In sum, the developments in recent years that, in the panel's view, form a basis for carefully reviewing federal policy toward civilian technologies are (1) the increased exposure of U.S. firms to more intense international competition from more capable foreign firms, as well as their expanded opportunities in foreign markets; and (2) some decline in the ability of U.S. firms to derive economic benefits from the large federal investment in basic and defense-related R&D. These developments may, we believe, have reduced the technological lead of U.S. firms in terms of their ability to apply and adopt new technologies. These developments also may have increased the difficulties faced by U.S. firms in capturing high returns on investments in technology creation and commercialization.


A central theme of this report is the need to recognize the breadth of the array of policies and factors that influence technological performance. Many of these policies lie outside the group of instruments typically associated with science and technology policy. For example, capital requirements of technology creation, commercialization, and adoption are such that the domestic economic environment for capital formation is an important influence on technological performance. A cost of capital to U.S. firms that greatly exceeds the cost faced by foreign competitors would, over time, have a significant influence on investment decisions. These in turn will affect the processes of technology creation (through diminished expenditures on research, the returns from which may not be realized for many years), commercialization (reduced expenditures on development, plant, and equipment, etc.), and adoption (reduced investments in capital goods that embody new technologies).

To the extent that the cost of capital facing U.S. corporations may now exceed costs overseas (a point on which there is currently a lack of consensus), it suggests differences between the United States and other countries in a number of areas, including interest rates, tax structures, and operation of financial markets. A detailed examination of these factors is beyond the scope of this report; however, the apparent short-term focus of U.S. managers on investments in physical capital and R&D (whatever its causes) is a central concern.44 Moreover, for the recommendations of this panel to have any impact, U.S. firms must improve their management of technological assets. In the context of current public policies, U.S. managers have, in some cases, failed to manage these resources carefully or effectively. In other instances, they have failed to respond adequately to international competition and have been inattentive to technological and scientific advances not invented in their own firms. In addition, internal compensation and incentive practices have rarely rewarded managers who pursued careers in engi-

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