U.S. Unable to Formulate Competitiveness Strategy : Policy: For a decade, ideological differences have hampered efforts to restore nation’s technological edge.

A little over a year ago, a blue-ribbon panel of government and industry experts was all set to release an ambitious proposal for boosting the global competitiveness of the American electronics industry.

Like many analysts, the National Advisory Committee on Semiconductors had found that U.S. companies were rapidly losing ground to overseas rivals in computer chips, advanced materials, manufacturing know-how and other critical fields. Bold measures were needed to reverse this ominous trend.

The committee staff had developed an innovative proposal to create a government-backed venture capital pool for risky electronics projects. The idea was to get American companies back into the business of making such devices as TVs, compact disc players and video cameras, because such consumer electronics products in the long run would support the development of many important new technologies.

But, shortly before its release date, the proposal was scrapped, and nearly all the freshly printed copies of the report were destroyed.

Committee insiders say the Bush Administration, ideologically opposed to such industrial aid, made it clear that the proposal would be dead on arrival. And members of the advisory committee--some of whom had not cared much for the idea in the first place--did not want to anger the White House.

The incident, which involved only an advisory report intended to spur discussion, illustrates the profound uncertainties and ideological differences that continue to plague the debate over how to restore America’s technological edge.

Nearly a decade after the problem first emerged on the national agenda, there is still little agreement on how to convert the nation’s massive technical and scientific resources into a stronger position in computer chips, precision machinery, automobiles and other industries that are increasingly dominated by overseas competitors--especially the Japanese.

“What disappoints me is that there isn’t even much discussion of the principles that would be the right ones to follow, independent of the amount of money” the federal government might want to spend on the problem, said Lewis Branscomb, director of the Science, Technology and Public Policy Program at Harvard’s John F. Kennedy School of Government.

“There’s a lot at stake,” said Branscomb, who was formerly chief scientist at International Business Machines. “We ought to worry about how to get a more efficient technology base in this country.”

There are some hopeful signs. The torpedoing of the committee report in July, 1990, was seemingly the nadir of a long-standing ideological struggle in which Democratic congressmen bash the Administration for doing nothing while Administration officials bash Congress for advocating an anti-free-market “industrial policy.”

Consensus is now emerging in a few areas:

--There is bipartisan support for the so-called “high-performance computing initiative,” which will steer more than $600 million a year in government funds into an advanced high-speed computer network.

--The White House has abandoned its opposition to the Commerce Department’s small but closely watched Advanced Technology Program, which provides grants for the development of promising commercial technologies that have not attracted private-sector funds.

--A bill that will make it easier for companies to undertake cooperative research and development projects without violating antitrust laws--a measure long sought by industry--is likely to become law this year.

Indeed, the Bush Administration, in a shift that many credit to White House science adviser D. Allan Bromley, appears finally to have accepted the idea that industrial competitiveness is a serious problem and that government has a role to play in finding the solution.

Although the White House remains firmly opposed to any programs that involve direct support for specific companies or industries, its new technology policy advocates government funding for “generic” technologies that are important to many different industries.

“There has been change on both sides,” said Rep. George E. Brown Jr. (D-Colton), chairman of the House Committee on Science, Space and Technology and an advocate of a more activist government role in technology. “In Congress, there has been some change on what kind of policies are appropriate, and the White House started out the year with an announcement of a technology policy.”

Also, industry is recognizing that it must change its ways.

In the automobile business, where cooperation among the Big Three was once unthinkable, there are now half-a-dozen joint research projects focusing on technologies such as electric car batteries and anti-pollution devices. The chairmen of General Motors Corp., Ford Motor Co. and Chrysler Corp. even appeared together on the “Nightline” television show to discuss their firms’ collective ills.

IBM and Apple Computer, most of whose products traditionally have been designed to be incompatible with those of other vendors, are now joining forces to create a new generation of computer systems. Many other technology companies are aggressively building new alliances to compete in global markets.

In industries, like machine tools, that are dominated by smaller firms, companies are trying to build cooperative networks in which groups of independent firms divide tasks among one another and work together in marketing.

In the Southland, Glynn Pennington, owner of Penco Precision in the City of Industry, is leading the way in the creation of this type of network by developing a central listing of the products and services provided by the 240 local members of the National Tooling & Machining Assn.

But, laudable though these steps might be, they do not add up to a broad national strategy on competitiveness.

One reason such a policy is so elusive is the sheer complexity of the issue. Even without broad new initiatives, a true federal competitiveness program would involve tinkering with military research programs, changing the way basic science is carried out, revising trade agreements, altering foreign investment rules, overhauling antitrust laws, making numerous revisions in the tax code and vastly improving the nation’s education system.

At the same time, many analysts believe that bolstering competitiveness requires making profound changes in the business world.

The go-it-alone culture and short-term orientation of American capitalism may not be adequate in a highly competitive world economy populated by huge, cash-rich global corporations. Instead, firms will have to develop new forms of cooperative relationships if they are to remain at the forefront of advanced industries such as autos, electronics and biotechnology.

Today, the federal government’s $71-billion research budget is still doled out according to criteria from a different era, advocates of an activist technology policy contend. Military programs get the bulk of the money ($34 billion), while NASA and the space station ($12 billion) and basic science projects such as the controversial superconducting super collider (a total of $12 billion) get most of the rest. Money aimed at commercial technologies that help American companies compete amounts to barely a drop in this enormous bucket.

This approach to technology policy worked well in the past.

Federal funding for military projects and big-ticket civilian ventures--much of it funneled through a network of no less than 700 national laboratories, including huge institutions like Lawrence Livermore, Brookhaven, Oak Ridge and Los Alamos--has traditionally yielded a rich crop of commercial spin-offs.

Some examples:

--The Defense Advanced Research Projects Agency is credited with nurturing a number of key information technologies, including a widely used method of sending computer data over telephone lines.

--The computer chip business in its early years relied almost entirely for its survival on orders from the Minuteman missile program and the Apollo space program; the chips were simply too expensive to use in commercial products.

--Today’s biotechnology industry grew largely out of basic research sponsored by the National Institutes of Health.

But the dynamics of technology development have shifted dramatically over the last decade.

The worldwide civilian electronics industry is now so large that it dwarfs the Pentagon. Commercial potential, rather than military imperative, has become the primary driver of advanced electronics.

“In today’s highly competitive world markets, government support for basic science and military technology programs is no longer sufficient to ensure a strong U.S. technology base,” declared a recent report from the Council on Competitiveness, a blue-ribbon group of business, academic and labor leaders. “Government must make competitiveness and technological leadership a national priority.”

Everyone agrees that new methods must be found for getting more commercial bang from the federal research buck.

“We have tremendous resources in our national laboratories and universities, but we haven’t been very good at transferring technology (to industry),” said White House science adviser Bromley. “It’s very important to bring in the private sector in setting the direction (of government-financed research). That’s something the Japanese have done very well.”

But there is still a deep split over how far the government should go in supporting specific industries--especially in an era of ever-growing federal budget deficits. Some congressional Democrats say the White House continues to let its instinctive opposition to government intervention in the economy get in the way of a serious competitiveness policy.

“The Administration has such a rigid, ideological bent on anything that involves public-private cooperation that they are unwilling to look at a range of constructive proposals,” Rep. Mel Levine (D-Santa Monica) charges. “They’re applying 19th-Century economics to 21st-Century problems.”

That has not stopped the Democratic leadership from trying to build further upon nascent efforts in commercially oriented federal research. Sens. Albert Gore Jr. (D-Tenn.), Jeff Bingaman (D-N.M.), Ernest F. Hollings (D-S.C.) and Sam Nunn (D-Ga.) recently banded together to introduce bills that would establish an array of new technology development programs, including a network of manufacturing centers modeled on the agricultural extension service.

This effort probably won’t get far, however.

Gore, for one, acknowledges that the realm of possible options in technology policy is widening somewhat, but adds: “One important ingredient that’s missing is presidential leadership. The President doesn’t seem to care about these issues.”

At heart, in fact, the Administration and the Republican leadership in Congress still favor macroeconomic measures, especially a capital gains tax cut, as the best method of stimulating innovation and thus improving the competitive stance of American business. Lower taxes on capital gains--the profits from successful investments--will encourage people to put money into risky but potentially rewarding high-tech ventures, supporters say.

“It’s wiser to have an incentive in the tax structure rather than a federal government partnership,” said Rep. Tom Campbell (R-Palo Alto), a Silicon Valley congressman and senatorial candidate who has put together a package of eight bills designed to increase competitiveness without direct government aid to industry.

Many high-tech executives support tax code changes, especially capital gains tax relief and new depreciation rules that will allow faster replacement of factory equipment.

Stephen A. Duzan, chairman of the Seattle-based biotechnology firm Immunex, fears that his new and fast-growing industry will be stifled by a shortage of “patient” capital. He has developed a tax proposal that would offer capital gains breaks only for long-term investments in industrial companies.

Although such tax cuts remain a source of contention, politicians on both sides of the aisle--at least in principle--are supportive of broad economic policy measures that would make it cheaper to raise money for long-term investment.

Similarly, the need to improve education is ritually cited as a key part of the competitiveness equation, although concrete proposals for acting on that sentiment are few.

But the Administration will have no truck with hard-line, protectionist approaches on trade policy, or with proposals to restrict the growing acquisitions of U.S. technology companies by foreign firms. Both are part of some Democrats’ approach to competitiveness.

Moreover, any consideration of the type of ambitious, big-budget commercial technology programs that are commonplace in Europe, Japan, Korea and many other countries is still absent from the policy debate.

Proposals such as the one shelved last summer--or the American Electronics Assn.’s suggestion that the government spend more than $1 billion to subsidize new television technology--are often greeted with derision.

Most American companies, for their part, are still loath to put much stock in cooperative efforts.

A scheme to establish a collectively owned company to compete with Japan in computer memory chips foundered when several major computer firms withdrew their support. Much-publicized research consortia such as the Microelectronics & Computer Technology Corp. and the Sematech chip-research venture have struggled to define a useful mission for themselves.

Many industry leaders--including Charles Sporck, retired president of National Semiconductor and a key architect of Sematech and the U.S.-Japan semiconductor trade agreement--believe that threatened industries can no longer settle for a cautious, incremental approach to competitiveness.

“We have compromised long enough,” Sporck said. “We need to state clearly the steps that are needed to address these problems.”

But anyone who thought that the political climate has become more favorable to a bold approach in the last year is likely to be disappointed by the latest document from the National Advisory Committee on Semiconductors.

The report is an intriguing blueprint for a broad-based effort to leapfrog the Japanese in computer-chip production technology.

However, the study contains no details on how much such a program might cost or on how the burden might be shared between government and industry.

Ian M. Ross, former president of Bell Laboratories and chairman of the National Advisory Committee on Semiconductors, said no numbers were used because the proposal is still preliminary; further analysis is needed, he explained, to get good cost estimates.

But Ross indicated also that political realities are such that even the final version of the plan is not likely to include a call for substantial government funding.

“We now have a technology policy that says government should be supporting pre-competitive, generic technologies, and that’s very different from what we had before,” Ross said. But that has not translated into concrete actions, he added. “I have yet to see the evidence of a major change.”

Chipping Away at U.S. Leadership

American manufacturers have steadily lost ground in the world semiconductor market to Japanese competitors--a slippage that has prompted previously unheard of collaborative responses, including the Sematech consortium. 1982 U.S. Share: 56.7% Japan Share: 32.5% 1983 U.S. Share: 54.3% Japan Share: 36.7% 1984 U.S. Share: 53.6% Japan Share: 36.9% 1985 U.S. Share: 48.9% Japan Share: 41.2% 1986 U.S. Share: 42.4% Japan Share: 46.0% 1987 U.S. Share: 40.9% Japan Share: 47.7% 1988 U.S. Share: 37.4% Japan Share: 51.2% 1989 U.S. Share: 37.3% Japan Share: 50.4% 1990 U.S. Share: 39.8% Japan Share: 47.1%

Source: Semiconductor Industry Assn.