advanced technologies developed around the world. That, more than any other public policy action, would encourage both foreign and domestic firms to locate their most sophisticated work in the United States, they say.

And almost no one disagrees that the United States should devote more attention to civilian research and development. Almost 70% of federal R&D; is focused on military applications. Japan, by contrast, pours little of its government R&D; money into military projects, and it depends more on its corporations than its government to finance R&D.;

All these actions would help sustain U.S. competitiveness in the global economy, but they will not stem the tide of foreign investment.

Today, Americans are just beginning to get a taste of what other countries have experienced for decades. After World War II, U.S. companies expanded their reach abroad in what French author Jean-Jacques Servan-Schreiber warned Europeans was an irreversible “American challenge.” As late as 1970, half of all worldwide foreign direct investment was owned by U.S. multinational companies.

Nonetheless, West Germany has prospered for decades with roughly 17% of its manufacturing assets under foreign ownership, while Great Britain has lived with about 20% of its sales generated by foreign-owned operations.

Less Than 10% of Assets

In recent years, foreign companies have turned the tables, markedly boosting their own overseas operations, much of it in the United States. Even as American firms have continued to expand their overseas holdings, foreign investment in the U.S. economy has exploded.

At the start of the 1980s, foreign direct investment in U.S. plant and equipment totaled about $54 billion, while investment in corporate debt and equity was roughly $53 billion. By 1988, total foreign direct investment had soared to $262 billion while portfolio investment rose even faster to $345 billion. But that still leaves foreign ownership of U.S. manufacturing at less than 10% of total assets, according to a recent study by MIT’s Paul Krugman, one of the rising young stars among American economists.

Eventually, Krugman predicts, “the U.S. will come to look somewhat like a typical European country. Is that so bad?”

What it will mean is becoming more visible almost daily. Michelin, a French company, brought the radial tire to the United States years ago by building a factory in South Carolina. More recently, Japan’s Bridgestone bought the ailing Firestone Tire Co. and plans to pour more than $1 billion into its North American plants to develop the next generation of radial tires.

Similar changes are racking dozens of other industries. Nearly every major auto company in the world, for instance, has forged ties with foreign competitors. Ford and Mazda recently teamed up on a racy sport coupe known as the Probe, with Ford providing design and Mazda concentrating on engineering.

The combination has paid off. Built in the United States, the joint venture outsells Mazda’s own version of the car nearly 3 to 1.

“In the United States, we used to think economic superiority and self-sufficiency went hand in hand,” says trade consultant Malmgren. “But the paradox built into today’s global economy is that if you want to enhance your competitiveness, you can’t do it alone.”

BUYING UP AMERICA?

Foreign investment in the United States has increased at a rapid rate but it remains well below levels of most other major countries. Japan is the major exception.

Foreign investment gains in key industrial countries is shown in percent of sales, manufacturing employment and assets.

1977 1986* United States Sales 5% 10% Manufacturing Jobs 3 7 Assets 5 9 Great Britain Sales 22 20 Manufacturing Jobs 15 14 Assets NA 14 West Germany Sales 17 18 Manufacturing Jobs 14 13 Assets 17 17 Japan Sales 2 1 Manufacturing Jobs 2 1 Assets 2 1

*Latest figure available Source: Institute for International Economics