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U.S. Industry Performance: Improved Competitiveness but Uncertain Prospects

Through the 1980s a series of studies portrayed the technological leadership and international competitiveness of U.S. manufacturing industries as imperiled and probably on the decline. Only a decade later, the tone of analysis is generally upbeat. Were U.S. industries and firms really doing that poorly and foreign competitors that well a decade ago? Is the apparent reversal today an accurate picture and will U.S. industries remain in the lead?

To help answer these questions the NRC's STEP Board commissioned studies of twelve high technology and non-high tech industries, including three so-called "service" industries—banking, trucking, and food retailing. Other industries examined include steel, chemicals, pharmaceuticals and biotechnology, powder metallurgy parts, apparel, computing, semiconductors, and computer disk drives. They exhibit great diversity in structure as well as enormous changes, often negative for some regions and workers--employment downsizing, changes in location of operation, and changes in the skill requirements of many jobs. Nevertheless, the general picture is one of stronger performance in the 1990s than in the early 1980s attributable to many factors including broadly supportive public policies, competition and openness to innovation, and changes in supplier and customer relationships.

None of these favorable conditions is permanent. The studies persuasively make the point that U.S. industries' superior performance in the last decade is not guaranteed to continue. In a report of the project to be released in December, the Board raises several policy concerns for the future:

the adequacy of the support structure for people without the right skills and the adequacy of the supply of people with the skills in demand;
the adequacy of public investment in long-term research, particularly in some physical science and engineering fields adversely affected by reductions in defense spending and changes in other mission agencies’ requirements;
lack of consistency in federal tax policy, especially the rules governing corporate R&D and international investment; and
whether intellectual property policies have struck the right balance between innovation on the one hand and diffusion of technology and competition on the other hand.

The collection of industry studies is being published simultaneously under the title, America’s Industrial Resurgence: Sources and Prospects.

A new analysis commissioned by the STEP Board as part of its assessment of industry performance shows in detail the changing composition of Federal R&D since 1992, when the total federal R&D budget began to fall as part of the effort to reduce the federal budget deficit.

As is well known, the trends in research budgets have not been uniform across the R&D-supporting agencies. The defense and energy research budgets have declined, NASA's has barely kept pace with inflation, while NSF and NIH have received significant increases. What is less well known is how research fields have fared in this environment. The STEP analysis shows that some fields, particularly electrical engineering and physics, have suffered along with the budgets of their dominant funders; but others--computer science and materials engineering--have bucked the trend. NIH budget growth has chiefly benefited the medical sciences rather than the biological sciences. The data are included in an appendix to the report and are posted on the STEP home page.

Improving the Information Base for Innovation Policy: Suggestions from Scholars, Industrialists, and Policymakers

Apart from R&D expenditures, national data on innovation trends across major manufacturing and service industries is notoriously inadequate, and even the R&D data reveal little about the time horizon and composition of private spending on research. To identify ways to improve the information base for public policy, the STEP Board organized a workshop and issued a workshop report, Industrial Research and Innovation Indicators. The report summarizes the suggestions of analysts, suppliers, and users of data for improving existing time series, collecting new data, and linking datasets to yield more information. One of the most promising approaches is tracking scientists, engineers, technicians, and others in technical jobs--where they come from, where they go, and what they do--to better understand the sources, application, and diffusion of know-how. The STEP Board plans a second workshop to identify sources and methods of using human resources data.

Government-Industry Partnerships for Technology Development: The Search for Lessons

The STEP Board is conducting a study of the policy issues associated with public-private collaboration in the development of pre-competitive technologies. It has assembled a multidisciplinary Steering Committee chaired by Gordon Moore, retired chairman of Intel Corporation, to review past and current U.S. experience with technology development partnerships. The project will address issues such as the underlying rationale for industry-government cooperation to develop new technologies, current practices, sectoral differences, means of evaluation, the experience of foreign-based partnerships, and the roles of government laboratories, universities, and other nonprofit research organizations. The study will recommend best practice principles of operation for both national programs and international collaboration. Two fact-finding meetings have been held to date and others are planned:

The SBIR Program: Challenges and Opportunities, February 17, 1998. The first fact finding conference focused on the SBIR program, which currently reserves 2.5 percent of the federal R&D budget (about $1.1 billion) for grants or contracts for small business. A report is being published this fall.
Industry-Laboratory Partnerships: The Role of S&T Parks, April 22, 1998. At the request of Sandia National Laboratories, a symposium was held to review its plans for the development of an S&T park adjacent to the laboratory in Albuquerque in the context of research on other cases of regional high-technology cooperation.

Upcoming events include a workshop on the Defense Department’s so-called "fast track" SBIR program and a comparison of cooperative activities in biotechnology and information technology.

The STEP Board was asked by the U.S. Department of State and the European Commission to convene a conference on New Vistas in Transatlantic S&T Cooperation. The conference was held at the Academy on June 8-9, 1998, and drew more than 90 senior researchers, businessmen and officials from twelve European countries, as well as a large American contingent.

The immediate goals of the conference were to publicize the recently-signed U.S.-E.U. Science and Technology Agreement, identify concrete opportunities for cooperation in areas of mutual interest, and explore policy perspectives on international cooperation. According to European Commission and State Department sources, the meeting contributed to the subsequent discussions of the research agenda under the Agreement. In addition to reviewing broad policy issues in international S&T cooperation and allowing all parties to give their views on the agreement, the meeting focused on four broad areas of potential or expanded cooperation:

Information technologies (IT), including next generation internet, electronic commerce, and translingual information management;
Transportation, including intelligent transportation systems, intermodal transport, and global navigation;
Climate prediction, forecasting applications and impacts; and,
Human environmental health sciences, with a focus on endocrine disruptors.
Subsequent panels reviewed international cooperation on the 300mm Semiconductor Wafer Initiative, compared the different approaches to government support of technology development in small business, and highlighted the need for transatlantic cooperation in technological workforce exchanges.

On June 1997 and January 1998, at the request of the White House National Economic Council, the STEP Board held two meetings on aerospace offsets--conditions (e.g. for local production, technology transfer, etc.) imposed by foreign governments on their purchases of U.S. aircraft and major components.

The 1998 symposium in particular expanded the terms of the debate beyond export sales versus alleged job losses to broader issues of trade and investment and the need for streamlined adjustment assistance to displaced workers. Some participants called for additional analysis of subsidy issues such as launch aids and export finance, the efficacy of the Multilateral Aircraft Agreement, a range of issues associated with market access, and the adequacy of the U.S. investment in aerospace infrastructure such as wind tunnels.

Medical Technology in the new Healthcare Market: Changing Incentives for Innovation

The transformation of the American health care delivery and payment system, driven by pressures to reduce cost increases, will have profound effects on innovation in therapeutic and diagnostic products, medical procedures, and information systems. But the nature of the effects, rate of their onset, and their duration are highly uncertain. In a joint project, the STEP Board and the Institute of Medicine seek to illuminate how health care and one of the most dynamic sectors of the American economy may change and to assess some of the major determinants of future health care costs. Through a series of workshops beginning early in 1999, the project will help stakeholders understand how market changes are likely to affect returns on different kinds of investments, biases for and against different kinds of treatment, and research priorities and health of medical research institutions. It will also address related regulatory, payment, and other public policy issues.

For the first time in its eight-year history, the STEP Board has undergone a change in leadership along with the addition of new members. Dale Jorgenson, Frederic Eaton Abbe Professor of Economics at Harvard University, has replaced Mike Spence, Stanford dean of business, as chairman; and William Spencer, chairman of SEMATECH, has replaced retired TRW chairman Ruben Mettler as vice chairman. In addition to Spencer, recent additions to the Board include Kathy Behrens, managing partner, Robertson, Stephens & Co.; Richard Levin, president, Yale University; Alan Wm. Wolf, Esq., managing partner, Dewey Ballantine; and Joseph Stiglitz, senior vice president and chief economist of the World Bank and chairman of the President's Council of Economic Advisers from 1995 to 1997. Retiring members include founding member George Hatsopoulos, president and CEO of Thermo Electron Corporation; Burton McMurtry, general partner in Technology Venture Investors; and James Poterba, professor of economics, Massachusetts Institute of Technology.