PRODUCTIVITY AND CYCLICALITY IN SEMICONDUCTORS
TRENDS, IMPLICATIONS, AND QUESTIONS
Report of a Symposium
Dale W. Jorgenson and Charles W. Wessner, Editors
THE NATIONAL ACADEMIES PRESS
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www.nap.edu
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NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance.
This study was supported by: Contract/Grant No. NASW-99037, Task Order 103, between the National Academy of Sciences and the National Aeronautics and Space Administration; Contract/Grant No. OFED-13416 between the National Academy of Sciences and Sandia National Laboratories; Contract/Grant No. CMRC-50SBNB9C1080 between the National Academy of Sciences and the U.S. Department of Commerce; Grant No. NSF-EIA-0119063 between the National Academy of Sciences and the National Science Foundation; and Contract/Grant No. DOE-DE-FG02-01ER30315 between the National Academy of Sciences and the U.S. Department of Energy. Additional support was provided by Intel Corporation. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project.
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THE NATIONAL ACADEMIES
Advisers to the Nation on Science, Engineering, and Medicine
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Committee on Measuring and Sustaining the New Economy*
Dale Jorgenson, Chair Samuel W. Morris University Professor
Harvard University
M. Kathy Behrens Managing Director of Medical Technology
Robertson Stephens Investment Management
Kenneth Flamm Dean Rusk Chair in International Affairs Lyndon B. Johnson
School of Public Affairs University of Texas at Austin
Bronwyn Hall Professor of Economics
University of California at Berkeley
James Heckman Henry Schultz Distinguished Service Professor of Economics
University of Chicago
Ralph Landau
Senior Fellow Stanford Institute for Economic Policy Research Stanford University
William J. Spencer, Vice Chair Chairman Emeritus, retired
International SEMATECH
Richard Levin President
Yale University
David T. Morgenthaler Founding Partner
Morgenthaler
Mark B. Myers Visiting Professor of Management
The Wharton School University of Pennsylvania
Roger Noll Morris M. Doyle Centennial Professor of Economics
Stanford University
Edward E. Penhoet Director, Science and Higher Education Programs
Gordon and Betty Moore Foundation
William Raduchel
Alan Wm. Wolff Managing Partner
Dewey Ballantine
Project Staff*
Charles W. Wessner Study Director
Sujai J. Shivakumar Program Officer
Alan H. Anderson Consultant
Christopher S. Hayter Program Associate
McAlister T. Clabaugh Program Associate
David E. Dierksheide Program Associate
For the National Research Council (NRC), this project was overseen by the Board on Science, Technology and Economic Policy (STEP), a standing board of the NRC established by the National Academies of Sciences and Engineering and the Institute of Medicine in 1991. The mandate of the STEP Board is to integrate understanding of scientific, technological, and economic elements in the formulation of national policies to promote the economic well-being of the United States. A distinctive characteristic of STEP’s approach is its frequent interactions with public and private-sector decision makers. STEP bridges the disciplines of business management, engineering, economics, and the social sciences to bring diverse expertise to bear on pressing public policy questions. The members of the STEP Board* and the NRC staff are listed below:
Dale Jorgenson, Chair Samuel W. Morris University Professor
Harvard University
M. Kathy Behrens Managing Director of Medical Technology
Robertson Stephens Investment Management
Bronwyn Hall Professor of Economics
University of California at Berkeley
James Heckman Henry Schultz Distinguished Service Professor of Economics
University of Chicago
Ralph Landau
Senior Fellow Stanford Institute for Economic Policy Research Stanford University
Richard Levin President
Yale University
William J. Spencer, Vice Chair Chairman Emeritus, retired
International SEMATECH
David T. Morgenthaler Founding Partner
Morgenthaler
Mark B. Myers Visiting Professor of Management
The Wharton School University of Pennsylvania
Roger Noll Morris M. Doyle Centennial Professor of Economics
Stanford University
Edward E. Penhoet Director, Science and Higher Education Programs
Gordon and Betty Moore Foundation
William Raduchel
Alan Wm. Wolff Managing Partner
Dewey Ballantine
STEP Staff*
Stephen A. Merrill Executive Director
Russell Moy Senior Program Officer
Craig M. Schultz Research Associate
McAlister T. Clabaugh Program Associate
Charles W. Wessner Program Director
Sujai J. Shivakumar Program Officer
Christopher S. Hayter Program Associate
David E. Dierksheide Program Associate
Contents
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Welcome |
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Introduction |
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Productivity Trends in the Semiconductor Industry |
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Physical Limits of Silicon CMOS and Semiconductor Roadmap Predictions |
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Discussants: |
Cyclicality: Comparisons by Industry |
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A Modeling Strategy for Industry |
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The Case of the Aircraft Industry |
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Semiconductor Industry |
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Luncheon Address: The Industry Perspective on Semiconductors |
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Economic Growth and Semiconductor Productivity |
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Semiconductor Productivity and Communications |
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Semiconductor Productivity and Computers |
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Productivity and Growth: Alternative Scenarios |
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Roundtable on Models for Cyclical Industries |
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Closing Remarks |
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Accounting for Growth in the Information Age |
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International Technology Roadmaps: The U.S. Semiconductor Experience |
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Moore’s Law and the Economics of Semiconductor Price Trends |
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Preface
This report is the first in a series designed to improve our understanding of the technological and economic trends underlying the growth and productivity increases that have created what many refer to as the New Economy. Led by the National Research Council’s Board on Science, Technology, and Economic Policy (STEP), the goal of this analytical effort is to improve national policy making by improving our understanding of the sources of gains in growth and productivity and our understanding of the policies required to sustain the benefits of this New Economy for the nation.
Even the casual observer is aware of the ongoing revolution in communications, computing, and information management.1 In the mid-1990s, this technological revolution contributed to a distinct rise in the long-term growth trajectory of the United States.2 The term “New Economy” captures this new reality and has now become widely accepted by leading economists as a long-term pro-
ductivity shift of major significance.3 What is less widely appreciated is that much of this progress is derived from the significant and sustained increases in semiconductor productivity, predicted over 30 years ago by Gordon Moore and known as Moore’s Law.4
In approaching a phenomenon as complex as the New Economy, it is important to understand—and sort out—diverse elements of technological innovation, structural change, and the impact of public policy as well as issues of measurement.
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Technological innovation—more accurately, the rapid rate of technological innovation in information technology (including semiconductors, computers, software, and telecommunications) and the rapid growth of the Internet—are seen as the sources of the productivity gains that characterize the New Economy. These productivity gains derive first from the exponential growth in semiconductor performance at ever lower cost.5 In addition, the use of information technologies in the production of computers has greatly increased the productivity of this industry while having substantial positive effects (albeit with a lag) on the productivity of other important sectors of the economy such as banking, retail, and transportation.6 Many therefore believe that the productivity gains of the New Economy are closely linked to this unprecedented rate of technological innovation.7
3 |
The introduction of advanced productivity-enhancing technologies obviously does not eliminate the business cycle. See Organisation for Economic Cooperation and Development, Is There a New Economy? A First Report on the OECD Growth Project, Paris: Organisation for Economic Cooperation and Development, June 2000, p. 17. For an early discussion, see also M. N. Baily and R. Z. Lawrence, “Do We Have an E-conomy?” NBER Working Paper 8243, April 23, 2001, at <http://www.nber.org/papers/w8243>. |
4 |
Academic and policy interest in the New Economy was highlighted by the “Roundtable on the New Economy and Growth in the United States” at the 2003 annual meetings of the American Economic Association, held in Washington, D.C. Roundtable participants included Martin Baily, Martin Feldstein, Robert J. Gordon, Dale Jorgenson, Joseph Stiglitz, and Lawrence Summers. |
5 |
Price declines, for higher performance, have remained on the order of 17 to 20 percent per annum. See the presentation by Kenneth Flamm in this volume. |
6 |
See, for example, Stephen Oliner and Daniel Sichel, “The Resurgence of Growth in the Late 1990s: Is Information Technology the Story?” Journal of Economic Perspectives, 14(4): Fall 2000. Oliner and Sichel estimate that improvements in the computer industry’s own productive processes account for about a quarter of the overall productivity increase. They also note that the use of information technology by all sorts of companies accounts for nearly half the rise in productivity. |
7 |
See Alan Greenspan’s remarks before the White House Conference on the New Economy, Washington, D.C., April 5, 2000, <www.federalreserve.gov/BOARDDOCS/SPEECHES/2000/20000405.HTM>. For a historical perspective, see the Proceedings. Kenneth Flamm compares favorably the economic impact of semiconductors today with the impact of railroads in the nineteenth century. |
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Structural changes arise from a reconfiguration of knowledge networks and business patterns made possible by innovations in information technology. Phenomena such as business-to-business e-commerce and Internet retailing are altering how firms and individuals interact, enabling greater efficiency in purchases, production processes, and inventory management.8 These structural changes are still emerging as the use and applications of the Internet continue to evolve.
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Public policy plays a major role at several levels. This includes the government’s role in fostering rules of interaction within the Internet9 and its discretion in setting and enforcing the rules by which technology firms, among others, compete.10 More familiarly, public policy concerns particular fiscal and regulatory choices that can affect the rate and focus of investments in sectors such as telecommunications. The government also plays a critical role within the innovation system.11 It supports national research capacities, providing incentives (or disincentives) to promote education and training in key disciplines, and funds most of the nation’s basic research.12 The government also plays a major role in stimulating innovation. It does this most broadly through the patent system.13 In addition, government procurement and innovation awards have
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played key roles in the development of new technologies to fulfill national missions in defense, agriculture, health, and the environment.14
This report seeks to explore the economics underpinning Moore’s Law, to identify current R&D challenges and analyze new trends in the semiconductor industry, to discuss how cyclical swings in the industry might be better understood, and to discuss the policy responses available to sustain the benefits of the New Economy.
THE CONTEXT OF THIS REPORT
Since 1991 the National Research Council’s Board on Science, Technology, and Economic Policy (STEP) has undertaken a program of activities to improve policy makers’ understanding of the interconnections between science, technology, and economic policy and their importance to the American economy and its international competitive position. The Board’s interest in the New Economy and its underpinnings derives directly from its mandate.15 The STEP Board’s activities have corresponded with an increased recognition by policy makers of the importance of technology to economic growth.16
This mandate is reflected in an earlier STEP study, titled U.S. Industry in 2000, which assesses the determinants of competitive performance in a wide range of manufacturing and service industries, including those relating to information technology.17 The Board also undertook a major study, chaired by Gordon Moore, Chairman Emeritus of Intel, on how government-industry partnerships support the growth of new technologies.18 Reflecting a growing recognition of the impact of new information technologies on the surge in productivity since 1995, the Board launched this assessment of the New Economy phenomenon, designed to explore the sources of growth, measurement challenges, and the policy frame-
work required to sustain the New Economy. The first exploratory volume was published in 2002.19 Subsequent workshops and ensuing reports in this series include Deconstructing the Computer and Productivity and Cyclicality in Semiconductors: Trends, Implications, and Questions—the present report. Future reports in the series will address the software sector, as well as the policies required to sustain the New Economy.
SYMPOSIUM AND DISCUSSIONS
The Committee on Measuring and Sustaining the New Economy convened this symposium to explore how the growth and increased productivity in the semiconductor industry are linked to the economic gains and productivity growth associated with the New Economy. Understanding these trends is important to understanding how to better measure this growth and how to develop the appropriate policy mix to support it. The symposium, convened at Harvard University on September 24, 2001, included presentations and remarks from leading academics and innovators in the information technology sector (Appendix B lists these individuals). The “Proceedings” chapter of this volume contains summaries of their presentations and discussions. Three papers complete the volume. The first, “Information Technology and the U.S. Economy,” by Dale W. Jorgenson, provides economic underpinning for the symposium discussion and served as the basis for his presentation. The second, “International Technology Roadmaps: The U.S. Semiconductor Experience” by William J. Spencer and T. E. Seidel of SEMATECH, also provided information for the symposium proceedings and was available to participants. The third paper, “Moore’s Law and the Economics of Semiconductor Price Trends,” by Kenneth Flamm of the University of Texas at Austin, was also distributed at the symposium and was the basis of his presentation. We have made every effort to capture the main points made during the presentations and the ensuing discussions. We apologize for any inadvertent errors or omissions in our summary of the proceedings. The lessons from this symposium and others in this series will contribute to the Committee’s final consensus report on measuring and sustaining the New Economy.
ACKNOWLEDGMENTS
There is considerable interest in the policy community in a better understanding of the technological drivers and appropriate regulatory framework for the New Economy, as well as in a better grasp of its operation. This interest is reflected in the support on the part of agencies that have played a role in the
creation and development of the New Economy. We are grateful for the participation and the contributions of the National Aeronautics and Space Administration, the Department of Energy, the National Institute of Standards and Technology, the National Science Foundation, and Sandia National Laboratories.
Several members of the STEP staff and consultants to STEP deserve recognition for their contributions to the preparation of this report. We are indebted to Alan Anderson for his preparation of the meeting summary. We wish to thank Sujai Shivakumar for his many contributions to the report. We are also indebted to David E. Dierksheide and McAlister Clabaugh, who have once again played an instrumental role both in preparing the conference and, with Christopher Hayter, in preparing this report for publication.
This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the NRC’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity and evidence. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process.
We wish to thank the following individuals for their review of this report: Ana Aizcorbe, Federal Reserve Bank; Ellen Dulberger, IBM; David Hodges, University of California at Berkeley; Larry Sumney, Semiconductor Research Corporation; and Larry Thompson, Ultratech Stepper, Inc.
Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the content of the report, nor did they see the final draft before its release. The review of this report was overseen by R. Stephen Berry, University of Chicago, and Gerald P. Dinneen. Appointed by the National Research Council, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.
This report is one step in a major research effort by the Board on Science, Technology, and Economic Policy to advance our understanding of the factors shaping the New Economy in order to better understand it and thereby improve our ability to maintain and develop the policies best suited to sustaining the greater productivity and prosperity that it promises.
Dale W. Jorgenson
Charles W. Wessner