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Does Technology Policy Matter? HENRY ERGAS How do technology policies differ among nations? What impact do these differences have on innovation and, more generally, on industrial strutures? These questions are He central concerns of this chapter. Innovation is the use of human, technical, and financial resources to find a way of doing things. As an i~iherently uncertain process, it requires e~erimeruation with alternative approaches, many of which may prove unsuccessful. Even fewer will survive He test of diffusion, where ultimate economic returns are determined. The historical success of the capitalist system as an engine of grown arises from its superiority at each of these levels: generating the resources required for innovation, allowing He free- dom to experiment with alternative approaches, and providing He incen- fives to do so. ~ Though relying primarily on market forces, the system has.interacted win goverrunent at two essential levels. The first relates to the harnessing of technological power for public purposes. Nation-states have long been major consumers of new products, particularly for military uses, and the need to compete against over nation-states provided an important early rationale for strengthening national technological capabilities. Whether this rationale persists as He primary motive for government action is a major factor shaping each coun~y's technological policies (Earle, 1986~. The second arises from the system's dependence on its social context. The development and diffusion of advanced technologies requires a system of education and training as a basis for supplying technology and skills, a legal framework for defining and enforcing property nghts, and processes 191

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192 HENRY ERGAS such as standardization to reduce transactions costs and increase the hans- parency and efficiency of markets. These are, at least in part, public goods. The benefits of investment in education are appropriated by a multitude of economic actors, and Hose of Me system of property rights are even more widely spread.2 The way these public goods are provided, and tile role industry plays In this respect, differs Neatly from county to county. This chapter examines the interactions between the technological system and government policy in seven mdustrialtzed countries: the United States, the United Kingdom, France, Germany, Switzerland, Swecien, and Japan. It pays particular attention to He relation between innovation policy and industrial structures. The countries examined are placed in Tree groups. Technology policy in He United States, He United Kingdom, and France remains intimately linked to objectives of nahona1 sovereignty. Best ~e- scnbed as "mission-oriented," the technology policies of these nations focus on radical innovations needed to achieve clearly set out goals of national importance. In these countries, He provision of innovation-related public goods is only a secondly concern of technology policy. In contrast, technology policy in Germany, Switzerland, and Sweden is pnmanly "diffusion-onented." Closely bound up win He provision of public goods, He principal purpose of these policies is to diffuse tech- nolo~cal capabilities throughout He industrial structure, Gus facilitating tile ongoing and mainly incremental adaptation to change. Finally, Japan is in a group of its own. Its technology policy is both mission-onented and diffusion-onented, and He form He policy takes differs in important respects from that ~ He over countries. Every taxonomy involves a loss of information, and He one proposed here does not escape this general rule. Thus, He United States has important policies for example, in agriculture and in medical research that are diffilsion-oriented; equally, Germany and Sweden have mayor mission- onented programs. But the focus of policy does differ in die Tree groups, and this allows a clearer examination of the relation between technology policy and innovation performance. These differences in policy stance Cough not as sharp as they may at first appear to be are important in shaping patterns of technological evo~uDon, but the central hypothesis of this chapter is Hat technology policies are a facilitating rather Han explanatory factor. The cnucal var- iables lie in how industry responds to He results and signals of efforts to upgrade national technological capabilities. In turn, this depends to a substantial extent on the environment in which industry operates. Tech- nology policies cannot, In other words, be assessed independently from Hem broader economic and institutional context. A central feature of this context is a coun~y's technological infrastruc

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DOES TECHNOLOGYPOLICYMA7TER.' 193 ture-its system of education and Gaining, its public and private research laboratories, its network of scientific and technological associations. The effectiveness of this infi~s^ucture depends not only on its lateral fi,nc- tion~ng but Also on Me way a country's factor and product markets respond to innovation opportunities. Overall, this suggests that, even within the framework of a market economy, We process by which innovations are generated, selected, and Stated win differ according to He features of each coun~y's institutional and economic structure. In explonog these features and Weir relation to countries' technology policies, this chapter follows the broad grouping set out above: The next Tree sections examine, respectively, He technology policies of He m~ssion-or~ented counties, namely, He United States, the United Kingdom, and France; He dif*~sion-onented countries, namely, Germany, Switzerland, and Sweden; and Japan. The last two sections present, respectively, a synthesis of similandes and differences, win analyses of Heir broader unplicabons for economic performance, and conclusions for policy formulation. THE MISSION-ORIENTED COUKIRIES Mission-onented research can be descnbed as big science deployed to meet big problems (Weinberg, 1967) . It is of primary relevance to countries engaged in the search for international strategic leadership, and the coun- tries In which it dominates are Hose where defense accounts for a high share of government expenditure on R&D (Table 1~. Though it has also been used In these counties to meet perceived technological needs in civilian markets (for example, In nuclear energy or telecommunications), Be link to national sovereignty provides its major rationale. The dominant feature of m~ssion-onented R&D is concentration. Fast and most visibly, this refers to He centralization of decision making. As TABLE 1 Shoe of Defense-Related R&D ~ Tote Government Expenditure on R&D 1981 Country United Stams United Kingdom France Sweden Switzerland Gay Japan SOURCE: Org~aiion for Economic Cooperation and Development. Percent Defense-Related 54 49 39 15 12 9 2 . _ .

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194 HENRY ERGAS its name implies, He goals of rn~ssion-onented R&D are centrally decided and clearly set out, generally In terms of complex systems meeting the needs of a particular government agency. Specifying these needs and supervising project implementation concentrates a considerable amount of discretionary power in Be hands of the major funding agencies. Concentration also extends to He range of technologies covered. V'r- tually by its nature, mission-onented research focuses on a small number of technologies of p~clllar strategic importance primarily un aerospace, electronics, and nuclear energy. As a result, government R&D funding in these countries is heavily biased toward a few industries Hat are generally considered to be In He early stages of He technology life cycle (Table 2~. The scale of m~ssion-onented efforts also limits He number of projects and restricts the number of participants. At any particular time, only a small share of each coun~y's firms, likely among the larger ones, will have the technical and managerial resources required to participate In these programs. The concen~abon of government R&D subsidies or a small number of large firms is therefore also a feature of the countries In this group. Overall, mission-onented programs concentrate decision making, ~m- plementadon, and evaluation. A few bets are placed on a small number of races; but together, these bets are large enough to account for a high share of each coundy's total technology development program. This con- centranon ranses two obvious questions: First, how successful are He bets In relanon to their own objectives? And second, do Hey have any effect On He efficiency with which the many over races are run-Hat is, are TABLE 2 Proportion of Total National Public R&D Funding by Type of Industry, 1980 Estimates CounDy United States France United Kingdom Ge2~nany Sweden Japan . Percentage of Total Public R&D Funding High-Intensity Medillm-Intensity Low-Intensity Industry Industry Industry 8 7 3 23 20 12 88 91 95 67 71 21 4 2 10 9 67 NOTE: High-, medium-, and low-intensity R&D industries are defined as firms whose ratios of R&D expenditures lo sales are, respectively, more than niece, between twice and half, and less than half the manufacn~ing average. SOURCE: Org~n;7~tion for Economic Cooperation and Development.

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DOES TECHNOLOGY POLICY MATTER? 195 technological capabilities more broadly diffused through He ~ndus~ial structure? These questions win be considered in turn. Direct Electiveness Anempung cost-benefit analyses of major mission-onented programs involves enonnous difficulties (Hitch and McKean, 1960~. Three criteria for evaluating success can nevertheless be established: First, are stated product development goals being met? Second, is this being done within He original limits of time and cost? And third, are objectives for com- mercial markets being achieved? No coundy's programs perform extremely weD when measured against these cntena. On balance, He effort In the United Kingdom has probably been He least successful, whereas Hat In France and the United States has generated a mLxed record. Three factors seem to be critical In differ- entiating success from failure. first, do the agencies involved have the technical expertise, financial resources, and operating autonomy required to design and implement He program and the incentives to ensure Hat it succeeds? Second, are relations with outside suppliers such as to provide appropriate incentives and penalties and do they allow for experimentation wad alternative design approaches? Third, can agencies be prevented from expanding Heir "missions" indefiliitely and, in particular, from moving into areas for which Heir capabilities and structures are inappropnate? The answers to these questions have differed In each of He Tree m~ssion- onented countries considered in this section. United Kingdom The United Kingdom's major difficulties arise from the pervasive lack of incentives in its system of mission-oriented R&D.3 The British system of public administration with its emphasis on anonymity, comrmttee decision making, and administrative secrecy ensures that individual pub- lic servants have lithe Interest in "rocking the boat." The emphasis on internal and procedural accountability also makes government reluctant to devolve major projects to reasonably autonomous entities, so that re- sponsibilities are tangled, decision making is cumbersome, and He or- ganizational and cultural context is inappropriate for developing new technologies. At the same time, the propensity of British agencies to form "clubs" with their suppliers within which each supplier is treated on He basis of administrative equity gamer than commercial efficiency weakens whatever Incentives suppliers may have to seek an early lead, while also ensuring that He resources available are so thinly spread as to be inef

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196 HENRY ERGAS fectual. Finally, the reluctance to build penalty clauses into development contracts, and to terminate unsuccessful projects (particularly when this would jeopardize the viability of an indigenous supplier), aggravates an inherent tendency to cost overruns. Prance France's relative success apses in considerable part from the great political legitimacy, operating autonomy, and technical expertise of its user agencies, combined with Me strong incentives for success built into the highly personalized nature of power and careers in He French public a~ninistration.4 Particularly over He last decade, Here has also been an effort to increase the competitive pressures bearing on suppliers, notably through tighter controls on costs, recourse to penalty clauses, and easing previous market-shanng arrangements. The effects of these moves have been heightened by improved financial and operating condor within the agencies themselves. However, the French system has two major weaknesses. First, resource constraints have usually prevented experimentation with alternative design approaches, and the number of suppliers involved in each major project has typically been small.5 Second, Cough He French system has been compared favorably to that of the United Kingdom because there has been a reasonable willingness to run down (if not terminate) failures, die system has been highly vulnerable to goal displacement as a sequel to success. Agencies that have successfully accomplished a mission perpetuate them- selves by designing new missions, frequently in areas unrelated to their original function. This "Frankenstein" effect is particularly noticeable in He energy and communications fields, where agencies have sought to expand their power base by diversifying their operations, generally into markets for which their technological capabilities and organizational struc- tures are inappropriate. As a result, success in one period has in several cases been followed by failure in He next; and He system has had few mechanisms for reallocating resources smoo~ly.6 United States Considenng only He efficiency win which projects are designed and implemented, He United States is intermediate between the United King- dom and France; but it has over them the great advantage of scale.' This advantage has Tree important dimensions. First, U.S. agencies draw on a much larger pool of external technological expertise both in selecting and implementing projects-and have much better mechanisms for doing

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DOES TECHNOLOGY POWCYMATT~R., 197 so, notably In Adversity research. Second, funding for m~ssion-onented programs in the United States, particularly in defense, rarely falls short of He critical mass required to complete the development stage and usually has a higher continuity than program funding elsewhere. Third, the scale of Finding is large, and the range of qualified suppliers is wide. Even the relatively small sums spent by the U.S. Department ofDefenseon programs of the Defense Advanced Research Projects Agency are large in relation to total defense R&D in the United Kingdom and France. The result is Mat experimentation almost invariably occurs with alternative design ap- proaches and philosophies, even if only in Be early steps of program conception. The United States may also benefit from the high degree of accountability inherent In its system of congressional scrawny. This system has generated strong pressures for terminating unsuccessful projects, notably in the ci- vilian sector (~e supersonic transport plane and sy~fuels being prime examples), but seems to exercise much less control on Be defense sector. Thus, an incidental effect of the system is that military programs may be aDowed to continue too long, and some largely civilian programs are shut down too early. It has been argued that this places an excessive burden of financing projects with a high "public goods" content on the private sector. The safety and decommissioning of nuclear power plants may be cases in point (Brooks, 19831. Any overall assessment of the direct effectiveness of m~ssion-onented research must therefore be minced; but He immeciiate returns on He research do appear to be higher In the United States and France than in He United Kingdom. However, even in He United States the products conceived directly by mission-oriented programs account for only a small share of the economy (Riche et al., 19831; He extent to which technology generated in these programs spreads to over areas of activity is therefore a major component of its overall impact. Secondary Effectiveness There are relatively few studies of the extent of secondary effects of mission-or~ented technology policies or of the pace at which such effects occur. The few studies that do exist come to widely differing conclusions, frequently reflecting individual authors' views of the desirability of defense spending. None of the studies draws international comparisons. Two broad statements can nonetheless be advanced on He basis of the existing ma- serial: first, in every country, the direct spin-offs-in the sense of im- me~iiate commence use of the results of m~ssion-oriented research are limited;8 second, the indirect spin-offs- arising mainly from improve

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198 HENRY ERGAS meets in skins and in technical knowledge transferable Tom the m~ssion- onented environment to Mat of commercial competition appear to occur both In greater number and more rapidly In the United States than In the United Kingdom or France.9 It can be argued Tat the greater number and frequency of indirect sp~n- offs in the United States are partly due to differences in We way programs are designed and Implemented. But the Impact of these differences is compounded by differences In Me countries' economic structures and scientific and technological environments. The Role of Program Design Four factors distinguish the design and implementation of m~ssion- onented programs In the United States from that of their counterparts In Me United Kingdom and France. The first is the more Inn~ted direct role of the public sector ~ ssion-onented R&D in the United States. hn general, He U.S. government performs a small share of its research in- house; the bulk of it is contracted to outside sources (Table 31. Even Be management of national laboratories has been separated to a considerable extent from the public sector and devolved to universities or to private companies. Problems of technology transfer from the public to the private sector therefore concern a smaller share of government-funded R&D Can is the case ~ France or the United Kingdom. Second, m~ssion-oriented research In the United States involves a greater number and diversity of agents. It is true Hat within the private sector, most government research and procurement contracts go to a small number of suppliers. But He sums flowing to Diversity research and to small and medium-s~ze businesses are large in absolute terms.~ Thus, the number of small firms receiving 20 percent or more of Heir total R&D finance from government sources is nearly 10 times larger In the United States Han In He United Kingdom or Prance. Moreover, insistence In defense TABLE 3 Share of Government-F~nanced R&D PeRonned In the Government Sector County ``Year) France (1983) United Kingdom (1981) Federal Republic of Germany (1981) United States (1983) Switzerland (1981) . . . SOURCE: Oration for Economic Coope~on and Development. Share Performed by Government 46.8 38.9 31.6 25.7 24.7

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DOES TECHNOLOGYPOLICYMATIER' 199 procurement on "second-sourc~ng" of key components ensures a fairly broad diffusion of technological capabilities. The effects of this dispersion are compounded by a third factor, namely, greater U.S. willingness to disseminate He results of m~ssion-onented programs. Despite obvious security concerns, U.S. defense R&D pro- grams have generally either made their results public or at least made them mown to a wider circle than that immediately involved in the program. The information inherent in these results- such as measurement standards, properties of materials, or even identification of unsuccessful approaches to technical problems is an important "public good." A greater U.S. willingness to disseminate results probably contains an element of bowing to He inevitable: Given the number and range of participants, results will be known sooner or later. However, other factors have also been at work. The widespread disseminator of results has been important In securing ongoing political approval for the programs. It has also been a way of preventing contractors from consolidating a "first- mover advantage" over competitors. At universities especially, dissemi- nation has been facilitated by a research community that generally has not questioned the legitimacy of the program so long as their results could be fed into the system of "public or pensh!" The dissemination of the results of mission-onented programs in the Unuted Kingdom and France differs from that in the United States in three respects. First, after programs are set up and running, there is little external political pressure to disseminate results. Second, the members of the program "club" ~emseIves have lithe interest In seeing results publicized and tend to count more heavily in decisions about dissemination. Third, He external environment notably that In the universities has been per- ceived as probably hostile and possibly untrustworthy. As a result, the information generated by mission-onented programs has tended to remain confined to a small circle of participants. Finally, the U.S. government moved somewhat earlier Can its counter- parts In France and He United Kingdom to encourage commercialization of the results of goverrunent-financed R&D. The National Aeronautics and Space A~minis~ation and a few other federal agencies have long had spec- ified units concerned with technology transfer. Regarding government- financed R&D ~ He private sector, the 1980 Patent Law Amendments Act established a uniform policy allowing contractors notably, small busi- nesses, universities, and nonprofit laboratories to own inventions result- ~ng from federal R&D funding. The assurance this act provides of clear title to government-funded inventions has greatly facilitated patent licensing by universities and over federal contractors to industry and has encouraged industrial participation in federally supported university research.

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200 TABLE 4 Research Scientists and Engineers ~ Me Labor Force, 1981 County United States Japan Federal Republic of Germany United Kingdom Norway Fence Number per 1,000 of Labor Force 6.2 5.4 4.7 3.9 3.8 - SOURCE: Org~don for Econonuc Cooperabon and Development. Differences in the Environment HENRY ERGAS Economic interests in We United States therefore have greater direct or indirect access to whatever may be transferable in Me outcomes of mission- onented programs. At Me same tune Hey are well placed to exploit these results for commercial purposes and have substantial incentives to do so. Lower Degree of Crowding Out The sheer size of Be U.S. scientific and mchnolog~ca1 system means that mission-onented programs probably "crowd out" other research efforts only to a limited extent. The size differential is particularly marked In teens of the stock and flow of research manpower. The share of R&D scientists and engineers in the U.S. labor force is one- third greater Man that in the United Kingdom and France (Table 41. The share of secondary students going on to university training in Me United States is about double that in France or the United Kingdom (Table 5), and the proportion of those students choosing scientific or engineenog training is reasonably responsive to market circumstances. To this dif- ference in endowment must be added the effect of inflows of scientists and engineers from overseas. ~ 1982, foreign-born scientists and engineers accounted for fully 17 percent of all scientists and engineers employed in the United States. Accessibility and Mobility of Scientific Know-how The U.S. stock of human and technological capital, in addition to being relatively abundant is also more easily accessible. It is, in Be first place, accessible through contract research, both with private research firms and with universities. Though the share of university research financed by industry in the United States is not high, the links between universities and industry have traditionally been strong (Noble, 1977; Ben-David, 1968)-far stronger, at least, than in France or Be United Kin Sodom, bow these counties lagging even by

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DOES TECHNOLOGY POLICY MA TIER ~ 201 European standards in this respect (AhIstrom, 1982; Organization for Economic Cooperation and Development, 1984a; Ben-Dav~d, 1968). These links take several fonns: active efforts by U.S. universities to conuner- cialize their technological skills, widespread consulting for industry by university scientists and engineers, frequent coauthorship of journal arches by researchers in industry and academia, and sizeable gifts of equipment by industry to university research facilities. The operation of Me U.S. labor market also promotes We accessibility of its stock of human and technological capital. In general, Me U.S. labor force Is more mobile between employers and regions Man Me labor force In Europe: Average job tenure is about 20 percent lower ~ e United States Man in France or the Urneted Kingdom; the share of the labor force crossing regional boundaries each year is at about 3 percent~ouble that ~ Europe. Moreover, U.S. scientists and engineers are almost as mobile as other segments of the labor force: Their average job tenure is only about 15 percent higher Man Me average. In contrast, mean tenure in France win a given employer is nearly 40 percent higher for highly qualified staff than for Me labor force aeS a whole (Pham-Khac and Pigelet, 1979; Stevens, 1986~. Differences in labor mobility are even greater regarding movement from university to ~ndus~y. Some 2 to 3 percent of all UeSe scientists and engineers move from academia to industry or vice versa every year; Me figure for France can be estimate<] at well below 0.5 percent.~3 The civil service status of public sector researchers In France makes movement difficult and eliminates incenses to move. TABLE 5 Diplomas Giving Access to Higher Education as Proportion of Age Group . . County (Year) Japan (1981) Sweden (1982) United States (1980) Federal Republic of Germany (1982) DeDmadc (1980) France (1983) Italy (1981) United Kingdom (1981) Finland (1980) Austria (1978) Netherlands (1981) Percent 87 82 72 26 25 28 39 26 38 13 44 SOURCE: O~anizabon for Economic Cooperation and Development.

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DOES TECHNOLOGY POLICY MATTER? 235 Providing Incentives Even an improved policy framework need not lead to better performance if the incentives to make the best use of technological resources are too weak. At a most obvious level, this is a problem of ensuring that fume are exposed to competition so Hat ideas are quickly transferred from the research environment to Cat of commercial use. The problem of providing adequate incentives meets particular attention In Wee areas: public research laboratones and over nonprofit research institutions, publicly funded commercial R&D, and public procurement. The first of these areas should include scope-notably in Be United Kingdom and France both for reducing the share of public laboratones in government R&D expenditure and for shi~ng a greater part of Heir recurrent funding onto a matching grant basis. In the second area, op- poru3nides should be explored for building ~ncen~ves for success into He system of public support for commercial R&D for example, by making access to coots ng finance more clearly conditional on past performance. The third area, public procurement notably of complex technological systems too often serves to subsidize long-term inefficiency rather than to encourage the best use of resources and capabilities. Dismantling these protective devices could Impose short-term costs, but these are likely to be small ~ relation to the longer-term benefits. ~ summary, it is true that He institution framework of any one county cannot be mechanically transplanted to others. Nonetheless, comparative analysis suggests three priority areas for action: easing constraints and ngidides Hat slow the diffusion of new skills and technical capabilities; ~DEO~9 He hum cabin bee wee enhance He efficiency of -rid o ~ rid markets for highly tried personnel; and Creasing He extent to which technology policy relies on market sign~s and conceives, rather than on the administrative allocation of resources. ACKNOWLEDGMENTS The author thanks Bruce Guile of ache National Academy of Eng~neenng; Rolf Piekarz of He National Science Foundation; Professor David Encaoua, of the Direction de [a Prevision, Ministere de I'Economie, des Finances, et de la Privatisation; Chrishan Sautter, Inspecteur General des Finance; and P. D. Henderson, H. Pest, I. Shafer, D. Baldes, and many over colleagues at the Organization for Economic Cooperation and Development for Heir valuable comments on earlier Is of this paper. Special Hanks are also given to He auroras colleagues Rauf Goneng, Andreas Lindner,

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236 HENRY ERGAS AIlders Reutersward, and Barrie Stevens for generously providing data and advice. However, the author wishes to stress Mat unless otherwise indicated, the views expressed in this paper are attributable only to We author in a personal capacity and not to any ~nstitudon. NOTES 1. See especially Rosenberg and Birdzell, 1986. Nove, 1983, provides an interesting comparison by the relatively sympathetic description of Me f~ctio~g of a socialist economy and of its difficult in innovating. 2. This is a key component of the classic '`market failure" argument for public support for R&D. See Antonelli, 1982; Freeman, 1974; Keen and Schwartz, 1982; Blowzy, 1983a; Rockwell and Zegveld, 1981. 3. This descuphon of the United Kingdom draws on Carter, 1981; Dickson, 1983; Hall, 1980; Henderson, 1977; Hogwood and Peters, 1985; Venison, 1974; Young and Lowe, 1974. 4. This description of France draws on Bauer and Cohen, 1981; Cawson et al., 1985; Cohen and Bauer, 1985; Dupuy and Thoenig, 1983; Grjebine, 1983; Shonfield, 1965; Stoffaes, 1984; Vernon, 1974. 5. See especially Ponssard and Pouvoirville, 1982. The high concentration levels of overall transfers from the state to industry (including public procurement) are discussed in Centre d'Economie Industnelle, n.d., and Co~ssariat Genial du Plan, 1979. 6. On telecommunications see Cohen and Bauer, 1985; Darmon, 1985; Ergas, 1983b; Peterson and Comes, 1985. On energy, see specifically Feigenbaum, 1985; Picard et al., 1985. 7. This discussion of the United States draws on Fox, 1974; Gansler, 1980; Nelson, 1982, 1984; Phillips, 1971; Research & Plug Institute, Inc., 1980. 8. Thus, Scherer (1982) estimates that in the United Smes only 12 percent of 1974 defense R&D funding generated technologies that flowed directly to clearly nondefense uses. 9. Secondaly effects are examined by, among others, Ettlie, 1982; Hendlemon, 1977; Malerba, 1985; Rothwell and Zegveld, 1981; Scnbberas et al., 1978; Teubal and Steinmueller, 1982. An inking international comparison of secondary effects can be obtained by contrasting U.K. and U.S. surveys of the effects on defense funding on national semiconductor industnes: Dickson, 1983; Mowery, 1983b. 10. The role of U.S. government funding ~ the grown of small films is discussed in Bollinger et al., 1983; Research & Plug Institute, Inc., 1980. A survey is given in Ergas, 1984b. Defense funding of university msearch and its growing importance is discussed in National Science Board, 1986, chap. 2. 11. Compare Katz and Phillips, 1982, and Lavington, 1980. See especially Freeman, 1971; Freeman, 1976; National Science Foundation, 1985. Compare with Wilson, 1980. Compare National Science Board, 1986, p. 86 and appendix table 4~17; Le Monde, 6 February 1986. 14. See ~gas, 1984b, pp. 1~11. A fascinating case study is National Academy of En- gmeenng, 1982. The role of scale economics in intensifying rivalry in the transition to aces production is clearly brought out by recent literature on strategic competition. See, for an excellent survey, Kreps and Spence, 1985. 15. See especially Schmalensee, 1982. Advertising-related product differentiation also

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DOES l-ECHlVOLOCY POLICY MAlTER.' 237 appears to be a particularly significant factor explaining persistent profitability in U.S. industry. See Geroski, 198S; Mueller, 1985. 16. Aspects of this pattern are highlighted in Prais, 1981. Robson et al. (1985) examine the diffusion of technology in the United Kingdom. See also the analysis of the United Kingdom's trade structure in Orlean, 1986. 17. See, in addition to the references in note 4 above, analyses of France's trade patterns presented in Lafay, 1985; Orlean, 1986; Vellas, 1981. 18. The results of Lipsey and Kravis, 1985, conflict tenth those of Dunning and Pearce, 1985, who find a shaper decline in U.S. liens' overall share of revenues and profit- ability. 19. The classic fom~ulabon of this process is Vernon, 1966. For empirical analysis of U.S. trade pattems, see inter alla the contrasting results set out in Hatzichronoglou, 1986; Lafay, 1985; Leamer, 1984; Vernon, 1979. 20. The general characteristics of these countries are explored in Katzenstein, 1985a and 1985b. 21. On Germany and Switzerland, see Henderson, 1975; Milward and Saul, 1977. On Scandinavia, see Hecksher, 1984; Hildebrand, 1978. 22. We general characteristics of these educational systems, and international companions, are set out in Stevens, 1986. See also Organization for Economic Cooperation and Development, 1979; Prais and Wagner, 1983a and 1983b; Worswick, 1985. 23. A recent survey reports that in Germany 45 percent of labor force participants with vocational training at a high school level undertook continuing training during the period 197~1979. 24. According to population census estimates, some 50 percent of the civilian labor force in Germany and Switzerland has completed an apprenticeship. See Organization for Economic Cooperation and Development, 1986. 25. The classic study is Brady, 1934. 26. Estimates are provided in Laboratono di Politica Industnale, 1982. The literature on standardization is reviewed in Ergas, 1984b. 27. I am indebted to my colleagues in the Science, Technology and Industry Directorate of the Organization for Economic Cooperation and Development for assisting me in compiling the information presented here. 28. See especially Meyer-Krahmer et al., 1983. My colleague Ants Lindner pro- vided me win particularly useful information on the subjects discussed in this section. 29. See George and Ward, 1975; Prais, 1981; Pratten, 1976. Particularly useful case studies are Aylen, 1982; Daly and Jones, 1980. 30. This discussion draws on Agliena and Boyer, 1983; Leamer, 1984; Ohlsson, 1980; Orlean, 1986. A particularly useful discussion of the balance between shifting resources among competing uses, as against increasing their productivity in existing uses, is in Carlsson, 1980. 31. It has been estimated that Japanese liens' total expenditure on vocational education is 5 tomes greater than public expendin~re on vocational education. 32. See especially Collins, 1981, 1982; Saxonhouse, 1984; Uena, 1977. 33. See Caves and Uekasa, 1976. On puce competition, see Encaoua et al., 1983. 34. A theoretical model in which collusion is less stable in a growing than in a declining market is set out in Rotemberg and Saloner, 1984. Estimates of the cost of funds are given in Ando and Auerbach, 1986. 35. Thus, in the United States, die number of large takeovers (valued at $100 million or

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238 HENRY ERGAS more) has increased steadily over the last Dade, nag from 14 in 1975 to 116 in 1982; in Japan, in contrast, the number of large transfers (exceeding $50 million) has been virtually constant, with only 10 such transfers occulting in 1981. See Orion for Economic Cooperation and Development, 1984b. 36. See Tachibanki, 1984, who eshma~s that lifetime employment applies to no more than 10 percent of the Japanese labor force, almost entirely at higher levels of educational attainment. 37. On die blumDg of frontiers between basic and applied research, see Committee on Science, Engineenug, and Public Policy, 1983; on its implications for Japan, and concern about the future, see Sciences and Technology Agency (Japan), 1985. 38. Useful overwews are in Antonelli, 1982; Bollinger et al., 1983; Dosi, 1982; Kamien Ad Schwartz, 1982. 39. Some of the caveats in this respect are set out in Ergas, 1983a. See also Clark, 1985. 40. The fact Hat Prance and, to a lesser extent, the United Kingdom have lagged in applying competition policy to their respective national industries has also presumably been a factor reducing the pressure on finns to innovate. REFERENCES Aglietta, M., and R. Boyer. 1983. Poles de Comp6htivite, StratEgie Indus~ielle et Polinque Macro economique. Pans: Working Paper CEPREMAP No. 8223. Ahls~m, G. 1982. Engineers and Industrial Growth. London: Croom Helm. Ando, A., and A. Auerbach. 1986. The Corporate Cost of Capital in Japan and the U.S.: A Comparison. Research Working Paper No. 1762. Cambridge: National Bureau of Economic Research. Antonelli, C. 1982. Cambiamento Tecuologico e Teona dell'lmpresa. Torino: Loescher Editore. Arocena, J. 1983. La Creation d'Enterprise. La Documentation Frangaise, 1983. Aylen, J. 1982. Plant size and efficiency in the steel industry: An international companson. National Institute Economic Review 100 (May). Baker, W. J. 1971. A History of the Marcom Company. New Yoric: St. Martin's Press. Bauer, M., and E. Cohen. 1981. Qui Gouven~e les Groupes Industnels? Pans: Editions du Seuil. Beer, J. J. 1959. The Emergence of the Gems Dye Industry. Harmondswor~: Penguin. Ben-David, J. 1968. Fundamental Research and the Universities. Paris: Oration for Economic Cooperation and Development. Berger, S. D., ed. 1981. Organizing Interests in Western Europe. Edge: Cambridge University Press. Bollinger, L., K. Hope, and J. M. Utterback. 1983. A review of literature and hypotheses on new technology-based Foss. Research Policy 12 (February). Boltho, A. 197S. Japan-An Economic Survey. Oxford: Oxford University Press. Brady, R. 1934. We Rabon~li?~don Movement in Gennan Industry. Berkeley, C'alif.: University of California Press. Brooks, H. 1983. Towards an efficient public policy: Cn~ia and evidence. In Emerging Technologies, H. Giersch, ed. Tubingen: J.C.B. Mohr (Paul Siebeck). Carlsson, B. 1980. Technical Change and Productivity in Swedish Industry in the Post- War Penod. Stockholm: The Industrial Instate for Economic and Social Research, Research Report No. 8. Carter, C., ed. 1981. Indusmal Policy and Innovation. London: He~nem~nn.

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