Materials and Man's Needs: Materials Science and Engineering -- Volume IV, Aspects of Materials Technology Abroad (1975)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

8-180 RESULTS OF SCIENCE AND TECHNOLOGY POLICIES The fruits of the efforts put into education and R&D in various countries should be visible today, assuming there is some correlation. In this section, we will review some of the indicators of innovational prowess. Economic Comparisons Table 8.47 gives some data on per capita and real GNP. The per capita figures show: the strong progress made by France and Germany to their current position only slightly short of the U.S.; the rapid growth of Japan from a point low compared with the major industrial countries of W. Europe in 1960 to its current position somewhat ahead of the U.K., but still some way behind France, Germany and the U.S.; and the almost static performance of the British economy. The data are normalized to the U.S. being 100 each year; but the GNP of the U.S. has been rising also - taking it as 100 in 1960, in 1965 it was 127, and in 1973 it was 172. In these terms, it can be concluded that the U.K. has roughly maintained its position relative to the U.S. while the other countries have improved their positions considerably. On the other hand, the data on growth rates of real GNP, with the latter normalized to 100 for each country in 1960, show that since 1960, the U.K. has achieved a slower growth rate than the U.S.; Germany has performed about the same; France has performed somewhat better; and Japan dramatically so. All these trends, however, have to be interpreted carefully, taking cognizance of the caution mentioned earlier in this chapter that at any given time different countries are at different positions on their "sigmoidal curves" and that it is mis- leading to interpret data always in terms of exponentials (like compound interest rates), even if only implicitly. For example, the major shifts in world resources triggered by the rise in price of oil and the possibility that similar effects might take place with mineral resources could result in major changes in the economic picture in a relatively few years. More detailed comparisons on economic trends are given in Tables 8.48 and 8.49. The caution about signoidal curves again applies. Furthermore, growth rates show relatively large fluctuations from year to year so that the figures for a single year are not necessarily a good basis for comparisons. However, the trends over ten years show the dominance (in growth terms) of Japan followed by France and Germany, while the U.K. and U.S. have generally trailed along on rather paralleled courses. Because of inadequate data and analysis, it is difficult to establish definite cause-and-effect relationships between national commitment levels to R&D and subsequent industrial and commercial performance. (Regression analysis of this sort for various industrial sectors in various countries would appear a fruitful area for investigation.) Most direct comparisons between the larger industrial countries become confused by the enormously different levels of effort on defense and space among these countries. These efforts and their associated spin-offs affect not only the levels of R&D but also the whole industrial picture. Some productivity comparisons for the iron and steel industry since 1964 are given in Table 8.50 (from "Productivity and the Economy, 1973; Bulletin

8-181 Table 8.47 Relative GNP Performance . . . 1960 1965 1973 ~ . Per Capita Real France 47 100 Germany 46 100 Japan 17 100 U.K. 48 100 U.S. 100 100 . . * From "International Economic Report of Congress, U.S. Government Printing Office # Estimated. Per Capita Real 58 133 56 128 26 161 52 118 100 127 ,, Per Capita Real 83 208 92 179 60 367 53 146 100 172 the President," transmitted to the ~ Stock No. 4115-00055, February 1974 :Based on the average monthly rate of exchange for 1973 . .

8-182 Table 8.48 Economic Trends - Average Annual Rate of Growth (Percent) 1961-72 1971 1972 1973 Real GNP: United States 4.1 3.4 5.9 5.9 United Kingdom 2.7 2.3 3.8 5.8 France 5.7 5.7 5.4 6.7 West Germany 4.5 3.1 3.7 5.3 Japan 10.5 5.9 8.9 11.0 Industrial Production United States 4.7 0.6 6.7 9.0 United Kingdom 3.1 0.8 8.3 8.6 France 5.9 6.2 7.0 9.5 West Germany 5.2 1.7 3.4 7.6 Japan 12.3 3.3 6.6 17.4 Consumer Prices United States 3.0 4.5 2.9 6.2 United Kindgom 4.7 9.5 7.5 9.3 France 4.5 5.3 6.3 7.1 West Germany 3.2 5.3 5.8 7.0 Japan 5.8 6.2 4.8 11.7 Estimated. I .

8-183 Table 8.48 (Continued) 1961-72 l9J1 1972 1973 Productivity United States 3.5 7.1 5.3 5.4 United Kingdom 4.2 5.0 8.3 3.0 France 5.7 4.8 7.2 8.0 West Germany 5.8 4.7 6.7 7.6 Japan 10.1 3.6 10.1 18.8 Hourly Compensation # United States 5.1 7.0 6.3 8.0 United Kingdom 8.3 12.4 12.3 13.6 France 9.9 12.4 12.5 13.0 West Germany 9.9 13.8 11.1 12.8 Japan 14.5 15.7 16.2 20.8 *Output per man-hour. #Based on hourly compensation in notional currencies.

8-184 ~ ~ US ~ US U) . Cal ~ Cal ~ I ED U) 5- o Marl Cd o sol Cd Marl o o v o o C) Al Go a) ED US US Can US Cal Cal ~ Cal 1 1 C) ~ US US Cad ~ ~ ~ Cal Cal 1 a) 1 u o C) Cal Cal ~ Cal Cal U] Cal girl >~ O ~ 0 ~ ·~ u ·rl ~ SO girl CO Z ~ C) C) U] o ~ ~ ~ ~ 0 ~ 0 ~ ~ ~ 0 ~ 0 pa H Cal

lo lo 11 - ~ a) o ·— a) ~ ~~ o Cd 1 a) ~5 By lo lo 11 o ·— o ~ o a) 1 o c: a) Id · · Go ~ lo lo If . cN . us . Id . Go lo . . lo lo lo lo lo · · · · — o o o o o o o o o o u] a u) e~ 3 o ~rl ~rl 8-185 ~a ~D . ~ ~ ~ o o ,= !_ o ~ ~ ~ oo 0 1 1 1 1 oo cn^ · ~ U) ~o C] o ~ u~ ~ ~ ~ ~ ) 0 1 1 1 1 ,! ~ ~ ~ ~ ~ oo ~ ~ o u~ ~D ~ ~ ~ u] u) ~ 5- s~ a o ~ ~ ~ o ~ ~ ~ ~ .- O · 1 1 1 ~ ~ ~ ~ o ~ ) ~ '~ c' ) · a, u) · ~ u) ~ s~ ~ u ~ o ~ o — L] ^ u, o o ~ c) ~ . - o . - ~rl U) c] o s~ a _ r ~ _ [— 4: ~ UO ~ o .- . - .- CO ~0 o U) C) o l

8-186 1779, BLS). Quoting, "In 1964, productivity in the U.S. iron and steel industry greatly exceeded the levels reached in other major steel-producing countries. Output per man-hour was about 60 percent of the U.S. level in Germany and around 50 percent in France, Japan and the U.K. In 1971, however, though labor productivity in the British steel industry was still only about half the U.S. level, the French industry was up to two-thirds the U.S. level, the German to about three-fourths, and the Japanese may have exceeded it." Productivity levels may be considered not only in the light of expendi- tures on R&D but, and perhaps even more importantly, to levels of capital investment. From the same source as that for Table 8.50, data for several countries are given in Table 8.51 for industry as a whole - breakdowns by industry sectors are difficult to obtain. We quote: "During the 1960's the U.S., Canada and the U.K. had the lowest average capital investment Cto productivity. At the other end of the scale, Japan had the highest investment ratio and the highest rate of productivity gain." Implicit in these comparisons is that the productivity gain is important in itself. However, productivity, like GNP, is not necessarily a human happiness index. While there is probably some correlation between these quantities and qualities, it is not inconceivable that the ground rules are changing for the advanced countries, that they are reaching the upper levels of their sigmoidal curves and that their societies may soon come to feel that they have enough productivity and GNP to satisfy their own desires. This still leaves scope for greater productivity if the increase benefits a wider circle of nations. International Trade The U.S. has traditionally been a net exporter, based in its earlier history on materials and then slowly shifting to manufactured goods. Beginning in the mid-1960's, this position began to erode and lately has produced sub- stantial adverse trade balances. Contributing factors have been: (a) Reduced productivity growth and high rates of inflation, resulting in favorable unit costs of production, compared to other industrial countries. This has attracted imports and created obstacles to exports.

8-187 Table 8.51 Trends in Capital Investment Average annual percent change in output per man-hour in manufacturing, * 1960-72 Capital investment as percent of output, 1960-70 All Industry Manufacturing United States 3.1 # 14.5 12.3 Belgium 6.6 19.9 19.6 Canada 4.4 21.0 15.1 France 5.8 21.2 N.A. Germany 5.8 + 22.2 N.A. Italy 6.0 17.9 N.A. Japan 10.4 28.1 31.4 Netherlands 7.2 21.4 N.A. Sweden 1.1 18.8 16.7 United Kingdom 4.2 16.6 13.4 Source: Bureau of Labor Statistics, Bulletin 1779, Washington, D. C. *For many of the foreign countries, 1972 estimates are based on data for less than the full year #Excludes construction. +Capital investment, excluding residential dwellings, as percent of total output.

8~188 (b) Rapid growth of direct U.S. investment abroad, largely in order to overcome competitive disadvantages of U.S.-based exports. (c) Final fruition of postwar recovery period in Europe and Japan, making these areas highly efficient competitors, equipped with new plant and technology. (d) More rapid diffusion of new technology and corresponding shortening of time during which U.S. innovations provide trade advantage. (e) Outside of the agricultural sector, increasing drafts on foreign raw materials in order to benefit from their lower costs. These developments, coming on top of U.S. foreign commitments such as military costs and foreign aid, plus prolonged U.S. reluctance to engage in currency devaluation, have brought about an atmosphere of concern bordering at times on crisis. In this context, various attempts have been made to locate "the key" to the foreign trade problem. While one must not fall into the trap of segmenting foreign trade and other transactions in such a way as to judge each in terms of balance (the very basis of exchange between countries is, indeed, that each does better in some fields than in others; and so foreign trade is by nature "unbalanced, on an item-by-item basis), nevertheless a number of recent studies have drawn attention to emerging trends Wee Tables 8~52, 8.53 and 8~54~. Among these seem to be: (a) Excellent performance in exports of capital goods, such as computers and aircraft. (b) Poor performance in automotives and manufactured consumer goods. (c) Rising adverse balance in materials. (d) A healthy rate of increase in exports as a whole, but not sufficient to overcome the faster increase in imports. (e) A concentration of the trade problems in specific nations: Japan, Canada, and West Germany. Excluding trade with these three countries, the U.S. trade balance with the world improved between 1960 and 1970. With Japan, Canada and West Germany, it worsened by 5 billion between 1964 and 1970.

8-189 Table 8.52 U.S. Trade Balance in Illustrative Product Categories* (millions) 1960 1965 1970 Aircraft and Parts $1,187 $1, 226 $2,771 Electronic Computers and Parts 44 219 1,044 Organic Chemicals 228 509 715 Plastic Materials and Resins 304 384 530 Scientific Instruments and Parts 109 245 407 Air Conditioning and Refrigeration Equipment 135 201 374 Medical and Pharmaceutical Products 191 198 333 Rubber Manufacture 108 119 -28 Textile Machinery 104 54 -37 Copper Metal -62 -132 -171 Phonographs and Sound Reproduction 15 -36 -301 Paper and Paper Products -501 -481 -464 Footwear -138 -151 -619 TV's and Radios -66 -163 -717 Iron and Steel 163 -605 -162 Petroleum Products -120 -464 -852 Textiles and Apparel -392 -151 -1, 542 Automotive Products 642 972 -2,039 * Statement of Secretary of Commerce at Hearings before the Subcommittee on Science, Research and Development of the Committee on Science and Astronautics, July 27-29, 1971.

·^ o ~ u] Go Ad a) so · - ; ~ Girl ~ o ~ - ~ so En A up v ¢ ¢ of ^ .,1 u) ~ cd o by o ~ C) Q O Sin V En · O U] · Up . 00 En U) Girl o o Six CO N Six En _ ~ Al o o .m V . o U) ~ O a) ~ P4 ~0 I: U) 1 ~ Girl CO H U] ~0 . - a) 0 O a) sir lo: ~ 8-190 S" ~ o u 1 a' . s~ E~ U) .- P" ~ .- co 1 U) ~ U s~ s" ~ 0 0 0 ~ ~ 1_ H ¢} U ~ 00 S~ O ~ 00 ~ UY U' O ~rl ~1 .- .- U) U O . - S" ~ ~ O .- ~ O O V ~ 0 al ·^ O ~ ~ · V V ~ O O 1 1 ~ ~ ~ V . - 00 ~ . - ~ ~ ~ ^ ~ ~ ~ rl U) · U ~ ~rl ~ ~ ~D b4 ~ ~ ~ U] U ~S) ,1 U ~ ~ ~ ~ ~ .- 0 ~ ~ ~ a) 0 .,1 =1 ^ C) V S~ ~ ~ ~ ~ U ~ ~ ~ ~ ~ 00 00 V .,1 ~ V ~ ~ O ~ ~ ~, . - U u~ X ~ u~ ~ ~ ~ 1 ·^ ~ ~ CO · . - O ~ ~ ·^ ~ O m ~1 0 ·^ u~ ,= ~ O tr) c~l U U ·^ - ~ b0 ~ ^ ~ ~ ~ ' - ~1 ~ 1 ~ ~ ~ ~ ~ 1 ~ ~ V ~I V V ~ L~ ~ ~ O ~- ~ ,- . - O ~ . - ~ ~ ~ . - ~ ~ O ~ U O .~! ~I · - ~ ~l ~ ~ ~ ~ ~ O ~ ~ u u, a) ~1 O4 0 U ·^ ~ ~1 a, . u ~ u ~ ~ ~ ~ ~ V O U' ~ ~ ~ ~ ~ ~ ~ 1 ~ ~ ~ ~ ~ u .- ~ ~ ~ V .- ~ ~ ~ ~ ~ ~ ~ .- ~ C) ~ U] ~ ~ V ·- a~ ·- ~ ~ . - V O Q ~rl Cd 1~ Cd t~ ~ ·rl 53 = ~ ~4 3 a~_] ·— S~ ~ ~ ~ ~ r~ ~ ~1 ~ S~1 ~ ~ l-1 0 =1 ,-1 ~ 0 u ~ s~l cd ~ a) ~ 0 ~ ~ t: ~ s~ a) (L) u, ~ u: ~ v ~ ~ ,q ~ ~ ~ .- 00 1 ~D o ·~1 O CN C~ O C~ 1 o C~ U~ 00 00 'J o 1 o 1 00 O r~ ~ C~ 00 r~ U) ~ V U rl u, ~ ~ a) v ~ a) ~ u' ~ v V a~ ~ ~ O r~ ~ ~ ~ ~ . - r~ ~ ~ ~ ~ ~rl ~ U] ~J S~ O Q) ~ 5 ~ U] ~ ~ . - ~ O ~ ~ U ~ U ~1 c: ~ ~ ~ =1 P4 p: a) v u: c~ - U) :~ ·— ~ ·— ,~ ~ cd ~I c~ a ~ ~ ~ r~ ~ ~ .- tlJ ~ CJ k~ U td C~ v ~ bC u~ ~ ~ ~ ~ ·- U] b0 53 E~ .- ~ ~ ~ ~ ~ ~ ~ U ~ ~ .- .- 0 u cd cd a) ~O ·~-1 L ^ ,~ ~l u~ ~ u ~ ~ ~ a~ ~ ~ U) U ~ CQ ·— ~ C~ :~ U] r~ U cd r~ ~ V ~ ~ V S~ rl ,1 C) rl U~ V C~ p~ r~ U] ~ O 0 a~ ~r~ ~ t)cO ~ ~ C~ t~ ~ a O S~ ·- U' ~ S~ ~ ~ ~ U7 ~ ~ ~ ~ P~ O U) C) .- ~ ~ ~ V Z a O ~ Z

8-191 a, 0 U 1 ~ Cal ED U) U] JO on girl u o I_ . Do U' Sol o d H U) o girl o o Cal ~ - ~ ~ ~ ^ ~ ~ ~ Lf) ~ ~ 1 1 ~- ~ o ~ o o ~ ~ 3 ° C ~ ~ em 0~ '"l . - · - bl_| ~ ~ · ~ ~ 1 ~ ~ ~ ' . - ~ ~ m~ ~ ~ ~ ~ ~ _ ~ ~ - en- ~ ~ en a) ~ Q4 ol-~ girl U 0 1 .— us 0 1 0 V ~ . ~ . I- ~ ~ == O ~ ~ . - ~ ~ =~ ~ = .~ k~ ED k~ ED ·,1 0 ~ ~ a) ~ ~o u, ~ ~ ~ ~ ~ · .~ - .~ - U >` ~ ~ ~ ~ ~ ~ ~ U ~o ~ ~ ~ ~ 3 ~ o ~ ~ 0 ~ 0 0 ~ 0 ~ 0 ~ ·^ ~ ~ o ,~ ,= C<~ ~ ~~ .r ,~ ,= ,= l~ ,~ 3 to a) s~ ~ ~n ~ to to to ,l to ,l u~ bo o ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~= == 0 a) ~ ~ ^= $- ~ ~ 3 ~ 3 o ~ o ~ o ~ ~ ~ ~ ~ ·^m ~ ~ ~ ~ ~ ~ ~ 3 ~ ~ ~ ~ ~ 1 u' 0 ~ bo O O b0 t~0 u~ ~ u ~ ~ ~ u u~ b0 u~ ~ eq s~ ce ~ ~n .- ~ .- ~ U ~ .- ~1 ~ ~ ~ C) ~ ~,,= ~ ~ . - ~ ~ ~, - Q4 ~ e~ ~ .- ~ e~ ~ ~ ~ ~ ~ ~ ~ ~ O k1 =1 0 ~ ~ C) k1 ~ ~ O ~ ~ ~ ~ ~1 0 ~ S~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ O ='' O U, erl ~ 03 ~ ~ ~ 3 ~ ~ ~ ~ ~ ~ ~ ~ =~ - ~ ' - C~ ~t oo ~ ~1 ~ ~J ~J L~ C~ oo oo ~ ~ oo ' 1 =) ~ c~ ~ o oo oo 1 1 1 ^ ^ O a: O ~ oO O oO ~ O c~ ~ ~ ~ oo ~ ~ ~ ~ oo ~ ~ oO c~ oo ~ u~ ~ ~ r~ c~ u~ ~ 0 ~ oO C~ cn S~ O ^ =. u' ~n ~ -9 ~ u u~ a~ ~ ·,1 ~ U~ ~ C~ s~ ~ ~ ~ ~ 0 cd 53 cd a ~ ~ ^ ~ ~ ~ ~ ~ ~ o cd u ~ ~ a, ~ ~ 0 u cd s~ ,= c-~ ~ ~ ~ u ~ u ~ ~ ~ u co ~ ~ ~ .- ~ ~ ~ ~ O ~ :~ 4-] c~~ ~ V 0 ~ Cd cd ~ ^ ~ ~ ~ .- ~ ~ a~ ~ ~ ~ ~ u ~ ~ ~ u .- ~ ~ ~ ~ ~ .- ~ v ~ ~ O ~ ~ ~ ~ ~ ~ ~ O ~ - ~' 3 ~: ~ cd ~ ~ ; ~ ~ Cd a) ~ ~ ~ 0 s~ ^ 0 v a) c~ ^ ~ S~ s: U u~ ~ ~rl ~ ~ ^ ~) ~ U ^ CO ~ ~ ~ ~ S~ ~ ~ .,1 cn cd 0 ~1 U] ~ ~ O ~ C~ ~ U ~ · - ,~ ,1 ~ ~9 C) :~ ~ a) ~ 0 ~ ~ ~ V ~ ~ ~ ~ ~ ~ ~ ~ ~ s-~ s- ,~ a~ ~ v 0 ·,~ c<~ 5e~4 c: >- ~ e~ ~ ~ = ~1 ~ t~ 3 0 ~1 0 U] C) O C) ~ a) ~:: c~ ~ ~ ~ ~ O ~ O ~ .- ~ ~ Z P4

8-192 ..) If ~ Go a, ED so a) 0 1 Q4 Cal a) sol ED a, so U. Pi sol U) U. sol o P4 U) so o > . - . Sol U ~ o o a, o SO U] . ,, ,, ~ ~ . - ~ 3 ~ ~ o lo: as, o ~ ^ o ~ ~ ~ ~ ~ ~ ~ ~ ~ 0~ ~ e~ ~ SO Marl ~ . - ~ ~ . ~ . - .~! ~ ~ ~ At, up ~ ~ Al U] ~ Us ·^ as JO 3 ~ 1 ~ ~ ~ ~ o a) ~ she ~ · ~ us ·^ an, .^ us ~ lo, · ^ ~ ·rl 00 be .~ - m~ ~ ~ ~ ~ Om ~ ~ ~ 0 ~ 0 us ~ ~ ~ 0 0 0 ~ 0 In ~ .^ ,= U' =- ~ ~ ,~ ~ .~ Cal ~ ~ O U? be JO ~ ~ To ~ ~ ~ ~ - ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ lo_ 0 ~ 0 ~ a) ~ c' 0 0 U] 0 ~ ad ~ c: 0 ·^ · ~ ~ V O ~ 1 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ '- .,1 ~ Us ~ Up ED ~ :25 ~ ~ SO U) U) be ·,1 Us ~ ~ U] CD Us ~ U: O U) ~1 ~ U] ~ U) be Us :, ~ ~ ~ ~ V :, :' ~ ~ ~ ~ ~ :, a~ ~ ~ · ~ .- ~ ~ ~ ~ O ~ ~ 3 ~ ~ ~ ~ V == ~ 3 ~ ~ 3 = - .- pI Q. ~1 ~ O ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ O U] ·— At: U] ~ U) ~ U) ~ U] U] ~ Us ~ ~ ~ be U] a O Jo ~ Cal ~ ~ O ~ Up ~ ~ ~ ~ ~ oO Up ~ Cal Cal Lo Cal Lr) ~ ~ ~ ~ ~ ~ 00 oo ~ ~ Cal Cal O —1 00 O <~ ~ ~0 cad ~ ~ ^ ~ ~ Cal ~ Cal. en U 1 0 Sol ~ ~ U O ~ ~ O U V ~ ,= a,4 ~ C] U] U' ~ ~ ~ a~ ~ ~ ~ ^. as ~ u ^ ~ o ~ ~ ~ ~ . ^ a) ~ us sol ~ ~ ~ ~ ~ . O ~ a . - ~ . - ~ ~ ~ O ~ ~ ~ U ~ ~ ~ ~ O V c .,' ~ ~ ~ ~ ~ ~ ~ ~ ~ .- .- ~ ~ ^ ~ c' u' al "l a) 53 ~ ~ ~ ~ ~ ~ u so Cal O 0 C. ~ C. et ~ 0 ~ ~ U ~ ~ C) ~ ~ ' ~ ~ ~ lo ~ ~ C) Cal 0 a) To Cd 53 ~ ~ us ~ cd ~ =: ~ cat ·, c: c: ~ ~ 0 CO ~ 63 — ~ cn ~ ~ a) ~ US ~ 0 ^ ~ a) VO = = U US ~ O ~ ~ ~ Al U: ·- cd ·- al c: :~ ~ ~ ~ Cd 0 ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 ~ ~ 3 V .- == ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 H o~1 Up ¢ ~ Us c) ~ a,1 ~ CO ~ ~ So ,1 ¢ En Cal . .

8-193 o 1 Cal A ~ So En U. En JO a) o C' _< LO Go a) En · ~ ~ ~ U. o ~ · Al ~ 1 ~1 do ~ o ~ ~ ~ ~ ~ ^ ~ ~ . - ~ ~ ~ ~ ~ ~ ~ ~ ~ . Girl ~ ~ o ~ ~ 0 ~ . o ~ so ~ ~ ~ ~ Go ~ C] U] o ~ ~ ~ == ~ ~ ~ b0 ~ — ~ At, ~ ·— Girl >~ Sol U TV U C) (1) Sol ·^ ~ ~ ~ ~ ~ ~ ~ O . - ~ · ,~ ~— · al · us Girl ·^ Girl U] U Cal O Girl ~ JO Cal US ~ 00 ~ ,= ~ ~ ~ ~L) lo, ~ · - ,Q ~ U) ·~1 ~ ~ 1 AD JO ~ ~ ·^ ,= :, ~ Al no ~ us O ~ ^ - ~ ·~.rl ~ man 0 ~ ·^ ~ ~ ~ ·^ ·^= ~ ~ ~ at ~ ~ 3 ~ 5- ~ ~ ~ . - oo sol . - ~ ~ 0 al ~ To ~ ~ ~ ~ ~ ~ do ~ ~ cot ~ Al ~ ~ a' 1 ~ ~ CO ~ ~ ~ Cut ~ ~ ~ ~ ~ 1 ~ ~ 0 c' ~ cat ~ ~ c: ~ 0 ~ ~ ~ ~ ~ ~ ~ ~ ^= ~ ~ ~ ~ on ~ ~ ~ ~ ~ ~ a al O ~ ~ ~ 3 r' (u ~ Al ~ ~ 0 c: ~ ~ 0 o~ ~ cd ] ~ ~ U] ~ O U) e~ ~ ~ ~ ~ ~ ~ O Cal ~ ~ ~ S' ·^ En ~ ~ ~ ~ us be UD ~ ~ ~ ~ ~ ~ O ~ ~ U a~ ~ ~ ~ O ~ ~ ~ .- ~ ~ .- ~ ~ ~ ~1 ~ ~1 ~ V ~1 ^ ~ ~ Girl be ~ ·- C) 1 1 ·^ c) ~1 1 ·~1 al ~ Al al =m O En ~ ~ == ~ oo ~ Go ~ == 3 sol ~ sol ~ ~ ~ ~ ~ ~ ~ 0 six c) ~ ~ ~ ~ ~ ~ ~ 0 ~ ~ ~ ~ a) ~ ~ ~ ~ ~ sol ~ ~ ~ ~ ~ ~ ~ ~ ~ sol U) lo U) ·—~ U) ~ Girl U] ~ ~ U) ~ ~C) ~ ~ ~ ~ U) ~ ~ ~ ~ ~ ~ Cal oo O ~ ~ En 0 Cot oo ~ ~ oo O 1 ^ Cot 1 1 1 1 U) u o U) Sol o . - o o O Cot ~ ~ AD UP O UP UP O oo UP ~ ~ O Cot ~ U' Sol a, ^ a, ~ a) 1 ~ u U] ~ ~ ~ ~ a~ ~ a) ~ cd ~ ~ u cd ~ ~ a~ 0 Girl lo, U] ~ ~ 53 do 63 ~ ~ a) O a) C) ~ ~ ~ ~ ~ =~ ~ ~ ~ 03 Go Do =1 (1) US Cal Al us us O ^ ~ U ^ c) ~ ~ ~ ~ a ~ Girl Oil ~ -= c.) us up ~ ~ ~ ~ ~ o . ~ ~ ~ ~ ~ ^ .,1 ~ Sol ~ ~ ~ O O c) .- us ·,1 ~ ~ U ~ U) C) Sol O ~ VO ~ =~- o ~ ~ ~ ~ us ~ ~ Girl ~ ~ ~ .- ~ ~ ~ ~ ~ O O be ~ En ¢ ~ ~ o ¢ If

8-194 ~ o u 1 UP so En of .H o _ UP . a) En U' Cal U. so o CO So o - o o a) ~ ~ ~ ~ ^ c' ~ ~ .,1 ~ ~ O ~ ~ ~ ^ ~ ~ o .,1 ~ ~ ~ ~ ~ ~ .- ~ .- En 0 0 ~ ~ ~ ~ ~ ~ ~ ·^= so ~ ~ ~ ~ .^ ~ ~ a) do ~ = - ~ ~ ~ ~ . O ~ ~ ~ O ~ 1 C) ~ ~ ~ ~ ~ ~ · ~ ^m O us Cat be ~ ~ ·— ~ o r: c~ ~ ~ ~ ~ ~ u~ ~ <~ a) ~ a) ·^ ~ ^ · a) ~ ~ ~ · 0 cn ~ O S~ .,1 ~ ~ ~ ~ ~ O ~ .,1 · - ~ C~ ~ ~ 0 U' ~ C~ ~ ~ U' U. ·^ ~ ~ ~ · 0 ~ ~ ·^ ~ ~ ~ 0 ~ ·^ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 ~ ~ ~rl ~ ~ ~ ~ ~ ~ ·,1 ~ ~C U~ ~0 ~ =~rl <3` p4 ~ ~, ~ ~ ~ a,~ c~ ~ ~ aJ 0 ~ ~ 1 S~ cd O ~ ·,1 0 c~ a) ·,1 ~ c: ~ O c~ ~ ~ a S~ · ~ ~ ~ S~ ~ ~ ~ ~ ^ ~ ~ ~ U] 0 ~ ~ ~ ~ ~ ~ ~ ~ 0 ~ ~ ~ ~ ~ ~ ~ .~} ,= ~r, ,~ k~ ~ ~ U] k~ ~ u ~ ~n o ~ u ~ o~ ·^ ·~ ~ c<~ o CO a,1 ~ U ~ b0 U ~ bO co ~ ~ ~ U · ,1 ~ c: ,1 ~ ~ ~ ~ ~ rl ~ a~ cJ I e~ C~ ~ ~ a~ ~ ^ ~ ~ C) rl C) ~ ,1 ~ c~ ~ ~ e~ ~ ~ ~ rl ~ ~ ~ ~ ~ ~ rl ~ rl b0 3 s~ ~ ~ Cd ~ ~ o ~ ~ U o ~ ~ ~ C~ ~ O ~ ~ O :' ~ ~ ~ a) ~ s~ ~ ~ ~ s~ ~ ~ ~ ~ a) ~ a) ~ ~ U] ~ U] C) ~ ~ ~ ~ S~ ~ ~o U~ ~ U] ~ ~ to ~ ~ ~o oo 0 ~ ~ C~ ~ ~ ~ oo 0 ~ ~ ~ ~ ~ ~ ^ 1 1 1 1 1 1 1 ~ ~ ~ ~ ~ ~ ~D L~ 00 U~ ~ ~ C~ o ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ c~ cO v ~ ~ ~rl ~ ^ .,1 c4 ~ ^ u S~ V7 U ~ ~ o ~ u O ~ 1 ~1 b0 a) to ~ ~ 1 om ~ c a) =: u' o ~ ~ .~ ^ ~ o ~ ~ ~ ~ ~ ~ O V a,1 ~ ~ ~ o ~ ~ ~ ~ ~ ~ u ~ ~ ~ ~ ~ c) u b4 ~ ~ o c) a,! ca) s~ ~ . - ~;' ~ ·,1 ~ ~ ~ V a~ cD c~ ~ co O O ~ ~ ~ O Z V E~ O O ~ O C~

8-195 So o 1 ~ Cad So ED U] I so U] 1 erl o C' a_ Lo . 00 a) ED 1 ~ 1 a) b0 · O ~ . - 00 ~ · U] O ~ ~ ·~= a) us ~ bO.,I O u, ~ 1 ~1 S-l C. lo, ~1 e cut ~ a, ~ ~ cd ~ TIC ~4 ~ ·^ ~ . - U] ~ Girl U) ~ ~ ·^ ~ ·^ O ~ U. O . - =~J A rot Q. CO ~1 U] U) ~ ~ ~ ·^ U] ~ ~ O ~ O O ·^ ~ ~ ·^ ~ ~ ~= -= Lf-) U) ~ Girl ~ =~1 be ~ ~0 1 c-) ~ — ~ A) 0 ~ ~ ~ 0 0 - I u, ~ a) en ~ ~ ~ · So Cot O a' ~ ad ~ ~ ~ us :3 ~ == U] Ei ~ ad Cal ~ U) ~ ~1 U] Girl Al ~ ~ ~ O cd ~ c' ~ a, 3 ~ an cat O ~ ~ r: So ~1 0 ~ at ~ :d sol ~ ~ ~ :: ~ ~ Al to o U] ~ U] US ~ US U] Cal` c') 1` ~ 1 1 1 U) Sol o en o Girl o C' Pa as C) u] a) in o u) u] o ~ ToD it an ~ ~ oo it ~ c) o ~ u] lo ~ a) Do ~ Hi hi ] a) ~ c) hi ~ o lo ~ o ~ o ~ =5 u] ~ o Girl C3 ~ hi hi u) o Hi o

8-196 o U) . o o o ·- S~ U' U. . o so _' U' a) girl o erl U' ^ a) o . En U] Hi ~ =0 ~1 ~ 1 ~ C. ~ ~ a: ~ O ~ ¢ Vow O o En O SO O ~ ~ ~ O ¢ VO U] O C) S~' O O girl U) }_ U) U. O ~ O CO O S~ ~rl H U) U} o U C) U) . - S~ U] H . o z ~1 ~ ~ O 1— 0 ~1 ~J ~1 Ir) oo ~J · · ~ · · · · · · · · ~ O ~ ~ ~ ~ ~ ~ ~ O ~ CD ~1 ~1 0 1 1 1 1 C~ O C~ ~1 00 · 1 . O 1 ~ ~ ~ O · · · — C~ ~ ~ ~ C~ ~ ~ ~ ~ ~ O ~ · · · · · · · ~ O C~ O ~ C~ ~ O ~1 O O ~ ~ ~ oo oo U~ ~ ~ L~ ~1 ~1 ~1 C~ C-l O O O O O C~ ~ O ~ ~ ~ O 0 c~ ~) ~1 0 ~ ~1 ~1 ~ O CO ~ C~ ~ O O U~ ~ L~ u~ ~ ~ ~ ~D 0 ·- ~ 0 ~ ~ ~ ~ ~ ~ ~ 1 a~ ~ ~ ~ ~ ~ ~ ~ v ~ v ~ ~ ~ ~ ~ ~ ~ .- O ~ ~ ~ ~ ~ ~ 1 ~ ~ ~ .- ~ ~ ~ ~ ~ v ~ ~ O ~ .- ~ ~ ~ ~ .- ~ ~ ~ ~ ~ ~ ~ ~ o ~ ~ bo ~ o ~ ~ ~ ~ ~ ~ . - ~ ~ ~ ~ ~ ~ o o ~ o ~ ~ ~ ~ v ~ ~ c' ~ a~ ~ ~ ~ a~ ~ ~ ~ ~ ~ ~ e s~ . - ~ ~ . - ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ a ri ~ u~ c~ u~ u~ s~ o ~ ~ ~ ~ ~ u~ u ,~ U ~ ~ ~ ~ ~ ~ O O ~ ~rl ~ .,1 ~ ~ O 0 ~ ~ ~ ~ ~ ~ 0 0 ~ ~ ~ ~ 0 P~ C: ~ ~ ~ U] C~ z · · — · · · ~ · · · · · 0 oo

a, ~ ~ a) to ~1 ~ 1 Earl ~ o ~ ¢ ~ - o o em U) O O O ¢ U] U) O V ~ pi ~ 53 O O Earl CO ~ rid U] ~ En O ~ O U] O a) ~ ~ U. o _ a' ED o a' U] Earl an o As . 8-197 Can ~ o US Can · e e e e us AD Can 0 00 1— Can e e · - u~ ~ ~D C~ ~ U~ ~D ~ ~ ~ ~ ~ 00 ~ C~ ~ ~D · · · e e e e · ~ C~ ~ ~ ~ O ~ ~ ~ 00 C~ ~ ~1 00 C~ ~ O ~ 00 · · · · e · - U~ C~ ~ ~ ~ O ~ ~ ~ ~ ~ O C~ C~ ~ O ~ 00 0 0 O ~ ~ ~ ~ ~ ~ ~ C~ ~ ~ 00 C~ ~1 ~I L~l C~ In ln 0 0 0 0 00 ~ O U~ ~ O O ~ ~ O 00 ~ ~ ~ ~ C~ C~ o 00 ~ O C~ L~ 1` 0 O 00 ~S3 U] .9 ,Q ~ ,~ ,~ '- O U' ~ ~ O O S~ ~ ~) b0 kl ~rl ~ 0 ~1 U] .- .~ ~ ~ O k1 ~1 0 ~ ~ ~ ~ ·- . C) ~ ~rl ~1 '- ~ ~ ~ '- ~ ~ ~ O ~ ~ V . - ~ ~ ~ V al ~ ~ ~ ~ ~ ~ . U] .,1 ~ ~ ~ . - ~ O a' ~ ~ ~ ~ ~ ~ ~ ~ o ~ o O ~ O ~ ~ ~ 0 ~ 0 s~ ~ ~ ~ ~ a) ~ ~ ~ 0 ~ ct~ E~ ¢ C~ ~ C.) u~ ~ ~ ~ :r ~ C) >: · · · · e e e · ~ e e e e e 00 ~ O ~ C~ C~ C~ C~ ~ C~ C~

8-1 98 U' ~ ~ U m^ to ~1 ~ 1 ~ o ~ ¢ ~ ~ o o girl CO o o o ¢ U] CO o so o o ~ U] a) ~ ~ UD o ~ o U) o a) u' , U) girl o Cal _' . oo ~3 En ~ ~ LO Cal ~ ~ ~ Us O · e e e e e e e e Cal 00 00 ~ O ~ ~ Us ~ Cal ~ ~ ~ Us O Hi e e e e e O ~ ~ ~ ~ `,' O ~ C~ L~ C~ O e e e e ~ ~ 00 ~ ~ O ~ ~ C~ ~ C~ ~ C~ C~ c~ 0 C~ 00 ~ ~ ~ ~D Ln O O O ~ ~ O ~ O O O ~ C~ O C~ U~ O Ln O °° 00 L~ ) C~ C~) O ~ O 00 C~ ~ ~ C~ ~ C~ o C) U) e~ S~ CC H cn u~ b0 b0 u' ,1 ,1 U' O bo cn ·,1 ~ ·,1 ~ ~n ^ ~ ~ . - .- ~ ~ ~ ~ o .- ) ~ o o . - c-, ~ ~ ~ e~ u o ~ ~ ~ . - ~ ~ ~ u ~ ~ ~ ~ u ~ ~ v ~ ~ e~ ~ ~ ~ ~ .- ~ a b e ~3 rl rl ~ O rl cn ·— ~ k~ ,~ co c) k~ a a ~ ~ ~ ~ ~ .- ~ ~ ~ o ~ ~ ~ ~ ~ ~ .- E~ ~ ~ ~ <: ~ ~ C~ E~ ~ ~ ~ ~ e e e e ~ e e e e O ~ 00 ~ O ~ C~ Z C-1 C~ C~ ~ C~) C~ C—) C~ e e e e ~ ~ 00 ~

8-199 - m^ o ~ ~ ~ o r_ Ql · e e e e e e e e e ~1 ~ 1 ·rl O 00 ,~1 Go ~ C-l `;t Lo C-l Cd ~ C-) ~ ~1 ~ ~ ·— ~ O ~ ¢ o~ O o . - . u: ~ ~ a ~ ~ 0 . oo ~ ~J O (1) Fi e e e e Cd e e IS, C~ t~ 00 I~ ~~ C~ C~ e 00 C~ O i~ tl' U) e ~ ~ t~l O m¢ ~ U' U) ~ ~ ~ ~ ~ O ~ O ~ O C) C) e e e e e e e ~1 1` ~J ~1 ~ O ~1 ~1 O ~ ~ ~ ~ ~ ~ C~ O '1 ~C U] S~l ~ ~n U] O ~ O CO O U] .,1 ~ H U) U~ CD E~ C~ O O ~ 00 O O O O 0 00 0 ~? ~ 1~) Lr) ~D Lo ~ 00 00 C~ ~ ~ ~ ~ C~ C) ·,] U] ·- .- ~1 b0 ~ O S~ ·~ ~ O ·- S~ ~rl k~ U~ ~ ~ ~ .- a O O U ~ O ·,1 U] U~ ~ C) a C) ~1 u, cn ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ V s~ ~ s~ o ~ ~o ~ ~ ~ ~ ~ ~ ~ .- . C3 ~ ~ .- ~ ~ ~ ~ .- ~ ~ ~ ~ ~ ·- .~ ~ o ~ ~ ~ cO c) ~ ~ ~ ~ ~ o s~ o ~ ~ ~ ~ .- ~ ~ ~ .- ^.rl co cn ~ ~ ~ ~ ·- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 ·- ~ ~ ~ o ~ ·- d 3 ~ ~ ~ ~ ~ r: ~ ~ cd ~ ~ o ~ ~ ~ r: o ·~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ·- E~ ~ u, ~ ~ ~ ~ ¢ O u, ~, · e e e e e e e e e e e O O ~ C~ ~ ~ U~ ~ ~ 00 ~ O Z . r~

8-200 o ~1 ~ 1 U ~ o ¢ C)'~ U' o o em U) O SO O ~ ~ ~ O H ~ ¢ U] O o U) U. C) ~ O girl U) _ - CO ~ U) O O En O CO girl U] _ - .= ·~ o L). _' UP 00 a) Em Can ~ ~ · · ~ A 1 Cal Cal A ~1 1 ~ 00 ~ · — 1 1 ~ ~ Cal ~ · · · ~ O A ~ 1 ~ 0 1 Hi ~1 C-1 ~1 1 1 ) oo ~ · · · ~ 1 - , L]~} Lr) ~ C~ 0 1 c~ c~ ~1 1 ~1 ~ u~ ~ 1 ~) 1 C~ c~ ~ ~ oo o o o u~ o u~ o o ~ ~ o o ~ oo ~ o ~ ~ ~ oo ~ c~ ~ ~ ~ ~ ~ Ln C~ - .e ~ ~I C~J ~ ~I C~J S" o Cd aJ U] e~ S~ ~n o z S~ erJ ~n U] . ~ U' U] ~ ~ 5 O ~rl O U] U] ~ U] O C — U' ~ .- U] O ,~1 ~ t15 ~ ~ .- O ~ O O ~rl V O C) C) C~ ~ ~ O U, O ~ ~ ~ ~ erl erl ~ ~ ~ ~ ~ C~ ~ (1) m ~ ¢ E~ ; u: ¢ · ~ · · · ~ ~ · ~ oo Ln U~ U~ ~ U~ U~ ~ L~

8-201 In the judgment of the Report to the President of the Commission on International Trade and Investment Policy (July 1971), the competitive strength of the U.S. "... clearly lies in capital goods and other manufactured products involving advanced technology, and in basic agricultural products, while we may expect increasing deficits in manufactured products which do not involve advanced technology." A mature economy need not be considered in difficulty if it develops an adverse trade balance. Returns from capital investment, payment for services including management and technology supply, and other forms of earning, are ways of paying for import balances. How one views such structural changes depends in part on the magnitude of emerging maladjustments and on the prospects for balance among these factors. Without attempting to strike a balance among the factors causing our present difficulties and ranking the remedies, one must afford a significant role to any attempts to render those U.S. products more competitive that have the greatest potential for finding ready markets. Past events suggest that these are the products that incorporate a high-technology content and are the result of continuing innovation. This points to the role of R&D and, in the context of this report, especially of MSE R&~. Materials science and engineering can make significant contributions to U.S. foreign trade, as well as to international concerns over environmental quality and the exploitation of natural resources. These include ways to: (a) reduce the importation of raw materials and fuels, costs; (b) develop new processes and manufacturing methods to reduce production (c) innovate new materials, products, and technologies Particularly in the civilian and low-technology sectors); and create new high technologies especially in fields where labor component is low and technological input high; (d) reduce deleterious effects on the environment associated with manu- facturing processes and the disposal of waste. On the key question of reducing materials consumption, MSE can contribute vitally by: (a) improving extraction and manufacturing processes; (b) finding substitute materials made from more readily available raw materials; (c) finding economic ways to improve material qualities such as durability; (d) finding ways to achieve comparable material performance with less material; and

8-202 (e) raising the rate of recovery of used materials (recycling). Patterns of Industrial Competitiveness and Technology Diffusion There is a familiar pattern in the growth, development, and inter- national diffusion of a technology. At the birth and in the early stages of a new technology, such as solid-state electronics or nuclear-power reactors, the pace of invention is high and the innovating company or country may well achieve a commanding position in the market for its new technology. In this stage, cost is of secondary importance. Later the inventive pace begins to slacken while, at the same time, other companies or countries with the necessary educational level and technical competence, are acquiring the knowledge and skills so that they may catch up. The formerly commanding position of the original innovator is gradually eroded as the relevant technological capability diffuses nationally and internationally. In this stage, where the technology is termed as becoming mature, commercial advantage is kept by, or passes to, that company or country that can most effectively minimize production and marketing costs. In this phase, process innovation can assume more importance than further product innovation. The early stage of a technology, when the inventive pace is high, is often science-intensive; it is then commonly referred to as a "high technology. It seems that high technologies, in which the U.S. has been at the forefront, such as aerospace, computers, and nuclear reactors, have been generally associated with international trade surpluses for the U.S. In the more mature stages, the science content of further developments in the technology is usually less and the technology can be referred to as experience-intensive or "low technology." Such technologies are more readily assimilated than the high technologies by developing countries and are more likely to be associated with trade deficits since these countries usually enjoy lower costs, primarily through lower labor rates (though not necessarily lower unit costs). When a technology reaches this phase, the U.S. runs the risk of becoming quite dependent on foreign enterprise for further developments in that technology. This may be acceptable for some technologies but not for others critical to national economic and military security. The fabricated metals industries are prime examples of such experience-intensive technologies that face very severe foreign competition. Other industries in which technological leader- ship may have been lost by the U.S. are tires and various consumer goods such as shoes and bicycles. Still other technologies, some of which ark regarded as high technologies, are moving in the same direction ~ g. automobiles, consumer electronics, and certain aircraft sectors. Thus, as one studi7 has concluded, within a given industry, such as steel or petroleum, the U.S. trade balance tends to move-from deficit to surplus along the industrial scale from raw materials to semifinished products to finished products (~.e. proceeding around the materials cycle). Iron and steel and finished metals provide a good example (see Figure 8.3~; in time w. H. Branson and HL B. Junz, Brookings Papers on Economic Activity, Washington, D. C., Vol. 2, p. 285, 1971. , I'

8- 203 FIG. 8.3 U.S. TRADE BALANCE IN IRON AND STEEL, 1925-70 1,000 750 500 J O o ° -250 in an o J J 250 : -500 -750 -1,000 - 1,250 —1,500 1925 _ 1! ! ~ ,. , \4 , I, . ^ , ,I, ~7 UP. l FIN ISHED AND SEMI FIN ISHED ~ IRON AND STEEL I FINISHED METAL SHAPES A N D ADVANCED METAL MANUFACTURES ·~. BASIC IRON AND STEEL ~ _ _ _ _ __ _ _ _ 1 \ 11111111111111111111111 . 1956 1 965 I r i! ll ll 1' 1935 1946 .~ 1930 1940 1950 1 960 1 970 a. EXCLUDING WAR YEARS 1941-45 1

8-204 first basic iron and steel run into trade deficits, then finished and semi- finished iron and steel, and later, finished metal shapes and advanced metal manufactures. The advanced product of today is the standard product of tomorrow. Another example of this product-cycle phenomenon is given by man-made fibers in which the U.S. enjoyed a trade surplus during the "shake-down" period from 1955 onwards, reaching a peak around 1965, but then went into decline and was heading for a deficit after 1970. There are many factors that can contribute to trade surpluses or deficits, such as physical capital, human capital (professional, skilled, and unskilled), economies of scale, monetary policies, R&D expenditures, and so on. We are concerned here primarily with the role of R&D. The relation of R&D expendi- tures, as a percentage of value added, to net exports by industry has been noted by Keesing. This finding I. B. Keesing, "The Impact of R and D on U.S. trade," Journal of Political Economy, 75, 38 (1967)), could supplement both the human capital and product-cycle hypotheses; i.e. that science- intensive industries are likely also to be human capital-intensive and occur in the early part of the product cycle. Branson and Junz conclude from regression analysis, however, that the R&D measure is a significant variable in explaining variations in net exports of manufactured goods even when variations in human capital have been allowed for; that the role of R&D ex- penditures in explaining U.S. comparative advantage is not simply that of a proxy for human capital or for the product cycle. The above discussion has focussed on trade in traditional commodities. But the U.S. is sometimes regarded as being in a post-industrial phase, where service industries are becoming more important than manufacturing industries in the economy. Services such as banking, insurance, and trading activities may grow increasingly important in the export market, too. A service of particular relevance to MSE is R&D and technical managerial ability. These are services not necessarily tied to U.S. labor or U.S natural resources; in fact, one often sees these factors of production combined with foreign labor and foreign natural resources in U.S. direct investment abroad, e.g. the multinational corporation. A lesson to be learned from the analysis of product cycles is the importance to the trade balance of innovating new products through R&D. But other countries have recognized this as weal. The U.S. maintains a much higher absolute level of R&D expenditures than any other country in the world but others, notably West Germany and Japan, are in a position to place a much higher relative emphasis on R&D for civilian market-oriented technology and economic development, and are doing so. But there is little reason to doubt that the capacity of European and Japanese firms to innovate successfully, and to imitate quickly the inno- vations of others, has increased in the 1960's and early 70's and will continue to increase in the near future. Several reasons account for this trend toward innovation. First, per capita incomes in several other indus- trial countries are growing very rapidly; as a result the share of income available for discretionary spending, beyond the bare necessities of food and shelter, is growing even more swiftly. This means a rapidly growing demand for new products and new designs.

8-205 Second, European and Japanese attitudes have become much more receptive to change, much less tradition-oriented, than they once were. Third, today new ideas and products are much more rapidly diffused across boundaries, with the result that an innovating country will enjoy the export advantages of innovation for a much shorter interval than has been true in the past. Very quickly its new products can be produced abroad and perhaps exported back to the country of origin. For example, within a year of the introduction of stainless-steel razor blades by a British firm (Wilkinson Sword), several American companies had competing blades on the market. This response was defensive and rapid. Float glass was produced in the U.S. only four years after the pioneering production began in England although the basic patent was issued in the U.S., around 1900. Similarly, several computers have been produced in Europe only a few years after they were first marketed in the U.S. Studies of imitation-lags for various industries suggest that, as com- pared with a period of some 20 years during the 19th century, the imitation- lag was generally reduced to less than 10 years in the second quarter of this century, and to less than three years by the 1960's -- in short, a sharp reduction in the period required for new, commercially successful ideas to be imitated abroad. There are various reasons for this acceleration in international diffusion. It results, in part, from technological changes in transportation and communi- cation, which make international transmission of new ideas much easier. It also is due to the attitudinal changes discussed above, which make other nations much more receptive to new products and processes than they once were. Finally, the very rapid growth of American investment in Europe during the past decade fostered international diffusion of new ideas and techniques. Very often, subsidiaries of American firms have been the first to introduce innovations to European countries. Direct business investment abroad is an important conveyor of management and technical skills, which is often more significant in its effects than the movement of capital. In a sense, it represents a return to reliance on migration for the international transmission of technical knowledge, although here the migrants are mobile employees of multinational corporations rather than independent entrepreneurs and craftsmen who hope to settle where they can use their knowledge to best advantage. Technical Achievements Much of this section is based on the "Gaps in Technology" studies under- taken by the O.E.C.D. in the mid-1960's. "Gaps" is perhaps a misleading word; the technological performance differences between the U.S. and other countries are more in the nature of time lags fluctuating both in magnitude and sign. For example, the quantitative lead that the U.S. had in ship- building in World War II has passed to Japan and northern Europe through their development of better designs and manufacturing techniques, Europe's lead in steel technology at the beginning of the century passed to the U.S. only to be challenged by Europe and Japan more recently. In high-technology

8-206 areas, the almost absolute dominance of the electronics industry that the U.S. has enjoyed since the discovery of the transistor is now being selec- tively challenged by Japan where profitable. At the same time, European countries have achieved many important innovations in the less glamorous and longer established industries, such as metallurgy and chemicals, industries which have often contributed more to export performance and economic strength than the new-product and rapidly changing technologies. In these and a variety of traditionally low-technology areas, such as constructional materials, there is now concern that the U.S. is falling behind Europe and Japan technologically. U.S. export performance has been strongest in the science-intensive industries, and it is surely no coincidence that it is generally these which have indulged in large, government-sponsored R&D programs (particularly aerospace and computers). Despite this, however, particularly in the field of electronics, other countries, notably Japan, are able to challenge the U.S. in its home as well as world markets. In the past, cost conditions in other countries have often been sufficiently favorable to offset the export advantages of the U.S. resulting from heavy R&D expenditures, but this is no longer so important a factor. As new technologies mature and become better established, perhaps in the process passing to low technologies, it becomes easier for different countries to draw abreast of each other technically; then, economic dominance transfers to that country which can produce most efficiently. Under these conditions, process improvements and innovations can be more important than product innovations. Since World War II, the U.S. has often led with new products but has paid rather less attention to process innovation. Thus, in both high and low technologies, U.S. export performance has not been as strong as might have been expected: lower labor costs abroad have enabled other countries to capture much of the high-technology market, while paying more attention to process innovation has enabled other countries to gain strong positions in low-technology areas. This is, of course, a grossly oversimplified view. Export performance depends on much more than just novelty and cost; for example, there must be a foreign demand for the product and a country's manufacturing capacity must be more than that required to satisfy the domestic market. Nevertheless, the economic strength of a country will be weaker the less it captures new business for itself through product and process innovation. A European Success in High Technology - Civilian Nuclear Technology 18 Despite the early U.S. advance in nuclear science' Europe has done much to apply this knowledge to civilian energy uses. At one time the U.S. had a commanding lead over Europe in nuclear-power technology; today, there is no significant difference between the two regions in this field. European companies and government establishments can now speak with scientific compe- tence equal to that of their U.S. counterparts. Indeed, by the late 1960's, in certain areas, such as fast-breeder reactors, heat-transfer fields, and 18 "The Technology Gap: U.S. and Europe," The Atlantic Institute, Praeger,1970.

8-207 plutonium applications, Europe reached the forefront of progress. Currently, Europe has three times the nuclear generating capacity of the U.S., more than two-thirds of which is located in Britain, giving it more nuclear power- generating capacity than any other country. France has the world's largest operating commercial reactor, while Germany is engaged in a program to develop both sodium and steam-cooled, fast-breeder reactors. Much of Europe's recent advance is the result of the fact that market considerations were much more favorable for establishing nuclear power plants in Europe than in the U.S., where nuclear energy has had to compete against such (previously) low-cost energy sources as coal, oil, and gas. The U.S. played a major role in establishing Europe's first nuclear power plants by granting numerous incentives, such as (a) a low-interest loan from the Export-Import Bank; (b) a guarantee to supply enriched uranium for the full life of the plant, under favorable conditions; and (c) an option to reprocess spent fuel in the U.S. at the U.S. domestic price. Such cooperation is continuing by means of the Joint Research and Development Program of the U.S. Atomic Energy Commission and EURATOM. At first, Europe depended heavily on U.S. nuclear technology, e.g. through licensing agreements with the two major American companies in the field -- Westinghouse and General Electric. However, this did not prevent European scientists and engineers from introducing a number of important innovations of their own, which the U.S. in turn has become interested in adopting -- such as using reinforced concrete instead of steel to protect the power-plant enclosure, because steel is more expensive, especially since the enclosure has to be constructed on the site; and EURATOM's system of "Key words," which simplifies the computerization of nuclear information. The European contribution to civilian nuclear technology has been hailed by Glenn T. Seaborg, chairman of the U.S. atomic Energy Commission: "The rapid growth of nuclear power development in some countries, most notably in Europe and Japan, is resulting in the production of valuable technical information. The availability of this information to the United States, as called for under the cooperative arrangements, should both increase the rate and decrease the cost of developing nuclear power in the United States." However, progress in European nuclear technology appears to be restrained by the industrial structure in many of the countries, where a large number of small firms are not especially suitable for the large-scale development of nuclear energy, as well as by the fact that the electric power networks of European countries are not interconnected. In addition, Britain and France are using natural uranium gas-cooled reactors, which have not proved to be as competitive as the U.S. enriched- uranium reactors. At the same time, American orders for nuclear reactors have increased rapidly and should soon exceed the European lead in number of installed megawatts, but not necessarily in the promising field of fast reactors.

8-208 A European Failure in High Technology - Electronics There was a well-established, capable electronics industry in Europe, as in America, at the time of the discovery of the transistor. It might be thought that European companies should have been able to move about as rapidly into the new era of solid-state electronics as their American counter- parts. Yet the record shows otherwise. By far, the majority of the product and process innovations stemmed from a few U.S. firms but the additional firms which moved rapidly into this new field were also mostly American in spite of exceptionally liberal cross-licensing arrangements. A major factor was the heavy U.S. government financing of R&D in solid-state electronics because of its important potential for defense applications. Other countries, with much smaller defense aspirations, took a much more modest approach as less risk money was available. Furthermore, the wave of American success swept into Europe where much of the electronic components business soon became dominated by subsidiaries of U.S. companies. It was only natural that these subsidiaries should rely principally on their parent organizations in the U.S. for their innovations in products and processes. On the other hand, Japan took a different approach, represented typically by the story of the Sony Corporation. This company quickly recognized the potential of solid-state electronics for the consumer market and fairly soon established itself as a leader in pocket radios, home-entertainment elec- tronics, and the like. To achieve this position Sony, like other Japanese companies, took the deliberate decision to import its technical know-how and concentrate its energies and resources on the production and marketing phases of innovation. Europe, on the other hand, by and large had striven to emulate the U.S. by devoting much of its resources to R&D in the hope that this would likewise lead to successes like the transistor. With one or two minor exceptions, the results were disappointing. European companies and other organizations were not able to catch up and keep up with the American companies. In consequence, Europe has not enjoyed R&D successes (and the associated market dominance) that compare with the transistor, while at the same time it has lost out to Japan in the production and marketing phase. Metallurgical Technology General Remarks: Both the U.S. and Europe have roughly the same level of technical expertise in the field of metallurgy. Over the past century, the lead of one region over the other in various aspects of metallurgy has changed hands numerous times. A new technical development tends to give one or the other region a temporary advantage, which is dissipated as the technical knowledge is diffused across the Atlantic. In iron- and steelmaking, for instance, there is now almost universal knowledge about the most efficient techniques of production; and large plants tend to use similar equipment and processes, regardless of country or location. Since the end of the Second World War, Europe has made technical improvements of worldwide importance, such as the basic oxygen furnace, first

8-209 commercially utilized in Austria, and has contributed to the development of continuous casting of steel and vacuum degassing. The basic oxygen furnace has revolutionized the world steel industry, both by reducing production costs and by turning out steel in less than one hour, compared with six- eight hours under the older, open-hearth method. The Netherlands and Japan promptly installed this more efficient furnace at a rapid pace. The U.S., and to a lesser extent Britain and Germany, had invested heavily in open- hearth furnaces and thus were reluctant to scrap their equipment for the sake of modernization. As a result, there was an 11-year lag (from 1952 to 1963) between the time that a basic oxygen furnace was successfully operating in the U.S. and the time it began operating in Austria. For Britain and Germany, the time lag was eight years. The original reluctance of the U.S. steel industry to adopt the technically more advanced steelmaking process -- which has recently been reversed -- is an important factor behind the large increase in U.S. steel imports in recent years, especially from Japan. Table 8.55 lists a number of processes of foreign derivation now used by the American steel industry and related industries. Europe has also pioneered in the continuous casting of aluminum (Italy) and of copper (Germany), while the U.S. remains ahead in other aspects of metallurgy, such as in refractory metals technology; this reflects the requirements of the U.S. defense and space activities for exotic metals. (It is worth noting, however, that the basic process for the production of titanium, involving the reduction of titanium tetrachloride with molten magnesium, was invented in 1936 in Luxembourg by Kroll who later went to the U.S.A. Some further examples of innovation in metallurgical technology, particularly in the nonferrous metals field, are given in Table 8.56. All in all, then, neither region has a commanding lead in metallurgical technology as a whole. This partly reflects the fact that there is no over- all lag in scientific knowledge about metallurgy between the U.S. and Europe, with both sides making important contributions in solid-state metallurgy, electrochemistry, and dislocation theory. Some Important Metallurgical Discoveries (a) Continuous Casting of Steel C1949, Germany) The economic potentialities of this process encouraged inventors to persist in the face of failures which made the steel industry in general skeptical of its practicability. Credit for the successful introduction of the casting of steel thus belongs chiefly to men working outside the steel companies. The expenses of experimenting with these processes, and the fact that much of the work resembled development more than invention, make it surprising that this should have been so. The steel companies seem to have shown a serious interest in the process after the continuous casting of non- ferrous alloys had become established; though they have contributed to subsequent development work, it was the persistence and ingenuity of a comparatively small number of individuals, notably Dr. Junghaus, which made the continuous casting of steel a reality. 19 Jewker, Sawers, and St~llinger, The Sources of Invention, Second Edition, Norton, New York City, 1969.

8-210 Table 8.55 Processes of Foreign Derivation used by the American Steel Industry and Related Industries* Type of Operation Derivation of Process Pelletizing and Heat Hardening Cold Hardening of Pellets Direct Reduction Basic Oxygen Steel- making (L-D Process) Continuous Casting Rolling Electroslag Melting Spray Steelmaking Vacuum Degassing Continuous Steelmaking (Not yet practiced in the U.S.) Original process was developed by O. G. Lellup in Germany in 1920-1940 period, and applied to cement processing. Development by British-Swedish team. Krupp-Renn process developed in Germany, was first D. R. plant to be operated commercially. Pilot scale development and reduction to commercial practice was German & Austrian development. Most recent variations are: Bottem Oxygen Blowing Process (Q-BOP) - Canada and Germany. Submerged Injection Process CSIP) - United Kingdom Creusot-Loire, Wende1-Sidelor (LOOS) - France Primarily developed prior to 1960 by: 1) A Russian group (Tsniichermet Laboratories in Moscow). 2) Mannesmann/Bohler group based on Siegfried Junghan's work. 3) BISRA group, U.K. 4) Rossi/Barrow/Concast group in the U.K. Major developments have been by Schloemann (German), ASEA ¢Swedish) and other European concerns. Essentially developed by Russia as a welding process. Further adapted by U.K. as primary melting process. Vast majority of research is Russina. BISRA development - U.K. R-H, D-H & ASEA process developed in Europe. Rio Tinto (Australia) and IRSID (France are closest to commercial reality. * From Metallurgical Engineering in the United States - A Status Report, by W. H. Dresher, University of Arizona, October 1973.

8-211 Table 8.56 Some Innovations in Metallurgical Processes Description of Innovation Aluminum Fabrication 2. 3. 4. 1. Direct casting methods -- Properzi -- Hunter Douglas -- Hazelett Oscillating Mould Process (Tessman) Oscillating Mould Process (Crossing) Joining Methods (Koldweld) Copper Fabrication Continuous Casting Methods -- Junghaus -- ASARCO Titanium Manufacture and Fabrication Metal Working Processes 1. Application of resin bonded shell moulding and core-making 2. The Shaw process 3. 4. The CO2 process in foundries Electro-slag welding 5. Electro-gas welding S. Electron-beam welding 7. Automated powder metallurgy 8. Numerical control for machine tools 9. High energy-rate forming 10. Hydrostatic extrusion of metals 11. Electro-milling 12. Vertical roll forging Country of First Successful Com- mercial Exploitation Italy U.S. U.S. U.S. U.K. U.K. Germany U.S. U.S. Germany U.K. U.K. U.S.S.R. U.K. Belgium U.S. Germany U.S.S.R. France U.K. Germany U.S. U.S.S.R. U.S. Sweden U.S. Switzerland Austria

8-212 (b) Shell Molding (1941, Germany) This casting process was invented by J. Croning, a foundry proprietor, who had been seeking a simple method of producing accurate castings, as had many other firms and individuals for a considerable period. It is probable that Croning received some assistance from resin manufacturers concerning his use of powdered resins for metal casting in ways somewhat analogous to methods used for producing refractory and clay bricks. (c) Tungsten Carbide (~1920, Germany) Successful cemented tungsten carbide was discovered during a search for a substitute for diamonds for dies in the drawing of tungsten wire. Other inventors had mixed various metals with tungsten carbide but Schroeter was the first to produce a hard, tough, practical material and to develop a commercial production process. The inventor, a research worker in an electric lamp firm, had no idea when he started his experiments of the potentialities of his discovery in the machine-tool industry. Krupps carried out development work on the material and commercialized it, and some American firms, principally General Electric, contributed to later technical and commercial development. (d) Oxygen Steel Making (~1948 Germany, Switzerland, Austria) Though the idea of using pure oxygen in steelmaking can be traced to Henry Bessemer, the present commercial oxygen top-blowing process stemmed from the experiments of Dr. R. Durrer, a metallurgist who advocated employing pure oxygen in steelmaking from 1929 when a professor in Germany, and who tested his ideas in the late 1940's while associated with a Swiss steel firm. Dr. Suess and his staff at the Austrain steelmaker, VOEST, learned of Durrert findings, and building on this foundation, perfected the necessary operating conditions. In this case, individuals at small European steel firms, one a former professor, all experimenting on a modest scale, were the prime movers in the invention and initial commercial development. Remarks on Nonferrous Metals Technology (a) Aluminum From an analysis of patents in the aluminum field between 1854 and 1958, by and large the U.S. has performed as effectively as any other country. Over this period, the U.S. has collected 24.5% of the patents; France 26.1%, the U.K., 14.1%; Germany 13.6%; Norway 1.5%; Italy 6.7%; Switzerland 6.1%; and other countries, 1.4%. An interesting sidelight to these figures is that in the U.S. only one patent out of 194 is attributed to an individual inventor and none to universities. (This includes not only aluminum alloys but joining, finishing, and fabricating processes as well.) Instead, the main technical innovations for primary aluminum came from R&D carried out by domestic primary aluminum producers. There seem to be no major new production processes for primary aluminum resulting from foreign R&D. In Canada, innovations arise from R&D in the domestic aluminum industry and by use of imported technology. Canadian knowledge and experience in the field is considerable and is exported or exchanged with international

8-213 associates with the aim of increasing the usage, and hence the market, for Canadian aluminum. Nevertheless, it is surprising that Canada does not figure strongly in patent statistics -- most of its technical "know-how" seems to reflect incremental process improvements rather than major innovative steps. The position of France in aluminum production is particularly strong, largely as a result of the R&D pursued by the Pechiney Company. For the production of primary aluminum alone efforts consist of (a) an R&D laboratory of 65 research workers on the electrolytic process, (b) 65 people working in a pilot plant on a direct-reduction process, (c) 150 persons on an A1N dissociation process, and (d) a research station with 250 people specializing in casting and metallurgical applications. The results of this effort have, overall, put France in a strong licensing position relative to other countries (particularly as regards Soderberg Pots) including Japan, Spain, Formosa, Cameroon, Canada, Poland, some of the smaller U.S. companies, Greece, Rumania. Germany also conducts extensive R&D on aluminum, leading to many economic and technical contacts with other countries. Fabricating processes in Germany, such as continuous casting, are nowadays in common use in the whole world. On the other hand, technical innovations, such as the Properzi wire process, have been introduced into Germany from abroad. Very few original innovations on aluminum have been carried out in Japan. This technology is primarily imported through licensing and immitation. (b) Copper Canada has contributed to the technology of copper production primarily by incremental process improvements and by adopting technology from elsewhere. On the other hand, although Norwegian primary-copper production is small, it has contributed some important process improvements such as the Hybinette process and the Orbla process. Similarly, France has contributed the thermic-refining process and, at the semi-fabricating stage, mills for hot-roughing brass sheets and the production of copper tubes by press extrusion and cold rolling on a triple reducer. As in the case of aluminum, Japan mostly imports its copper technology, though it has contributed one major innovation -- the oxygen smelting process (Momoda process). (c) Nickel The main technical innovations in the nickel industry in the U.S. have come from R&D carried out principally by The International Nickel Company, Inc. Its research has been directed toward solution of operating problems, Ike., the character of the ores from the mine as it affects the smelting rates, more than the development of new products. Important techno- logical contributions have been made also as a result of R&D conducted by consumers of nickel, particularly those in the steel industry and in the special-metals producing areas. The U.S. Bureau of Mines, in its research laboratories, has been conducting programs for a number of years directed toward improving the supply of nickel, particularly with regard to the treat- ment of lateritic ores and the recovery of nickel from scrap. Technological development in the nickel industry has been paralleled by a significant increase in the number of related patents and licensing agreements. During 1961-65, approximately 150 patents were issued in the

8-214 U.S. relating to mining, smelting, and refining of primary nickel, new nickel- containing products, and other new uses for nickel. During the same period over lOO licenses under these patents covering nickel-containing materials and other products or processes relating to the use of nickel were issued by companies in the nickel industry. The majority of research work done in Canada relates to the fields of extractive metallurgy and mining methods since most semi-fabricated forms are produced outside Canada. At the present time, approximately 250 people are employed full-time in research projects by the three major Canadian nickel producers. This research staff also carries out projects on closely related metals such as copper. Most research work is done in the fields of extractive metallurgy and mining engineering. In the field of extractive metallurgy, considerable government-sponsored or partially sponsored programs have been undertaken. Recent developments in Canada have related to slow matte cooling, direct electrolysis of nickel matte, and bulk oxygen in reverberatory and blast furnaces. The Sherritt Gordon ammonia pressure leach, hydrogen-reduction process is a Canadian development and enables a variety of metals, including both copper and nickel, to be produced in powder form. Sherrit Gordon has done much work in the field of dispersion-strengthened nickel and nickel alloys following the lead of Dupont. The recovery of nickel and iron oxide from nickeliferrous pyrrhotite is a Canadian development as is the direct electrolysis of matte for the production of nickel, and the utilization of slow cooling for the separation of copper-nickel mattes. In France, Societe LE NICKEL developed new processes (in mining, ore dressing, smelting, and metal refining) in the Le Havre pilot-plant, distinct from the processing plant, in connection with associated official laboratories of Montpellier University, IRSID, and PENNAROYA. A new electrolytic- refining process of 90% ferro-nickel has been developed as well as a new high-speed electroplating process. Furthermore, recovery and metallurgy of nickel in lateritic ores has been investigated by various other companies, such as Ugine-Kuhlmann and the Bureau de Recherches Geologiques et Minieres. These efforts toward the selective reduction of nickel in oxide ores have led to a precise definition of the physical conditions for reduction before electric-furnace smelting, and enable these companies to select the best process to be used as a function of the characteristics of the ores to be treated. Whereas nickel-silver was until recently cold rolled with successive reductions, hot extrusion has now been introduced with finishing by cold rolling (Societe Ferro-Nickel). At the Bornel Works CCLAL), efficiency in the rolling of nickel-silver has been considerably improved by converting to semi- continuous casting. (d) General Remarks on Nonferrous Metals The strong position of the North American firms in the production of primary major metals (aluminum, copper, and nickel) is clearly matched by a strong, though not preemptive, innovative performance, particularly in product technology (see Table 8.51~. On the other hand, the growth of production and consumption and the growth of trade surplus is generally

8-215 Table 8.57 Patents Issued in the Nonferrous Metals Sector in Selected Countries United States Austria Belgium Japan 1960 85 65 91 19 1961 74 68 90 27 1962 88 55 122 22 1963 62 64 118 16 1964 85 57 n.a. 40 1965 83 72 n.a. 34

8-216 higher in both Europe and Japan than in the U.S. and Canada, in spite of the absence of a spectacular innovative performance in most cases. With respect to the commercial application of the newer metals, the U.S. lead is undeniable; this situation is certainly linked to a technological lead in the industries producing these newer metals, although other factors - particularly the size of markets - play a significant role in the manifestation of this gap. Because the major primary-metal producers operate internationally, they can provide a vehicle for the dissemination of technological innovations in their own field. Thus, these companies might exercise a powerful gap-closing influence. On the other hand, it is possible that this internationalization of nonferrous metals production can lead to a concentration of the R&D activities in specific areas that may in certain cases be detrimental to the interests of some countries. Some data on the distribution of R&D activities in nonferrous metals are given in Table 80 58. There tends to be a minimum critical size of R&D facilities before effective research and development can take place. Besides physical size, diversification of interests also enables the larger laboratories to profitably utilize a broader spectrum of ideas. On the other hand, it appears that a country's innovation performance is not entirely dependent on its R&D efforts. Some nations have been able to move ahead on the foundation of purchased technological know-how. With respect to the spread of technology, metals such as copper, zinc, and lead, which participate in international cooperative research programs, have an advantageous position in comparison with metals whose development depends on domestic R&D efforts. Relative to the newer metals, the fact that a country does not produce such metals (e.g., titanium and lanthanum) does not in itself imply a techno- logical lead or lag. The reason is linked rather to the size of domestic markets for such products in general and in particular, to the size of governmental programs like defense and space. Other Recent Progress Abroad in Metallurgical Process Technology (a) Steel The Japanese have obtained the best steelmaking technology from all over the world, coupled this with their own R&D, and as a result have some of the finest steel-production facilities in the world. Their plants are new, have the most modern equipment, and produce quality steel products with a minimum of labor. The Japanese do not necessarily lead in steel technology but their industry-and-government cooperation including financing has allowed them to incorporate modern advances into practice very efficiently. (b) Plasma Melting The U.S. is lasting in this type of melting. U.S.S.R. and Japan are using the process for the melting of superalloys and titanium. Several U.S.S.R. papers claim improved properties from plasma melting due to its speed and the occurrence of additional refining during melting. There have been

8-217 CO Sot to o ¢ sat o u U) U) A: a, ·rl En U] ., , o Sat ~ ·- o z ~ ~ U) Sol U' U ~ o Sat ~ ~ o o ~ en ,, o u ~ U .,1 en sat o ,D H ,~ O A 1 1 1 O A) 1 1 1 In 0 ~ 1 0 0 O LO O O 0 1 1 Cut ~ ~ O U-) O ~ 1 1 0 U] ~ a) _ ~ ·,1 U] ~ ~ 3 ~ ·- ~ o ·~ o Z C) U) E~ a s~ o ¢ o C) U] U) a) U' o o z a - U' ·rl ·rl ·rl ¢ o o ,1 o ~rl o o E~ o Cd s~ U' a ~rl ¢ C~ s~ U] a P~ ~rl U' ~ ~ ~ o o oo ~ o o · ~ e · ~ e · ~ ~ ~1 00 C~ ~ ~1 C~ 00 0 00 a O · e · - r~ ~ oo C~ C~ ~ 00 0 · · ~ O ~ ~ o . CN ~ O O · · · — C~ ~ O 1 1 0 0 · ~ O ~ Cl1 0 ~ Ln ~ ·~ ~rl U, ~ ~ ~1 ' - ~ 3 ~ ~ ~ ~ ~ o ~ ~ o ~ ~ ~ ~ ~ ~ ~ Z ~ ~ p4 H

8-218 several attempts in this country to use plasmas for steelmelting. These efforts seem to have failed, but specific information is difficult to obtain. Some effort is being conducted in this country to evaluate plasma melting for superalloys and titanium and to determine if the process is as good as claimed by the U.S.S.R. The Japanese have the capability to feed in titanium sponge and produce slab titanium in one operation with their plasma equipment. The slabs are reported to be 40 inches wide, 8 inches thick, and up to 10 feet in length. This plasma capability is also used for other structural metals. However, the Japanese appear to lag behind the U.S. in superalloy technology. (c) Foundry Automation The U.S.S.R. has done extensive work in the automation and mechanization of investment-casting foundries. One such foundry is completely automated through mold-making, pouring, shakeout, and cut-off of the casting from the sprue. Several U.S. foundries have mechanization or automation in some areas; however, none compare with the U.S.S.R. facility. The investment casting foundries are usually producers of high-temperature alloys such as stainless and superalloys. Their products are typically directed toward gas- turbine engine application. Rolls Royce, Ltd. has an excellent automated investment foundry for the production of engine blades and vanes. The bulk-melting furnace can cast up to 48 molds in rapid succession under full vacuum conditions. The 48 molds can be processed in about 2-1/2 hours or almost 20 molds per hour. There appears to be no equal to this facility in the U.S. for producing gas- turbine engine hardware. (d) Rotary Forging Machine The GEM Rotary Forging Machine was developed in Austria and has been in production since about 1960, with greatest application on gun barrels up to four inches in diameter. It is not widely used in the U.S., but there is some application. This machine provides rapid production rates and basically utilizes a mandrel inside the tube during simultaneous forging of the part. The U.S. uses essentially a number of swaying operations to achieve . . . . : 1na c Amens ions . (e) Glass Lubricants for Hot Extrusions The use of glass as a lubricant for hot extrusion of steels was originally developed approximately 30 years ago by Sejournet of France. The process involves glass similar to window glass, surrounding the billet to be extruded and glass pads which melt into the die. This is the only commercial process for ho. extrusions in the 2200°F range. There are now about ten licenses in the U.S. including the International Nickel Company, H. M. Harper Company, and U.S. Steel. (f) Screw Presses Screw presses have been employed in Europe for almost 40 years but have been slow to be adopted in the O.S. It is considered to be more precise than the hammer or hydraulic presses and, in Europe, have about a 3500-ton

8-219 nominal capacity and a 7500-ton maximum capacity. TRW in the U.S. has bought one tor mating turbine blades where precision is critical. Westinghouse had one built in West Germany for installation in 1972, to have an 8000-ton nominal and 16000-ton maximum capacity. (g) Electroslag Remelting (ESR) The U.S. has made much progress in the area of ESR. In 1965 one company was using this process. Today fifteen to twenty companies are melting via ESR. Many steels, including structural, tool, bearing, and stainless, are being produced. In addition, many of the nickel-based superalloys are being melted by ESRe The Stellite Company melts all of its Hastalloy X by this process. However, the U.S. does not have the capacity for this type of melting that exists in the U.S.S.R.; nor do we have the large ingot capacity they claim, i.e., ingots of 200 tons and 100 inches in diameter. Yet it is not evident that either U.S.S.R. or Japan has any commercial advantage over the U.S. in this sector. Both the Japanese (with help from U.S.S.R.) and the Germans are building large ESR units. (h) Titanium-Carbide Cutting Tools The use of cemented carbide inserts coated with titanium carbide was developed in Sweden in 1968 by the Sandvik Steel Company and subsequently adopted in the U.S. A tungsten carbide substrate coated with titanium carbide improves the tool life by 50 to 100% depending upon the specific operation. In addition, closer tolerance can be maintained and long finishing cuts accomplished. There are now several users and producers of these inserts in the U.S. These include such companies as General Electric, Kennemetal, and Excello Corporation. (i) Weldbond-Joining Process being weldbonded. The weldbond process, which combines resistance spot welding and adhesive bonding in the fabrication of structural panels called "glue welding' was developed by Russia. It is used extensively in the fabrication of Soviet transport aircraft to replace riveted panels, with a subsequent weight re- duction and estimated 20% increase in fatigue life. Continuing Soviet development on process control, automation, and better adhesives is reported. By comparison, weldbonding is not used to any degree in the U.S. on production aircraft. Recent efforts are: (i) Manufacturing process developments for weldbond have been sponsored by the AFML/LT with Lockheed, Georgia. Current activities involve process optimization, structural design and engineering data, structural tests of full scale components for C130E aircraft, installation on aircraft, and the conducting of flight demonstrations; (ii) Sikorski has installed a weldbonded fuselage panel on the S-1; (iii) An aluminized, corrugated sheet for large missile shrouds is

8-220 Increased use of weldbonding in the U.S. is forecast based on its potential for increased fatigue life over both riveted and adhesive-bonded construction, the reduction in weight and costs over mechanical fastening, and simplified tooling. (j) Fine Blanking Fine blanking is used on sheet materials for insuring fine finish- ing and squaring of edges. It was developed in Switzerland and appears to be a relatively simple process which consists of a back pressure on the under part of the sheet being blanked reacting against the force of the press. This eliminates deformation in the center of the sheet and due to the stresses established eliminates cupping of the edges. The U.S. has adopted this method extensively for sheet materials in applications requiring precision of parts. (k) Graphite Fibers There are five graphite filament manufacturers in Japan, viz., Kureha (capacity 10 tons/year), Toray (12 tons/year), Tokai (1 ton/year), Nippon Carbon (10 tons/year), and Nippon Kayaku. Toray is in a joint venture with Union Carbide and Tokai with Rolls Royce. Toray appears to be the leader technically. Their fiber processing, tape processing, test methods, etc., all follow the technology developed in U.K. and U.S. Applications of composites are being explored for aircraft by Mitsubishi Heavy Industries, and for sports equipment by To ray. But the Japanese manufacturers are very much concerned over when and where large volume usage will emerge. The quality of the products by Toray is high. Their price is comparable with that of the U.S. Low price filaments are not yet available. (1) Additional Foreign Developments U.S. in U.K. of the U.K. Ceramics and Glass The following foreign developments were subsequently used by the (i) Plastic Mold Processing (Crossing) of aluminum, developed (ii) Solid-State Bonding (Recrystallization Welding) - Koldweld (iii) Hydrostatic Extrusion - Sweden (iv) Vertical-Roll Forging - Switzerland and Austria European countries have long had technical strength in the venerable technologies of ceramics and glass. Germany is noted for its glass industry, particularly the development of various high-quality and specialty glasses for Optical instruments and scientific uses. Japan also has traditional skills in ceramics and has recently gained a corresponding reputation in the glass sector, especially for electronic components such as television and camera tubes, optics and glass-fiber waveguides.

8-221 Broadly, ceramics can be divided into two classes -- those used in large volumes for structural and household purposes, and the specialty ceramics of interest principally to the electronics industry. The latter include, for example, ferrites for magnetic core memories and magnetic tapes, high- permeabi~ity ferrites for inductors and transformers, ferroelectrics for ultra- sonic transducers, and certain high-quality alumina ceramics for integrated circuit materials. The U.S. has been very successful with innovations in the structural and household ceramics, less so in specialty ceramics. Particularly noteworthy in the former class is Pyroceram, the ceramic out of which the well-known Corning Ware is made, but the work which led to this material was very much stimulated by the need to find ablators, or heat shields, to allow re-entry of manned spacecraft. Regarding specialty ceramics, both Europe and Japan have made significant contributions -- ferrites for magnetic devices owe much to the R&D work carried on at Phillips in the Netherlands, while some of the most important magnetic ceramics for inductors and transformers have come in recent years from the research work carried on at Tohoku University in Japan. As for glass, there does not seem to be any overall technological gap between the C.S. and other countries. However, no discussion of key innovate tions in glass technology would be complete without mention of the float-glass process, a method for producing flat glass directly without polishing and grinding (see below). This development by Pilkington's in England put that company in an exceedingly strong licensing position over the last 15 years -- the process has been licensed to many of the major plate-glass producers in the world. Float glass (~1958, England) The float-glass process is an outstanding case of successful invention and development by a large company which already had a dominant position in its home market, but which recognized that large rewards awaited any dis- coverer of a method for producing high-quality plate glass without grinding and polishing. The basic idea of floating molten glass over molten tin was patented in the Ue S. at the beginning of the century but remained unexploited. It seems certain that, in any case, its successful commercial development would have had to wait upon later technical advance in glass-making. Nevertheless, it may seem strange that the idea was not taken up much earlier by one or other of the ~1 ass manufacturers in the world. Evidently, only a large company with ample resources could have succeeded in this. One such company had the imagination and the courage, and the unexpected good fortune, which enabled it to take the lead. Plastics Technology General Remarks: Europe has a strong tradition of research in chemistry and chemical technology, and is unsurpassed in much of its chemical

8-222 manufactures, synthetic fibers, and organic chemicals. Germany, in particu- lar, has made a strong contribution in this field, especially the Hoechst- Watcher process for the palladium-catalyzed oxidation of ethylene to acetaldehyde, the Siemens process for producing high-purity silicon from trichlorosilane, and a process for making vinyl acetate. Because the U.S. is the dominant producer of petrochemicals, it has created many new products in this field; however, Europe is not without its own contributions -- cellophone, terylene, and crease-resistant fabrics. Also, the Ziegler-Natta process for the production of high-density polyethylene was one of the most important innovations in the development of plastics in recent decades and earned a Nobel Prize for its discoveries. Moreover, the European chemical industry is currently undergoing a period of rapid technological change, with many firms substantially expanding their capacities. And Europe appears to be far ahead of the U.S. in the utilization of plastics in construction activities such as flooring, pipes, and doors. Between 1945 and 1955, U.S. firms and European firms each originated 3 major innovations. Since 1955, however, U.S. companies have originated 12 innovations, and European 4. Most of the innovations originated in the U.S. since 1955 have been in specialized plastics related to defense and space needs, but with no other important application so far. Whether further development of these plastics durinf the next decade will show the existence of a gap between the U.S. and Europe is something to be watched. But, in any case, these new materials will most probably not influence the production and consumption of bulk plastics. In what have now come to be called the "bulk plastics," i.e. those introduced mainly before 1955, the European - and especially the German - position appears to be strong. Since 1954, the pattern of invention and fundamental work in plastics has been diffuse. Important contributions have been made by large companies in a number of countries. Furthermore, the contributions of outstanding European individuals such as Natta and Zeigler have been exploited first within Europe. Only rarely does fundamental and inventive work in Europe get first exploited commercially in the U.S. - polybutene and penton, for which the fundamental work took place in Germany, Italy, and the United Kingdom, are such examples. Specific Examples: The American and German lead in plastics innovation is evident from Table 8.60. Until 1960, Germany and the U.S. had each been leaders in commercial production of 14 polymeric materials. Britain had been responsible for two thigh-pressure polyethylene and urea-formaldehyde), and France (cellophone), Italy (polypropylene), and Switzerland Cepoxy resins) for one each. Another point to be made is that usually a few large firms dominate the industry, so that even when they are not the world's first producers of a material, they are frequently the first imitators or developers of new processes. This reflects the relative technical advance of these companies in various countries. Thus, when a significant new discovery is made in one country, other large firms are often able to imitate it quickly. The basic

8-223 CD e - 1 U) U) Cd erl U] Hi o co o ·rl ·rl o · - o Cal a) En ~ l So U o ~ Cot) o Ed So o Sol a) o r( a, O C) ·rl U] · U) · ^ Cal a) ~ ^ N >' ~ · · ~ ~ ~ 53 e e · · · ~ e · e e e e ·,1 U) U] ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ · ~ ~1 Q) ELI (L) · e e e e · · ~ e · · e U] ~ ~ H ~ H ~ ~ ~ ~ ~ =) ~ ~ ~ ~ ~ =) 1— ~D ~ ~ ~ ~ u~ ~ 1 ~J ~J 1~ L~ U-1 Ln Ln ~ ~0 in ~D ~) ~ ~) ~) ~) °~ ~ ~ ~ ~ ~ ~ ~ cr a) r^,] U H C2) a N ^ :^ ^ 4_1 · ~ e ~J e e e e e e e e ~ ~ e - ·~4 U) U) U~ C~ U] U] ~ ~- U) U~ ~ U: U) tl~ U) U) ~ · ~ · U e · · · · · · · e ~ e e U. ~ ~ ~ H =) ~ ,= ~ ~ ~ ~ ~ ~ H S~ U) ~ S~ U CO 1 a' a a) .,l ~ O O ~ ' a, :, ; a) 1 u 0 1 a~ ~ rl ~ U] U p4 ~ ~ ~C Q4 r: . - a) ~ u ~ 0 ~ 0 ~ ~ ~ .~1 ~ a) c. 1 ~ ~ c: ~ 0 ~q r: rl ~ O ~ ~ ~ a) a) a u . - >, =, ,~ >, . - _' =, ~ ~ ~ ~ ~ ~ ,~: 0 ~ ~ ,= ~ ~ ,= ~ ~ ~ ~ ~ 0 >` ~ ~ ~ ~ V ~ ~ O ~ ~ 1 ~ O ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 ~ ~ ~ ~ o S~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ C' ~ 0 0 0 0 0 (L) 0 0 ~ 0 ~ 0 ~ 0 ¢ ¢ ~ ~ ~ ~ ~ ~ ~ ~ E~ H ~ ~, p~ ~, · e e e e e e e e e e e e · e e e O T~ CN ~ ~ L~ NS) |— ~ ~ ~ ~ ~ ~ ~ CD ~ ~ ~ ~ ~ ~ ~ ~ ~

8-224 chemistry is generally straightforward and the technical ability already developed. Patent protection can, therefore, be crucial for the innovating firm. Larger companies sometimes make mutual agreements for the exchange of know-how. Most important innovation stems from the R&D performed by the industry concerned. In the U.S., the greatest number of innovations has arisen from domestic R&D. In Canada, by contrast, only a small proportion, namely 10-15 percent has arisen out of R&D by native firms, while the rest is imported. There are some useful examples, however, of native Canadian R&D effort, such as the invention of resins derived from vinylacetate in the 1930's. In the 1950's a new acrylic-based resin was developed for the protective-coating industry. In the late 1950's, Dupont of Canada Ltd. came up with a method for producing a range of polyethylene densities. In the same period, Union Carbide Canada Ltd. evolved a process for making high-density polyethylene. In the mid-1960's, C.I.L. developed a new, still confidential high-polymer product. The majority of these advances were mainly adaptations and/or modifications of already-existing processes, such as would be involved in producing a new grade of vinyl resin by adjusting temperature and pressure conditions in the autoclave, and by finding, partly through trial-and-error methods, new means to control the performance of the product. Japan received most of her post-war plastics know-how from abroad. In the last ten years, most of this technology originated in the U.S,, and was transmitted through licensing agreements with foreign firms having the property rights in the new processes. In Germany the majority of important innovations originated in the industry itself. These new developments were mainly due to R&D efforts undertaken at the production and fabrication levels. Significant progress has also been recorded in the plastics-equipment field, where Germany plays an important part. A trend similar to that in Germany took place in France, where most of the innovations during the last ten years resulted from research in the domestic-plastics industry. Here' as in Germany, an essential part of the innovation was contributed by equipment manufacturers. All the innovations credited to the plastics industry in Belgium were the work of private enterprise. The sectors covered by these innovations were P.V.C., polyethylene, polyester, and cellulose plastics. In the Netherlands, plastics R&D is expected to play an important part in technological innovation. In several diversified firms, there is a direct connection between the production of raw materials and the production of finished goods. The majority of technical innovations in Sweden are imported from other countries. The Swedish plastics industry performs R&D mainly for short-range product developments and does not yet go into basic plastics research. Governmental research in this field is also relatively minor. Most of the innovations in the U.K. as well as in Italy, have come from industrial R&D.

8-225 20 Some Important Chemical Discoveries (a) Catalytic Cracking of Petroleum (~1930, France) An individual (E. J. Houdry), trained as an engineer, who had no immediate connection with the oil industry, made feasible the first commercial catalytic-cracking process by solving the critical problem of regenerating the catalyst. One large oil company developed his ideas after another had decided the process would never be practical. Other large oil firms, which had simultaneously been studying catalytic techniques, later introduced much improved processes. (b) Cellophone (~1910, France) The crucial "Cellophane" inventions were those of an individual experimenter, Brandenberger, a Swiss-born French chemist. A large French textile firm backed him and, with its help, "Cello- phane" was further developed. One of the largest American companies then took up the basic idea, carried on the development and discovered in its own laboratories a new and valuable type of "Cellophone." (c) Crease-Resisting Fabrics (~1926, England) This is probably the major nonmechanical advance conceived of, and fully exploited within, the textile industry proper in this century. The process had no extensive scientific background. It has continued to hold the field since its discovery. The inventing company was the first to seize upon the problem and then to pursue its researches stubbornly to a cussessful conclusion. It was the achievement of a research group of physicists and chemists without special knowledge of the cotton industry, but working in close contact with the normal routine testing carried on by the company. The work of the scientists was "directed" in that a specific problem was set before them. Their successful solution of the problem had unexpected dividends: it could be used to increase the tensile strength of rayon, making rayon useful as a dress fabric. (d) Methyl Methacrylate Polymers: Perspex, Lucite, etc. (V1930, Germany, Canada, England) Nineteenth-century scientists first observed that me~thacrylic acid would polymerize. The exploitation of the products Derived from the a~rylates can be attributed to Dr. Rohm (Germany) and the firm of Rohm and Haas. In making use of the methacrylates, a postgraduate research worker, Dr. Chalmers (Canada), was the first to discover that they polymerized into a plastic glass. Imperial Chemical Industries (England), as a result of a research team under Dr. Rowland Hill, were granted the first patent on the use of polymerized methyl methacrylate, while it-ohm and Haas were the first to commence production of this plastic glass. (e) Polyethylene (1935, England; 1950, Germany) The story of this dis- covery provides an unusually clear-cut instance of the unexpected results that may come from research and of the importance of chance in such work, The general purpose of the program at I.C.I. was to investigate the effect of pressure on chemical reactions in the hope of finding ways to avoid the use of catalysts. In 1933 an experiment involving ethylene and benzaldeLyde yielded a while waxy solid which was presumed to be a polymer of ethylene, but ethylene subjected to somewhat higher pressures caused an explosion. so the Ibid.

8-226 work was discontinued. In 1935, with improved facilities for pursuing pressure experiments, the experiment was tried again. But there was a defect in the apparatus, the pressure dropped, and a small amount of white powder was discovered when the apparatus was dismantled. Some fifteen years later, Dr. Ziegler and his team at the nonprofit Max Planck Institute in ~u~heim discovered ways for making polyethylene at normal temperatures and pressures by utilizing catalysts. Ziegler explains that his discovery was not the direct outcome of attempts to solve a given problem; he had set himself a broad course of study in which "my only guide was initially just the desire to do something which gave me pleasure." (f) Terylene Polyester Fiber (Dacron) (1941, England) Terylene was dis- covered by two research workers, one a chemistry graduate, at the Calico Printers t Association. The crucial idea came to the inventors from a study of the work of Carothers, the inventor of nylon, but who had failed to produce fiber from polyesters. The idea was fundamentally a simple one. The invention stage was carried through with the simplest devices in a research laboratory of modest size in a firm with no direct interest in this branch of research by inventors who were able to devote only a limited amount of time to the task. The inventors reached their results long before DuPont, the company in which nylon had been discovered and which had very much larger resources for research. (g) Polypropylene (1954, Italy) (OECD Gaps in Technology Plastics) The polymerization of olefines starting from ethylene should normally have continued with higher homologues. Unfortunately, the polymerization of pro- pylene, the homologue just above ethylene, did not give the expected results. This was because the polymer obtained was amorphous (atactic) and possessed very few of the physical properties needed for use either as a plastic or as a synthetic textile fibre. It was not until 1954, with Professor Nattats discovery of stereospecific catalysis, that a satisfactory solution was found for the polymerization of propylene. Professor Natta and his colleagues at the Milan Institute of Technology, working in collaboration with Montecatini, used new catalysts to orient the polymerization reaction towards highly crystalline structures which gave the polymer good mechanical properties. Thus, isotactic polypropylene was born. It still took a number of years for all the technical problems to be resolved (stabilization, constant quality, dyeing of fibers, etc.) and for production to be undertaken on an industrial scale. Technical difficulties slowed down the growth of this polymer during the initial stage of its introduction on the market. However, most of these difficulties have since been overcome and polypropylene would seem to have a good future, both in the field of synthetic fibers and as a plastic for molding and for films. Materials Science and Engineering in Electronics Introduction - U.S. Leadership The field of electronics and electronic equipment depends on a hardware base of electronic components. These include an increasingly-wide range of solid-state devices together with tube devices 1...

8-227 and various other traditional items. Solid-state devices, particularly the integrated circuit, represent probably by far the most sophisticated achieve- ment yet in any sector of MSE. The integrated circuit represents the com- bination of the very highest skills and knowledge of physicists, metallurgists, chemists, electrical and mechanical engineers. Indeed, it often seems that the term "solid-state electronics" has become almost synonymous with "solid- state physics," with electronic materials, and even with the title "materials science and engineering" itself. Since its beginning, with the discovery of the transistor in 1948, the technology of solid-state electronics has been completely dominated by U.S. companies. According to "Gaps in Technology," of 13 major component innova- tions, only one occurred abroad (the tunnel diode in Japan) and likewise only 3 out of 12 major process innovations (IlI-V compounds in Germany, ion im- plantation in Denmark and Great Britain, and electron-beam writing in Great Britain). The U.S. lead in consumer electronics has been seriously challenged recently by Japan but the U.S. still maintains an exceptionally strong domi- nance of the computer field, telecommunications equipment, and satellite communications. It is, therefore, of interest to discuss in this chapter on international activities not so much what other countries have been doing, but why the U.S. has established such leadership in this field and why, with the exception to some extent of Japan, other countries have not. The dominance of the U.S. in electronic components is illustrated in Tables 8.61A and 8.61B. These tables raise a significant point: although an important amount of work on semiconductors had been going on in European firms both during World War II and after (the only exception being Germany, where all activities on semiconductors had to be discontinued for a few years after 1945), few far-reaching developments seem to have been made, and the impact on the world scene of new European technologies appears to have been relatively small when compared with those of the leading American companies. In certain cases, R&D efforts have been misdirected (as they have been in many American companies). However, it must be stressed that an R&D effort is not always geared to the development of new products but is often used as a sort of insurance policy or means of creating a particular capability in a field which may prove extremely important. As an illustration, it can be mentioned that Philips, which had been undertaking work on semiconductors at the time the transistor was developed by Bell Telephone, managed to produce a working transistor within a week of the announcement by Bell in 1948. Philips sole source of information then was the American daily press' Had it not been for their substantial previous work' such a feat would not have been possible. Their subsequent success in germanium transistors only confirms the point. In assessing the capability of a country or a firm, the "ass~milatire capability" must, therefore, be taken into account as well as the more con- ventional innovative or technological capability. As far as countries are concerned, Japan seems to be a good example of how R&D can be used to assimilate and improve upon new technologies deye~loped abroad The best yardstick with which to measure innovative performance over long period is the market share of various companies. This yardstick is especially useful in the case of a fast-changing industry like electronic

- ^ us o so ~ o o ~ so ~ ~ o v dc . Go 1. co ~ o as us Em so o c) c o ~ cd ~ Cl cl cn us ·,1 d o o o ·, H ~ ~ U O _ SO O O ·m ~ ~ ·- >: Em ¢ . Em ·e ~ By be O ) . . - o ~0 ·ri in :3 o ·rl ·~ U' CO ~4 · - o o 8-228 C) SO o ~ o ·,' · - C] ~ so V U' ~ ~ SO ~ o ·,1 0 SO sol ·rl · - ~ 0 ·,1 ~ C) O · - 0 s~ a o . - o bO S~ ~ ~ ~ ~ ~ ~ - S~ ~ ~ ~ ~ ~ ·- a O O ~ ~ ·,1 a) ~o a ·~ me~ ~ ~ ~ 1 a ~ ~ ~ td ~ O ~ O ~ ~1 a O ~ ~ ~ O ~ ~ ~ O ~ · - · ~— ~ U] S~ ~ ~ ^-,1 S~~— ~ ~ O ~ O O t0 ~ ·~ ~ ~ ~ ·- ·rl ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ . q_' ~ ~ 0 · - O ·~~ C~0 ~ ·,4 ~ ·,1 ,= 0 ~ ~ ~ ~ ~ ~ ~ ~ ~ O O ~ C) ~ ~ ~ ~ ~ . · - · ~ ·- · o ~ ~ h o U' · - ~ C~ ~ U] =. C) ~ ~ V o ~ o 0 ·^ ~ o 3 .9 o O ~ ~ ~1 · ·,1 o 0 ~ ~ ~ 0 ~ ~ a, 0 0 ~ o 0 u' ·- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 0 u, ~ 0 0 0 ~ a) ~ ~ ~ 0 ·- ~ ~ ~ ~ · ·- · - ~ ~ 0 ~ ~ ~ ~ 0 ~ 0 .,' >, ,= ~ ~ ~ .- ~ ~ ~ ~ ~ ~ ¢ ,~ c, ·,l ~ a) ~ ~ ~ ~ ~ .- 0 O~ ~ ~ ~o ~ ~ ~ ~ 0 cn ~ C~ s~ 0 ~ ~ ~ ~ ~ 0 ·~ ~ ~ ~ ·- . ·,1 ~ ~ ~ · ~ ~ ~ ~ ~ ~ O O a) 0 co ~ 0 ~ ~ ~ v ~ ~ v 0 ~ ~ ~ ~ ~ ~ ~ ~ 0 0 ~ u ~ 0 ·— ~ ~ 0 s~ ~ ~ ~ v 0 0 ~ ~ ~ ·~ v ·- ·- ~ ~ ~ ~ o ~ ~ ~ ~ ~ ~ ~ ~ ·- ·- =m ~ ~ 0= c) ~ a, ~ . u s~ ~ s~ ~ a o ·- u ~n Lr) L~ Lrl L~ cr, ~ O ~ C) .,1 o ~ a cd ·- ~ ~ = 0 ~ a o u] ~ ·- v c: v ~ · - ·- ·,~ ·, u ~ ~ ~ o ~ ~ v ~ ~ ~ ~ ~ · - ~ ~ ~ 0 ~ ~ ~ ~ ~ H ~ 0 S-4 k~ ~ O ~ ~ ~ O 0 0 O ·,1 ·,t ~ · - b0 O O ~ V~ ~ ~ ~ ·- ~ O V ·,1 .- ~ ~ 0-- -" ~ O ~ O ~ O ~ O ~ O O rl ~— ~ ·— ~ ·- 0 CO 0 ~ U' 0 0 ~ .,1 5 @ ~ ~ ~ @ ~ ~ ~ ~ ~ ~ ~ o ~ S~ ~ ~ ~ ~ ~ ·~ U ~ c-- 6 u, ~ ·lc ·- ~ I .

8-229 a) o ~ o · - · - V o o C: ~ So · - p4 a · - ~ U) ·- ~ V o PA ¢ . .n En o Girl o be En ~ ·- ~ ~ · ~ o ~ ~ ~ ~ o V ~ ~ ·rl O V · 1 u o ~ o ~ ~ ~ o ·— ~ ~ U) ~ ·rl be ~ So o ~ ~ 3 ~ ~ ~ =-- ~ ·,l V U' U] ~ ~ · - ·,, ~ . ~ . U) ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 3 ~ ~ ~ ~ ~ ~ ~ ~ ~ ^ o ~ o ~ o s~ `0 s~ cc ~ o v s~ ~ ~n ~ a) ~ u' ~ ~ ~ 0 :5 ~ o U] ~ C~ 53 ~ ^ S~ · ~ C) C) c~ ct ~ ~ ~ ~ ~ ~ ~ a ·^ U) ~ ·- ^ 0 ~ ~ ~ ~ ~ ' ~ ~ ~ ~ · V ~ V ~ bO ~ u~ U) rl u' ~ ~ ~ 3 u' ~ ~ v 0 ~ ~ 0 a) c' ~ 0 ~ ~ 0 0 ~ 0 v v s~ a) 0 ~ 0 ~ ~ ~rl ~ . ~ ~ ~ v o ~ o ~ U) ~ ~ ~ o o ~ V .- ~ ~. - ~ ~ ~ ~ V · - o ~ · ~ ~ ~ ~ ~ ~ ~ ~ v ~ ~ ~ · - ·— c' ~ o ~ ~ ^ c' s~ 3 :5 :^ 3 a) ~o ~ 0 ~ a) rl ~ :~ a) u~ s~ ~ . v ~ ~ ~ ~ ~ ~ 0 O . - ~ . - .,1 ~ ~ ~ ~ ~ ~ ~ O ~ V ~1 ~ ~ ~ O ~ ~I V O a) ~ ~ ~ a, P4e,1 Ct ~1 ~ O ~.rl ~ ~ ~ ~ a) u, c: a) 0 ~ ~rl a) ~ ~ ~ 0 ~ cd O ~ a) ~ ~ ~ ~ ~ ,1 0 ~ ~ O a) ,i ct O ·,1 ~ O ~ S~ V ~ ~ ~ ~ 5- S~ ~ k ~ ~ ~ c: ~ c: ~ ~ ~o 0 ~ ~ ~ v v 0 ,~1 S~ ~ .,1 V ~ ~ C~ ~ ~ ~ ~ ~ ~ H ~ ~ o ~D ~ 1— 0 0 Ln ~ ~ ~ ~D CS~ 0~ 0` ~ ~ O CO S~ . - U] V ~ V V .,' ~ .- . - s~ a) ~ ~, C) ~ V ~ V S~ ~ ~ ~ ~ C~ ~ O U' H ~ ~ a ~1 V U] a E~ C~ U~ ~ ~ ~ V . - O ~rl O ~ ~ u: a, CO ~ O . ~rl 1— ~ U] U' O U' S~ O ~ O ~ ~ ~ V ~ .- ~ ~ O .,' ~ ~ ~ `~- O ~ ~ · U] O ~rl ~ ~1 o~ c' ~ ~ ~ ~ ~ .~ o o ,1 k u: E~ ~ ~ ~ -

Marl o - ~ . ,Q En 8-230 o ~ o Marl Marl $ CO ~ ~ ~ ~ o · - o Cay SO · - ·- ~ U' ·,, ~ C) o a, U] so o Marl ad ~ ~ u, 0 a) so o 0 a) ^ ~ a) ~ SO U] O I ~ ~ ~ N O ~ ~ O CO to lo. ~ ~ ~ ~ '- a) do en ~ u, · ~ 0 .- O a~ b0 · ~ ~ '- ~ ~ rl a) ~ ~ ~ ~ ~ ~ ~ ~ ° ~ ~ bo ~ ~ ~ · C~ ~rl b0 C: ~ ~ ~ ~ O ~ o~ V] ~rl ~ ~ S~ c' ~ c' ^ U ~rl ~ U . - ~ ~ o ~ ~ o~ 0 3 u ~rl U~ ~ ~ ·- ~ ·- O ~ ~ '- 0 ~ ~ ~ ~ ~ ~ ~ ~ ~ U o ~ ~ ~ ~ ~ ~ ~ o ~ ~ ~ ~ · U U C) .,1 0 a~ o ~ ~ 0 o 0 o 1 ~ ~ ~ ~ ~ 0 o u c' o ~ ~ 3 ~ o aJ ~ cc ~ ~ u a) ~ ~ u u ~ ~ ~ ~ c: u ~ ~ ~ ~ 0 · uc ~ cd O U) a) s~ a) ~ ~ 0 ~ ~ ~ p: rl ~ a, 0 ~ · ~ ~ C) ~ S~ C~ rl ~ O ~ a, ~rl ~ ~ a) ~ ~ ~ cd · O u ~ :: ~ ~ ~ ~ ~ cn ~ ~ s~ 0 ~ cd c~ e~ a) 0 ed a) P4 ~ 0 a) b4 ~ s~ ~ ~ ~ s~ ~ 3 ~ ~ ~ ~ ~ >' ~ ~ ~ ·- 0 ~ ~ a p4 ~ 0 ~ s~ ~ ~ ~ ~ cn c~ o o u . s~ 0 u' . - 0 0 u ~ ~ ~ ,= u s~ ~ ~ ~ u o ~ o u] ~ ~ a ~ ~ ~ ~ 0 H ~r~ orl ~ 0 U] C) C) ~ . - · - U 0 E~ C) rl ., ~rl S~ ~ . - O U 0 0 0 ~ O S~l =1 ~n ~ O H ~ C) - o ~ ~rl P~ O O .` l

8-231 ^ U) o sol o u o o C] girl al U) ~80, 1 of En o ^ U' a) En ·e Sol O O C] ~ ~ O O C) ~ En U: O O U) .,1 ~ V, 'a o ~rl ~J ~ ~ O O '- U a) . - . C~ . o ~0 U) o . - ~rJ U] U' U. a, . O _ U] 5~1 c4 ^ ~ '- O ~ O ~ O . - ~1 0 C. ·- S~l >: E~ ~D . 00 a) C) S~ o ~ O U ' - . - C] C) O ~ O CO O U' ¢ ~ ~ a' o o s~ ) c) o ·,1 U) s~ a~ o o o ~ .,l ~ ~ ^ ~ ~ ~ ~ o ~ ~ ~ o ~ ~ ~ ¢ ] . - orl ~ ~ ~ .- ~ ~ ~ ~ o ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ - ~o 0 cn ~ ~ ~ ~ ~ v ~ ~ ~ ~ o ~ ~ ~ ~ .- a,] a) ~ >,~r7 ~ U] ~ ~ ~ e = - ~ ~ s~ ~ - ~ . - ~ o · o ~ ~ ~ ~ ~ ~ · em ~ ~ . - ~ a) ,i a) 0 a~ cn · cn ~ s" ~ · ~ cc .,1 ~ V ~ ~ ~ ~ ~ ~ ~ ~ e . a) ~ s~ ~ ~ ~ ~ ~ ~ rl c~ c~ ~ ~ cn c~ ·,1 0 ~ rl ~ ~ O ~rl · ~ C. rl rl ~ 0 63 ~ ~ S~ ~ ~ U' rl ~ rl u~ cd ~ cn ~ C~ s~ ~ u~ ,1 a) ~ 0 s~ ~o ~ ~ ~ ~ ~ ~ 0 ~ ~ ~ ~ C. cd ~ c~ u, O ~ U] ~ u, .- cd u' ~ cd a~ ~r~ ~ (d r~ ~ E3 >, t\.0 c:,= ~ ~ ~, ~ ~ s~ cn 3 u' ~ ~ s~ ~ ~ ~ ~ ~ ~ ° ~ ~ ~ ~ ~ ~ O ~ ~ O ~ S~ rl O S~ ~ S~ O oH ~ ~ ~ ·- U' C) =1 ~ ~ ~ ~ ~ ~ o b0 V ~ ~ ~rl · pC ~ O C) ~ p: b0 ~ O O ~ .,1 ~ ~ ~ S~ ~ O ~ ~ O V O C. ~ r: ~ U) S~ ~ O ~ O C) O ~ b0 :~ rl ~ ~0 ~ O O o :: o ~ a~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ v ~rl 4_~ ~ ~ ~ CO a~ ~ a, ~ ~ ,1 ~ ~ ~ U) cd ~ cd ~ c' ~ ~ a, =,~ o ~ ~ cd ~ a., ~ ~O 0 cd S~ a) ~ ~ U] ~ CO 0 ~ rl C] V ,1 ~ S~ ~ O d ,~ u, ~ ~ ~ o ~ ~ 3 ~ ~ ~ ~ ~ ~ ~ 3 a) o ~ ~ r: ~ s~ ~ ~ ~ ~ ~ 3 ~ ° ~ ~ u' s~ Z ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 0 v 0 ~ ~ ~ . s~ 0 0 v ~ 0 ~ ~ ~ ~ ~ ~ · 0 u, 0 u' ~ s~ ,~ ~ ,1 ~ S~ ~ ~ ~n ~ ~ u, S~ ~ ~ ~ 3 v ~ 0 v ~ 0 ~rl ~ uc o ~ cd ~ ~ c~ ~ u' == ¢ m r: 0 ~ ~ ~ c~ s~ ~rl u' ~ ~ u, ~ ~ 0 0 0 ~ c~ 0 u~ ~ ~ ~ ~ ~ 0 u, ~ ~ a) 0 ~ 0 c' ~ ~ ~ ] u c) ~ ~ v ~ a) ~ ~ ~ o s~ o ~ - ~ ~ ~ e c) ~ c) . - ~ e~ ~ .- · ~ ~ ~ ~ ~ ~ ~ ~ o ~ ~ ~ ~ c' ~ c, a.) c.' u~ a~ u~ a :~ ~ ~ ~ c) ~ u, ' ^ a oo ~ ~ v ~ ~rl b0 0 ~ .- ;] ~ == ~ s~ o ~ 3 v u' .,1 a s~ ~ o o ~o ~ s~ 0 ~rl ~ O v ~ ~o ~o 0 ~ 0 0 a ~ b.0 ~ ~ 1 ~ ~ ~ 3 C~ ~ ¢ ~ dC ~rl ~ ~::

8-232 a) v o H al 0 furl ~ ~ U furl V C) ~ ~ O ~ O U) O U) So ~ ¢ ~ H O O a, furl U o _' . 00 EN Sol furl O ~ U] .,1 ~ V O furl U) ~1 0 o furl H · ~ U] U] ~ ~ · u, en ~ u, ~ ~ 0 0 ~ ~ ¢ a) O V . - ~ ~ ~ . - .^ ~ ~ ~ O ~ ~ ~ ~ U] ~ ~ ~ ~ ~ ~ V · ~ O o~ ~ ~ 'O O V ^ ~ ~ ~ .~ - ~ ~ ~ U U] ~ ~ O .- ~ ~ ~ ~ ~ ~ ~ ~ .~ ~ V .- U U ~ ~ a~ ~ O V O V ·- U V ~ ~ O ~ O ~ '- ~ ~ ~ V ~ O == ~ ~ == O ~ ~ · U ~ S~ ~ ~ V ~ ~ ~ ~ ~ V ~ ~ ~ O ~ O ~ O ~ . - ~ U .- a b0 0 · ~ O p1 ~ 4~ U) ~ ~ ~ O e .- ~ ~ S~ ~ ~rl ~ ~ ~ ~ ~ ~ 0 ~ ,~ V O ~r~ O ~0 ~1 ~ ~ ·- ~ V u S~ V .- ~ O ~ ~ ~ ~ ~ ~ V O ~ ~ ~ V ~ S~ ~ · ~ ~ ~ V . - ~ oo O ~ ~ ~ O ~ ~ V ~ ~ ~ ~ U O ~ ~ ~ ~ ~ ~ O O O V ~ ~ . U] ~l u ~ ~ O ~ ~ ~ V U O . - U ~ ~ ~ O O O ~ · O .- ~ ~ ~ V O U) ^ ~ ~ U ~r] ~ ~ O ~ ~ O V ~ ~ ~ ~ ~ ~ .- U ~ O e~ ~ ~ .- ~ O ~ ~ .- ~ O ~ ~ ~ ~ V =~- U ~ .- U ~ .- CO .,1 ~ ~ .~ ~ .- ~ .- ~ O ~ V ~ V ~ U a) v 0 u ~r~ a),~ ~ ~ ~ ~ 0 u ~ 0 ~ v V ~ U ~ V U) O ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ O O U ·rl Q, ~ ~ ~ V ~ ~ ~ ~ O ~ ~ O ~ '- S~ .,1 ~ ~ ~ O ~ ~ ~ ~ ~ e 3 U) ~ am ~ ¢ . - C) ~ ~ ~ ~ ~ ~ ~ ~ ~ o U) V U U~ ~rl C) a U ~ C' ~ O O O O O == U ~ U U C) U] U) ~ U] U) ·~ ~ O V O . - U) .- ~ . - ~ ~ ~ V .- ~ ~ ~ ~ ~ , s~ ~ ~ ~ ~ ~ n u: S~ ~ ~ ~ ~ ~ ~ = - U ~,~ u ,q u ~, ~ ~ s~ U 0 u 0 U ~ 0 ~ ~ 0 u a ^ S~ s~ a 0 ~ U ~ U, CO · u C) CO a) ~ ~ u' rl S~ ~ ~ ~ ~ 0 ^ 0 ~ s~ ~ ~ ~ U] ~ v a) u C) ~1 U V $- ~ U ~1 ~ ~ a,1 U~ ~ ·— ~ ~ ·— a~ a, ~ ~ aJ C.) c<5 ^ O 'V U U ~ r! + Ql ~ .~1 ~ U) ~ 0~- b0 0 CO ~' '- ~ ~r~ U) ~ ~ ~ ~ ~ . ~ ~ ~ O ~ '- .- U] ~ ~ ~ ~ ~ ~ O U .- V ea~ U .0 0 ~1 ~ O U) C) a) ~ ~ ~ U ~ ~ ~ ~ ~ ~= U .N ~ ~ ~ ~ ~ ~ ~ O ~ ~ cL) + ~rl ~ i

8-233 u Sol o H ~ O .,1 V C) O ~ O U) O U. ¢ ~ H O O . - ,~ .- ~ CO marl ~ O ' - U] 5 ,Q ED o marl o H U ~ ~ 0 ~1 ~ . - a~ ~ O ~ ~ 1 lo/ be ~ ~ ~ ~ ~ ~ ¢ be ~ ~ . · a) lo. a) ."J Al .= U O O ~ ~ ~ V U Ad, - .,1 ~ U ~ ~ ~ ~ ~ ~ . - O O U ^ O o E! ·—~ ~C e~d ~ C~ aQ ·— a) ~ Q. U~ U U ~ ~ ~ U ~ ~ U . - O U O ~ ~ == O ~ ~ . - ~ ~ ~ O U] ~ ~ ~ ~ ~ ~ ~ U O O ~ ~ ~ ~ . ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ . ~ ~ ~ ~ ~ ~ ~ ~ ~ O ~ O O ~ ~ ~ O ~ ~ ~ ~= .- O O C) ~ ~ ~ O ~ ~ O O .- e~ ~ O O · Ll ~ ~ O U ~ ~ e~ ~ ~ ~ ~ .- O O ~ ~ ~ ~ ~ U ~ ~ ~ ~ · U ~ U ~= U O ~ ~ ~ O .- O ~ ~ ~ ~ ~ '- ~ ~ '- ~ ~ O ~ ·— ~ ~ ·— ~ e~ O ~ ~ U ~ ·— ~ ~ ~ ·— ~r~ ~ ~ ~ U O ~ ~ U ~ U · ~ ~ ~ ~ e~ ~ ~ ~ ~ ~ V V ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ .- ~1 U ~ ~ ~ .- ~ ~ ~ ~ ~ ^ ~ ~ ~ ~ .- ~ ~ .~ .- 0 u: ~ ~ a.) u ~ ,' ~ >, a, ~1 ~ O ~ pl U a) u' ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ O o ~ ~ ~ ~ ~ ~ · o~ 0 u ~ ~ ~ ~ ~ ~ u 1 ~ ~ V U ~ O ~ ~ U ~ ~ e~ ~ ~ · U ~ >, ~ .— ~ ~ ~ U ~ ~ O ~ ~ ~ ~ ~ ~ '— rl .n u ~ ~ ~ ~ ~ ~ ~ ~ ~ u ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 ~ ~ ~ V ~ ~ ~ ~ ~ ~ O ~ ~ ~ ~ ~ ~ - ~ ~ O 0 a) pl a) ~ C-) u ~ ~ ~ ~ 0 ~ v ~ ~ ~ ~ ~ ~ u ~ ~ ~ U] ~ ~ ~ ~ .- ~ ~ ~ ~ O ~ ~ . - E~ ~ ~ ~ ~ . - . - ~ ~ H U ~ . - ~ U ~ ~ ~ . - ~ ~ .~ ~ ~ 0 e-1 U aLI C) V S~ O O ~ U a,1 U~ 's .- ~ U ' ) ~ ~ o o ~ o ~ ~ ~ ~ ~ ~ o ~ o ~ u · ~rl ~ u u c) ~ ~ o s~ o ~ ~ v ~ v ~ ~ ~ s~ ~ s~ ~ ~ ~ ~ ~ ~ u ~ u ~ ~ ~ u v ~ v ~ ~ ~ ~ ce a) ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ o ) ~ ~ ~ cq ~ e~ ~ ~ u C3 o v ~ a c) o ar-l ~ v ~ u ~ ~ ~ u ~ u] ·- ~ ~ ~ = .- .

8-234 components, since new products create new products create new markets, and the market share of a firm is built up from practically nothing. In contrast, the market share in a slowly changing industry largely reflects past quan- titative commitments in production facilities rather than recent successful innovation. Market-share estimates for the semiconductor industry show that few foreign firms have succeeded in penetrating the American market, and that none holds a leading position. On the other hand, many American companies, either through direct manufacturing investments or exports, have captured a substan- tial share of the semiconductor markets in other countries. Since the U.S. accounts for approximately 60% of the world's electronic markets, a leading commercial position in the U.S. will almost necessarily mean a leading position on the world markets. Evolution of Electronics The transistor's major achievement was not r simply to replace the vacuum tube but to open up a vast number of new fields of application which until then had remained unexplored because of the tube's inherent limitations. The integrated circuit also contributed in the same way to opening up the area of applications - witness the hand calculator. In contrast to the more mature industries (where it must be stressed, new product and process development and innovation are equally important), technological change in electronics, and in particular in components contrib- utes to the creation of new markets and new applications for the products of the industry. In the solid-state electronics industry, replacing existing products is only a subsidiary aim of innovation whereas in the more mature industries, this substitution function is often the main aim. The increasing need for close cooperation between the component manufac- turer and the equipment manufacturers is best understood in the light of the evolution of the electronics industry as a whole. The accompanying chart (Figure 8.4) attempts to summarize the evolution of the electronics industry. Two important factors emerge, (a) The difference between circuits and devices is disappearing with the advent of integrated circuits. As a result of this evolution of technology, the distinction between components and subsystems is becoming increasingly blurred. The component manufacturers are, in a way, invading the other sectors of the electronics industry, and their main weapon is their capability in materials technology (physics, chemistry, microphotography, etc.). (b) The equipment manufacturers are tending to sell services, rather than products. This is the case for the computer industry; what the customer often buys is not a machine, but a service provided by the machine. The same principle can be seen in telecommunications. Governmental Markets and Support of Electronics: In some countries, the government has supplied large markets for electronics in defence, in communi- cations and broadcasting, but not for consumer electronics. 1

8-235 FIGURE 8.4 STRUCTURE OF THE ELECTRONICS INDUSTRY First generation Second gcocration T h ird genera t i on Eta Fourth generation ,. ,~ MECHANICAL TECHNOLOGY ~ . Equipment : . components .. .~ ~~W ''~'' . . . . . . . . . ~ ~ ~~ Integrated equipment component 1~ ,. - ................ . ~ .- - - - .......... '.~ Souroc Technological Foundations and Future Directions of Large Scolo Integrated Electronics by Richard L. Pctritz. Texas Instrumcots, Dallas, 1966, Page 50.

8-236 The considerable size of governmental markets for electronics can be attributed to the particular nature of electronics, to the changing role of governmental influence, and to prestige and political considerations. A great number of the industry's products have potential military applications. The military market has created a demand and provided a market for a wide variety of new electronic products. The industry grew up at a time when the range of. governmental activity was being considerably extended both in the U.S. and in West European countries. By contrast, the pharmaceutical industry grew up long before Social Security and public welfare were invented. With its high growth rates, its technological sophistication, and its pervasive influence on other industries, the electronics industry has a prestige value to which governments have not remained insensitive, the image of the industry often being equated with the image of the country. This is the case for computers, color TV, and telecommunications, as well as for industries using a high quantity of electronic equipment like aircraft. The components industry is an intermediary industry, and the governmental support from which it benefited was in fact largely directed towards the equipment industries. The military customer, as a rule, does not buy components as such, but buys specific pieces of hardware or systems such as missiles, radar networks, computers, or satellites. In the case of the transistor, most of the inventions and major techno- logical breakthroughs were made in companies with private money, at least at the beginning of the industry (1946-1953 approximately). Around 1953, governmental contracts were given to study specific problems; even if they did not result in major inventions and breakthroughs, they did contribute to developing the state-of-the-art and, in some cases, provided a big boost to the small companies who were unable to channel large sums of money into R&D. This is particularly true of the newer companies operating solely in the semi- conductor sector and having no other divisions to provide the funds for such a type of activity. In a newly-created industry, governmental support can be viewed largely as a means of developing the state-of-the-art and providing R&D risk capital to the newer firms. In the case of the integrated circuit industry, the picture which emerges is somewhat different from that of the transistor industry, in that the main ideas and basic inventions were concomitant with a specific military need for a fundamental revolution in electronics technology. In the development phase, governmental support was largely directed towards the generation of various pieces of equipment using integrated cir- cuits (IC's). The primary aim of these programs was not to create equipment directly usable by the military customer, but rather to gain a thorough knowledge of how IC's could be put to work in electronic systems and to con- vince companies and other governmental agencies that these new systems were more reliable and much less cumbersome than their predecessors. Although this program proved extremely useful to the Department of Defense and to the companies involved (mainly Texas Instruments and Westinghouse), it is doubtful whether IC's would have led to such a far-reaching revolution had they remained confined to the military market, or to certain very specialized applications in the industrial sector. From an economic point of

8-237 view, the real impact of IC's was to come only a few years later, with mass production, lower prices, and consequently, an increasing pervasiveness of electronics in the whole fabric of the economy. The major step in this breakthrough was made in 1960-61 with the inven- tion of the planar process by Fairchild's three-year-old semiconductor division. The planar process, developed without any federal support, and subsequently adopted by all IC manufacturers, paved the way to mass production. The creation of large governmental markets for entirely new products like transistors or IC's is of considerable importance in that it provided a strong incentive for the firms involved to develop their technologies and allowed them to overcome within a relatively short period the cost barrier which prices these new products out of the civilian market. If a typical cost curve for IC's or transistors is considered, it will be found that in the first years these new products are far too expensive to be sold on the industrial market, let alone on the consumer market. Only when the technology has been fully mastered can these products be widely adopted by industry; this can take a number of years. However, if governments can create a reasonably wide market at the stage when these products are still very ex- pensive, the subsequent drop in prices can be more rapid and the penetration of the new products into the economy greatly accelerated. To conclude, the hypothesis that the semiconductor and integrated circuit industries owed their development to federal support can be accepted with the two following major reservations: first, most of the basic discoveries and ideas came from the civilian sector using private funds; secondly, although the impact of governmental support was largely concentrated on the development stage, the real significance of these two revolutions, namely their overall influence on the economy through the increasing pervasiveness of electronics, was largely the result of company strategies and private management. The rapid development of the integrated circuit industry in the U.S. poses the question: why did an equivalent development not take place in the U.K.? The technology available to, and the capability of, the British firms and governmental research establishments were acknowledged by all experts to be as good as those of the U.S. Moreover, there was a considerable national interest in the electronic components industry, with two authorities in charge of the development of components for military purposes: one organized by the Admiralty for active components, and the other by the Ministry of Aviation for passive components. In the early 1960's, the U.S. was deeply engaged in the development of missiles, which were to be the first large-scale markets for IC's. During the same time, the U.K. was following the opposite policy and abandoning the development of a national deterrent Cas exemplified by the cancellation of the Black Knight program). However, even if the British policy at the time had been different, the market for microelectronics would at any rate have been much smaller than in the U.S., and the impact on the electronic industries as a whole would not have been as far-reaching as it was to be in the U.S. Nevertheless, one can speculate about what might have happened had the British policy been different. The organization and structure of governmental support plays an extremely important part. Part of the success of the U.S. lies precisely in the structure of this support. Most of the work done on IC's was performed in private companies' which had an incentive to expand on the commercial market. In

8-238 the U.K., most of the work was concentrated in governmental establishments and universities, few of which could be in close contact with the market. It is worth noting' though' that owing to the absence of any significant military market for IC's, most of the work in the U.K. was concentrated on techniques rather than on the creation of devices. One of the key factors influencing innovation in the military field appears to be a clearly expressed need. Companies can respond rapidly to the demand because it is easily identifiable. In a sense, this is what can be called "tailor-made innovation." The problem facing companies in a fast-changing industry like electronics, where innovation is all-important, is to identify future demand, and come out at the right moment with the right type of new product. On the military market, the requirements of the customer are readily identifiable through the bidding process; on the civilian market the requirements are much more difficult to assess, particularly in the case of consumer products. Once a market has been clearly delineated, three other factors of key importance for the success of an organization are ~a) a clear understanding of its goal or mission, (b) a source of ideas and knowledge, and Cc) available resources. Stimuli for Innovation - Organizational Purposes and Long~Term Goals: A clear and reasonably-wide definition of a company~s purposes can have a tremendous impact on its growth and development and in particular on its innovative activities. A good example of a bad definition of purposes, or rather the absence thereof, can be found in some of the U.S. ram way companies; seldom was it considered that the aim of the industry was to provide public transportation and not just to run railways. Had the broader aim of public service been kept in mind rather than the narrow allegiance to one specific means of transportation, it is probable that these firms would have been more receptive to innovation and to an improvement of their services; and would not have been so dramatically superseded by more service-minded aircraft transportation companies. In the electronic components industry, the same type of mistake was made in some companies manufacturing vacuum tubes. The purpose having been to produce such tubes, too little attention was paid to the emergence of the transistor which, although completely different in structure from the tube, was nevertheless capable of performing similar amplifying functions. Had company purposes been defined more broadly -- for instance to provide products capable of performing certain types of electrical functions, rather than just to manufacture tubes -- it is probable that the necessary transition to the new transistor technology would have taken place more rapidly. The definition of a company's purpose can be made with reference to the firm's present activities; however, the main benefit will come from looking at the future activities: what are the objectives for the next 5-10 years? What are the longer-term purposes? These questions are all-important, in that the reply given to them will determine in what directions the R&D effort should be pushed, and what the overall commercial strategy will be E.g. what types of acquisitions and takeovers can be envisaged? What new markets must be explored?. A clear answer will not prevent mistakes but can contribute very substantially to avoid wastages and dispersion of efforts.

8-239 Admitting that company purposes have been defined, it is possible to set a number of more specific goals which will then fit into the company's general purposes. This process of goal-setting is necessary for companies in the electronic components industry -- but it is also relevant to countries. Goal setting by governmental authorities can have a tremendous effect on the development of industry, and can contribute to creating a positive scientific climate. Two illustrations can be given: the first was President Kennedy's committing the U.S. to reach the moon by 1970, and the second was the French government's commitment to the "force de frappe." Technological and economic disparities are largely the manifestation of differences in innovative capability and performance. Innovation can succeed if there is a need, more or less clearly expressed, for new products. In the U.S., and to some extent in Japan, there has been a generally much more receptive attitude towards innovation than in Europe: customers seem to be more willing to try out new products, to experiment with novelty. Structure of the Electronics Industry In the U.S. one sees four classes of electronics firms: (a) Bell Telephone, which has been a major source of inventions and new technologies; (b) The major electrical and electronics companies? such as General Electric, Sylvania, Westinghouse; (c) Energetic newcomers specializing in solid-state electronics, such as Texas Instruments, Fairchild, Motorola; (d) A host of small, entrepreneurial companies. Bell Telephone, and more recently to a similar extent, LAM, belong in class on their own -- fully integrated companies whose activities range all the way from original R&D through component and equipment manufacturers to the provision of services directly to the customer. They are superbly equipped to perform the whole innovative process efficiently and effectively. It is important to note, however, that at least in the case of Bell Telephone, the component and equipment manufacturers do not enjoy a captive market -- the service organizations i.e. the telephone companies, are free to purchase their equipment from any manufacturer, in-house or outside Including foreign sources)' who can meet the specifications, thus ensuring competitiveness. The second group of companies all started in solid-state electronics at the same time, 1952, when Bell Labs made its transistor know-how freely available, but for the most part they have faded out of the components picture (though not out of equipment manufacture); probably the prime cause was lack of vertical integration and their heavy investment in earlier product lines. The third group of companies had much less in heavy prior commitments. They were free to seize on whatever new ideas and techniques looked most promising and exploit them through vigorous management often aided by effec- tive governmental contract support.

8-240 The fourth group, the entrepreneurs, have tended to be very small companies clustered in and thriving on the major electronics industrial areas, such as Route 128 around Boston and the San Francisco peninsula. There are some interesting national parallels with this industrial structure. In Europe most of the established electronics companies, Siemens, Phillips, AEI, would compare with those in the second group and, likewise, they have not seemed able to adapt as readily to the new solid-state tech- nology, particularly because of the reluctance of banks to put up risk capital and because of traditionally restrictive attitudes towards patents and cross-licensing. Similarly, these factors served to thwart the entry of newcomers that would compare with the third and fourth categories. Conse- quently, much of the market in Europe has been captured by U.S. branches and subsidiaries, such as Texas Instruments in components and IBM in computers. The European companies in the electronics field at first thought mainly of solid-state components and lacer, IC's, as of marginal value to electronics as a whole, perhaps confined mostly to the military sphere. When they realized otherwise, other firms (U.S. subsidiaries) and other countries (Japan) had moved ahead. Mobility of scientific manpower can greatly enhance the diffusion of technology and the rate of creation of new companies. Such mobility has been a significant factor in the development of the U.S. semiconductor industry. On the other hand, Japan has traditionally very low mobility. There are some advantages, too, to low mobility; it enables companies to have a pool of readily-accessible and hard-won relevant experience on tap -- experience which often can not be documented but resides in the "know-how" of Individuals familiar with the broad needs and interests of the company. Other Factors Affecting Pace of Innovation Differences An ~nnovat~Ye . . . capability stem from both internal and external factors. ~ key internal factor is the quality of the firm's management, which manifests itself for instance by a clear identification of the market needs, an efficient organi- zation of the company's scientific and technological resources, and a strict control of the financial aspects of production. Among the external factors accounting for differences in innovative capability, one can mention the sophistication of the customers Private or publics, the overall quality of the environment in which the firm is operating, and the scale of governmental support. In the semiconductor industry, the innovation aspect has been of con- siderable importance, precisely because this industrial sector is new and because the technology has been evolving very rapidly. Firms which for some reason (internal or external) have not been very innovative have suffered both in terms of profitability and market position. The same is true of some countries, with the difference that the lower performance in innovation has resulted in a considerable inflow of foreign investment, coming from the more innovative firms and countries. Innovation has been a central factor in the semiconductor industry. This is not to say, however, that it will remain so in the future: the development of large semiconductor industries in many countries besides the U.S., all

8-241 based on the same technology, and a stabilization of the pace of technological change will become more dependent on other factors such as production tech- nology, marketing, and lower labor costs. European Reaction to U.S. Dominance in Electronics21 American technology is now vital for the future success of the European electronics industry. Texas Instruments is the world's largest manufacturer of integrated circuits; U.S. companies now hold well over 40% of the European semiconductor market; IBM has a grip on 70% of the world computer market. in IC's, the key com- ponent technology for the future which will leave no industry untouched and no area of life unaffected, Europe is realizing it is much too totally reliant on U.S. know-how. As in the aircraft, nuclear power, and heavy electrical industries, mergers have been occurring in the electronics and computer sectors, e.g., Sescosem in France and ICL in Britain, though so far no viable computer industry seems to have emerged in France or Germany. But in IC's, national mergers may not be enough -- the need for the widest possible market base stems from the peculiar properties of the integrated circuit. The "value-added" to the material costs are enormous, the latter representing perhaps only 2% of the finished cost. CLt is worth noting that most of this value added is due to materials processing even if it is very often performed by physicists and electronic engineers). These value-added costs can be minimized by the economies of scale. An the U.S., Motorola, Texas Instruments, and Fairchild together hold almost 60% of the U.S. market which, in turn, is about half the world market. The U.K. market, on the other hand, is only about 5% of the world market and no totally British- owned company has more than 10% of that. Thus, the signs point to inter- national collaboration and mergers within Europe, the principal example so far being the Phillips group. Other mergers can be expected. For example, in Britain there is a fairly full range of expertise in IC's, but it is fragmented among such companies as GEC Semiconductors, Gerranti, and Plessey. In the crucial area of computer-aided design, for example, all three companies are now pooling their software design programs and a very real software capability has resulted. This pooled CAD program resulted from a five million pound grant from the Ministry of Technology, one condition of which was that there should be collaborative research where possible. Other areas selected for collaboration were piece parts (e.g. ceramic bases, lead frames, hermetic packages) and production machinery. In almost every case, materials work is intertwined with device or equip- ment development and is not subject to any policy in its own right. In this field, material R&D tends to be inexpensive compared with the work on its applications and is rarely recognized as a separate field. Rather, it is generally handled within each company that carries out device development. (a) A Success Story - A M~ni-Consortium: A fairly systematic effort was . . Basedon "Making Sense of Electronic Components," K. Smith, Science Journal, Vol. 6, 80' 1970.

8-242 made in the U.K. to coordinate R&D in the field of semiconductor III-V compounds -- notably GaAs, GaP and GaAsP. This effort was based on the following considerations: Advanced components for defense depend on the exploitation of new phenomena observed in these compounds. Examples are microwave generators, detectors, mixers, etc., emitters of infrared and of visible light, domain- scattering devices, and so on. Several companies and governmental establishments in the U.K. might be expected to become involved in developing these devices and would, therefore, need supplies of compounds in a form not available commercially. En particu- lar, requirements on purity, uniformity of carrier concentration, mobility, thickness control in layered structures, etc. are so severe in sophisticated devices that outside suppliers are not capable of meeting the demands. (The situation is further complicated when the supplier is in another country and is itself involved in device development. The material buyer always has the suspicion that the vendor keeps the best material for himself, gives the next-best to his major domestic customer, and exports what remains") Because of the delays and other difficulties in buying material from commercial sources - and often it is just not available - the device develop- ment teams find it increasingly necessary to prepare their own material. (In fact, it is general experience that each device team must have, under its own control, an appropriate material preparation and evaluation group, working towards the common (device) objective. The feedback from material-user to material-maker should be continuous, rapid, and unambiguous, and unified control seems the best way of ensuring this. The practical difficulties of having several material preparation groups working at once, each as a part of a different device team, are solved by physically co-locating the groups so that common use is made of clean rooms, fume cupboards, measurement gear, etc. A comprehensive military R&D program in advanced electronic devices thus inevitably leads to the appearance of numerous groups in diverse companies and governmental establishments, all trying to prepare compounds. Clearly some form of close collaboration is necessary to avoid duplication of efforts, repetition of errors, and loss of useful information. One way to handle this is to forest a consortium of those engaged in this work. The consortium meets regularly and members exchange information, ~nter- change samples, visit each others' facilities, compare results on reagents, containers, measurement sets, etc. Conditions for successful operation of the consortium appear to be - (i) Clearly shown need for cooperation. (ii) Demonstratable benefits to all taking part. (fit) Existence of strong, knowledgeable chairman. (iv) Use of contract funding to exert effective pressure where necessary. In addition, the question of timing is important. A consortium can be effective in the early days of the R&D before commercial exploitation is a reality. As soon as commercial sales become significant, then normal compel Live considerations make cooperation more difficult. 1..

8-243 It seems evident that the U.K. consortium activities on compound semi- conductors have been successful. The status of device performance is at least as advanced as that anywhere in the world and is ahead in some areas. (b) A Not-So-Successful Story - Silicon Technology In the case of silicon, things have not turned out so well. At present, the U.K. relies largely on imports, except for two local manufacturers who are both sub- sidiaries of foreign firms (Monsanto and Texas Instruments). Although there was some very good early progress in pure silicon research in the U.K. Cindeed one company licensed DuPont to make pure silicon from silane), rather little work has been done more recently. Problems here are numerous. First, without a local manufacturing base, it is not easy to see how any R&D results would be applied. Secondly, the development of advanced devices in silicon is fairly limited (microwave generators and detectors, electro-optic devices2. Finally, the commercial conditions in IC's (the biggest user of silicon) make it very difficult to formulate a coherent policy. (An example is the irrational price structure of IC's where selling price often falls below manufacturing cost, overcapacity is rife, charges of dumping abound, etc.) (c) An Example of Government-Industry Cooperation: The British Post Office has long been concerned with the development of high-reliabtlity com- ponents for deep-water cable systems. Originally, repeaters involved tube amplifiers with long life and stable performance. Recent cable installations are based upon semiconductor amplifiers. The development pattern has bean the same. Original development, including materials engineering, has been carried out in the BPO laboratories until the desired performance has appeared cer tainly at tainable . The material development has involved long-lif e oxide cathodes, purification of electrode materials and process development for the electron tubes, and semiconductor-materials refinement for the transistors. When the required performance appeared within range, industrial firms were sponsored to complete product development and ultimately to undertake production. Information interchange was carried out between the companies under the direction of the Post Office laboratory management to assure complete availability of all technology developed by any of the groups involved. Through this pattern, the Post Office has concentrated upon the key com- ponent necessary for the system success and has assured its availability and quality. The results have been highly successful cable systems, on schedule. The most recent example is the first 1860 channel cable, at a cost below competing systems in other countries. (d) National Strategies for Electronics; A small country in a large world . . . . has the same problems, essentially, as a small company in a large industry - in order to make a significant contribution to knowledge, to progress, or to prosperity, it must be selective. The U.K. has selected III-Y compounds as an area where it planned to do something worthwhile. For the future it has to choose other areas where it has a good chance of contributing in a similar I .

8-244 way. The first step is to survey scientific fields and draw conclusions on which areas should be tackled and at what level of effort. A country, just like a firm, cannot be first at everything' But it has to be first at some- thing (to attract and keep its creative peop e). It will consciously decide to be a 'good second' at a selected list of things and, again consciously, accept it can do nothing at all in others. Thus, it appears that the U.K. decided it would be first in civil use of nuclear energy and supersonic civilian aircraft (jointly here because of cost), a good second in tele- communications and computers, and not complete in space technology. The means of selection are many but one source of valuable input infor- mation is represented by the studies carried out by the Science Research Council (SRC) into various fields of physics "to establish whether the subject, scientifically and technologically, merits the special encouragement." Reports issued so far cover: The Physics of Surfaces The Physics of Amorphous Materials Ion Implantation Parenthetically, France appears to have no clear policy regarding development of electronic fields or materials science and engineering. Some years ago, the government undertook to concentrate on computer technology, and a consortium of companies was organized and funded. The output was not very successful. A similar attempt was made in the components field. One move in support of this action was the establishment of a regulation against the use of foreign semiconductor components in French equipment. Electronic Materials in the U.S.S.R.: It has long been apparent from . . . . . . the U.S.S.R. scientific literature, and it is confirmed by visits to Russian laboratories, that by Western standards there are very large numbers of scientists who concentrate on preparing samples or growing crystals of electronic materials of various compositions and catalog their properties. This approach was championed by Ioffe. However, the specimens are not care- fully characterized; vast numbers of dielectric, magnetic, and semiconducting compositions have been explored without any really important discoveries. Two achievements in electronic materials should be mentioned, however; electroluminescent pen junctions in sit icon carbide crystals, and the worlds first double-heterojunction containment injection laser operating continuously at room temperature. Both achievements represent real skill with materials, but it is important to observe that these achievements were stimulated and paced by applied physicists and engineers who had definite device objectives. Both advances occurred in the Ioffe Physical-Technical Institute at Leningrad where there is relatively good coupling between science and engineering. On the other hand, there are many research institutes exclusively devoted to various materials: to semiconductors, to thermoelectrics, to the growth of single cyrstals, to superhigh pressures, to superhard materials, and so on, which have no counterparts, at least with regard to size, in the U.S. Some