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Executive Summary The United States has consistently maintained that a strong domestic minerals and metals industry is an essential contributor to the nation's eco- nomic and security interests. Despite competition from foreign firms, the domestic industry has the potential to remain strong, but this potential can- not be realized without active support for the technological base of the industry. This base is threatened by the failure of industry, academe, and government to maintain the partnership that has contributed to a U.S. com- parative advantage in technology for much of this century. A strategy of applying a technology-based comparative advantage can contribute to the competitiveness of the domestic industry, but its success requires rebuilding of the industry-academe-government partnership. All three groups must support the partnership, and the Bureau of Mines, as the responsible federal agency, must take an active role in maintaining it. The United States has a fundamental interest in maintaining a competi- tive minerals and metals sector that will continue to contribute significantly to the nation's economic strength and military security. The industry repre- sents an $87 billion enterprise that employs over 500,000 U.S. workers and provides the material foundation for U.S. manufacturing. Although the intensity of use of metals (i.e., per unit of gross national product) Is ex- pected to decline gradually over time, the long-term outlook is that contin- ued growth of the economy will ensure increasing markets for metals. Met- als in general continue to be very competitive with respect to alternative materials. Penetration of nonmetallics into traditional markets for metals will be slow and will take place largely on a part-for-part basis that limits 1

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2 COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY the exploitation of the potential benefits of nonmetallics in competition with metals currently in use. The United States is among the world's largest consumers of nearly every metal, much of which is imported. In 1988 the nation had a net trade deficit of $22.3 billion in nonfuel minerals and metals. Since many of the world's mineral resources are located in areas where political instability and/or economic manipulation represent a potential threat to supply, it is essential for the United States to ensure some degree of independence from foreign control over supply and costs through domestic participation in this industry. Congress, through successive legislative acts, has established a national policy to encourage a strong domestic industry. It specifically noted the importance of encouraging mining, mineral, and metallurgical research as part of this policy. The research and development (R&D) sup- porting the technology base for the industry has been a cooperative responsibility of industry, academe, and government. The U.S. share of the world market for most major metals has slipped steadily over the past two decades; however, the domestic minerals and metals industry continues to compete on an international basis. The United States is among the world's largest producers of many important metals and still has substantial domestic reserves. One of the primary competitive advantages the United States enjoys over its strongest industrial competi- tors, Japan and Western Europe, is its domestic resource base. The domestic metals industry supplies about 50 percent of the metal used by the U.S. manufacturing industry, and the degree of competitiveness (defined in terms of market share, profitability, capacity utilization, and/or growth) varies across the particular metals subindustries. The industry reached its present level of profitability after a protracted period of recession. The recession was accompanied by heavy financial losses, restructuring, rationalization, and capacity reduction. Factors that led to the turnaround included commodity price increases, favorable cur- rency exchange rates, and reduced labor costs along with new applications of technology. Unless a strategy building on areas of U.S. comparative advantage Is . pursued, the current competitiveness of the domestic industry versus for- eign competitors is likely to be transitory. Nontechnological measures (such as plant closings, reduction of the labor force, and wage concessions) have already yielded most of their possible benefits. The potential for future gains in profitability from such adjustments is now much lower. As a result, the competitiveness of the domestic industry must in the future de- pend increasingly on other measures, most notably technology. The pervading message of this report is the need to improve the technology base of the U.S. minerals and metals industry by increasing the amount and quality of research and development, as well as the speed with which the results are transferred to industrial applications.

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EXECUTIVE SUMMARY TECHNOLOGY AND COMPETITIVENESS A technology-based strategy can improve the long-term competitiveness of the minerals and metals industry. Technology can contribute to competi- tiveness by increasing productivity or product quality, by addressing cir- cumstances unique to a process, company or country, or by assisting producers to adapt to changing consumer demand. A technology-based competitive- ness strategy requires a continuing commitment to the development and application of technology. While the United States does not lag behind other nations in the relevant science and technology, the research has been insufficiently imaginative and communication between academic researchers and the engineers who deal with industrial problems has been poor. Industry While technology was not the only factor and would not have been suffi- cient alone, its importance was demonstrated in the recent recovery of the industry, in which new applications of technology played a very important role even though the technology used was for the most part off the shelf, a result of past R&D in the United States and abroad. Although technologies can diffuse rapidly across international and cor- porate boundaries, it is still possible to create a comparative advantage from investments in R&D. One advantage comes from being the first to apply a technological advance, since a 2- to 3-year lead time usually accrues to the originator and first implementor of the technology. The rapid diffusion of the technology reduces but does not eliminate this advantage. Another advantage comes when the technology is related to special conditions not prevalent elsewhere (e.g., high labor costs, unique ore deposits, national environmental standards). Instead of innovative new technologies that could contribute to a com- parative advantage, most technological advances in the industry have been incremental stepwise improvements of existing equipment and processes- rather than major breakthroughs. Incremental advances are certainly beneficial, but they may not be sufficient in the face of strong foreign competition based substantially on nontechnological factors. In such an environment, breakthrough technologies are needed (i.e., discontinuous advances that al- low the domestic industry to capture sizable gains by applying entirely new technology) while competitors attempt to wrest incremental improvements from existing technology. Industrial laboratories and research staffs in most of the minerals and metals companies have been cut back substantially and in some cases elimi- nated. Similarly, suppliers to the industry often cannot afford the research needed to develop new products. Because of the relative health of the U.S. industry at present, there is a widespread perception among industry manag-

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4 COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY ers that further advances in technology are (at least temporarily) less urgent. As a result, industry has limited interest in the adaptation and application of technologies derived from research performed by government or academe. Much of the industry's lost R&D capabilities would be difficult and costly to restore in their original form. Collaborative research, particularly in the development of a shared technology base, could yield better results in terms of the competitiveness of the industry. Regardless of the form, how- ever, a strong domestic capability for generating and applying technology is indispensable for future competitiveness. The industry itself must play the lead role in restoring and maintaining its ability to develop, receive, and implement new technologies. Academe The academic infrastructure for research and education in support of the minerals and metals industry has declined substantially over the past de- cade. Research programs are generally small, poorly funded, narrow in focus, and directed at incremental advances, thereby limiting the capability of colleges and universities to perform basic research leading to useful new technologies for minerals and metals production. Student enrollments (both graduate and undergraduate), degrees, and the number of programs and faculty have all declined by large margins, and the survival of several programs is in doubt. The supply of B.S. graduates (especially those who are U.S. citizens) appears to be lower than current industry demand. If present trends continue, colleges and universities will be unable to meet the industry's need for well-trained engineering person- nel to solve future problems. Government Historically, government and academic laboratories have made many sig- nificant contributions to the research base for minerals and metals, while industry has focused more intently on the application of research results to operational and site-specific projects. In response to low metal prices and intense foreign competition, the R&D focus of many companies has become even more near term in scope. At the same time, federal support for research, both at government and university laboratories, has declined. The Mining and Minerals Policy Act of 1970 (P. L. 91-631) declared that it was the continuing policy of the United States to foster and encourage private enterprise in the development of strong domestic mining, mineral, metal, and mineral reclamation industries. The State Mining and Minerals Resources Research Institute Program Act of 1984 (P.L. 98-409) calls for the Secretary of the Interior to perform, or verify the performance of, a

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EXECUTIVE SUMMARY s number of functions that could greatly improve the competitive outlook of the U.S. minerals and metals industry. These functions, which would be implemented through the Bureau of Mines, include interagency coordina- tion of mining and minerals research programs, interagency coordination and consolidation of data bases for the purpose of indicative planning, cata- loging of all current and projected federally funded research relating to mining and mineral resources, and development of a national plan for research in these fields by a Committee on Mining and Mineral Resources Research. To date, these functions have not been performed in any consistent or delib- erate way. Indeed, the Department of the Interior does not provide strong support for the Bureau's interests and programs. The partnership between industry, academe, and government has weak- ened in the past several decades to a point where the pipeline of basic research in areas critical to the future competitiveness of the industry is drying up. The committee found that the mining and minerals research conducted by the government and in universities is not well coordinated with the long-term needs of industry. This situation must change; it is the basic research of today that will be the foundation for the technologies of tomorrow and that will support the strong domestic minerals and metals industry envisioned by the Mining and Minerals Policy Act. The Department of the Interior and the Bureau of Mines in particular are well situated to improve the research base for industry by rebuilding the collaboration in mining and minerals R&D. In addition to conducting research in its own laboratories and directing research funds to academic institutions, the Bureau can foster communication and collaboration among researchers to improve the applicability and timeliness of research. Bureau of Mines The Bureau of Mines has been and remains the only federal agency concerned primarily with the needs of the minerals and metals industry. Bureau support of R&D relevant to the needs of the industry contributed substantially to its growth and competitiveness throughout much of this century, particularly in the early decades. However, the Bureau's techno- logical contributions have had less impact in recent years. Its R&D budget was lower in 1989 (even before inflation is taken into account) than it was in 1980. Some 40 to 50 percent of the Bureau's research is devoted to mine safety, health, and environmental protection, further limiting the funds available for technology to improve productivity. The federal government can play an important role in helping the U.S. minerals and metals industry maintain a strong competitive posture interna- tionally. The Bureau of Mines is presently the only federal agency positioned to provide that assistance. If the Bureau is to play a more active and

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6 COMPETITIVENESS OF TlIE U.S. MINERALS AND METALS INDUSTRY effective role it will need to collaborate more closely with academe and industry. Government-Academic-Industrial Cooperation Both the 32 Mining and Minerals Resources Research Institutes (Mineral Institutes) and the 6 Generic Mineral Technology Centers (GMTCs) located at colleges and universities could be quite valuable for supplying the U.S. industry with well-trained manpower and technological advances. How- ever, increasing their value will require stronger support, coordination of the research efforts within broad targets for research, a more critical approach to the selection and evaluation of projects, and elimination of less success- ful efforts in favor of promising new ones. The Mineral Institutes and GMTCs are not well supported by the federal government. They are poorly funded, which hampers their ability to educate students and to perform needed research. The GMTCs suffer from a lack of strategic planning and rigorous evaluation of their research programs. Pro- posals funded under both of these programs tend to reflect the interests of researchers rather than the needs of the industry. The relationship between government and industry in minerals and met- als issues has often been an adversarial one. A variety of restrictions (anti- trust, environmental, etc.) have been placed on the minerals industry with little or no consultation or involvement with industry experts. At the same time, however, the technology-forcing aspects of environmental regulations have sometimes forced companies to become more productive, albeit at heavy capital costs. Foreign mineral producers generally work more closely with their gov- ernments in negotiating trade, environmental, and other policies. Indeed, the involvement of foreign governments has sometimes provided their industry with a competitive advantage in the international market through such policies that recognize the interests of their minerals and metals industry. The interests of the U-S. minerals and metals industry, on the other hand, are not represented in many governmental decisions on tax, trade, environmental, and other relevant policies. Closer relationships are being forged between the U.S. government and industry in the highly visible high-technology fields but not in the minerals and metals field. In order to strengthen the international competitiveness of the domestic industry, a new and more positive relationship is needed between agencies of the U.S. government and the minerals and metals industry. Collaborative efforts are needed to develop technology for waste minimization, reduction of environmental impacts, and remediation of contaminated waste sites. Government and industry should work together productively as partners to explore other research needs and should establish better communication

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EXECUTIVE SUMMARY links on policy issues. All concerned should recognize that some of our international competitors do not impose such heavy burdens or else they subsidize the producers who must implement them. RECOMMENDED ACTIONS The committee believes that the following recommended actions for in- dustry, academe, and government can make a significant contribution to the long-term economic health of the domestic minerals and metals industry. Industry commitment is essential to the development and maintenance of a technology-based competitive advantage, but there are essential roles for academics and government as well. In particular, the Bureau of Mines has a key role to play in the conduct of research and the gathering and dissemination of information. Actions by any individual party will not be sufficient; to be effective all three groups must act in concert. The Bureau should be a leader in the development of a coordinated effort by government, industry, and academe to maintain and improve the competitiveness of the industry. Industry must make greater use of the opportunities for collaborative research. Existing industry associations are underutilized and deserve greater support as a mechanism for conducting research. Opportunities for estab- lishing research consortia to pursue basic research should be examined in light of changes made over the past decade in the laws and regulations guiding such consortia. Academic research must address basic scientific and engineering prob- lems of the mining and metals industry. Universities must seek funding from different sources in order to assure stability for long-term research. The federal government must contribute to this stability by committing to sup- port funding of university research through the Mineral Institutes and the GMTCs. Academic programs must not be conducted in isolation; greater coordination among university researchers and greater collaboration between academe and industry are necessary. The Bureau of Mines should take a lead role in promoting coordination among government-supported research institutions and in facilitating the transfer of technology from research to industry. The Bureau must increase its emphasis on productivity, not at the expense of its other research responsibilities but in synergy with them. Research should be pursued in areas that would provide a base for a national com- parative advantage, emphasizing domestic strengths such as an educated work force and geological features that are unique to or more commonly located in the United States. Topics of high priority include the study of ore genesis and deposition, in situ mining, intelligent mining systems, and improved energy efficiency in processing. In addition, research on safety,

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8 COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY health, and the environment will be of greater benefit to the United States, with its stricter environmental regulations, than to its competitors. The Bureau should make a substantial commitment to conducting basic and exploratory research on "breakthrough" technologies that could con- tribute to competitiveness and to safety, health, and environmental con- cerns. This research should address new concepts with the potential to revolutionize the entire process from mining to metals extraction, and it should have a long-range focus on high-risk, high-payoff topics. This work should be coordinated with other Bureau research but should be programmatically separate. The Bureau's commitment to information and analysis must be continued and strengthened. Emphasis should be placed on the dissemination of data and analysis, and opportunities for electronic access should be pursued. The Secretary of the Interior should promote the inclusion of the Bureau in interagency groups that address issues related to minerals and metals, nota- bly matters of international trade, national security, and environmental pro- tection. The Bureau must increase its activity in the broader research commu- nity. It must actively support the Mineral Institutes and GMTCs and must work with academic researchers to focus research on topics that contribute to long-term national interests. The Bureau should also encourage the in- volvement of industry associations in defining goals and opportunities for academic research. In order to facilitate the role of the Bureau, the admin- istration should support requests for funding of the Mineral Institutes and GMTCs rather than waiting for Congress to act. The Bureau should seek outside advice on the direction and quality of its programs. An advisory committee established under the Public Advisory Committee Act should be established to advise the director on the direction and content of Bureau programs, including information needs, industry needs and opportunities, advances in technology, and priorities. In addition, visit- ing committees should be established to review the quality and content of the internal research programs of the Bureau, providing their advice to the research directors of the Bureau's laboratories and to the director. A national minerals and metals community forum should be convened regularly to identify major technical and policy problems facing the indus- try. This forum will increase communication between representatives of industry, academe, and government as well as foster collaboration among these groups. In order for the domestic minerals and metals industry to survive, there must be long-term commitment to a continuing reevaluation of the problems and opportunities facing the industry.