CONVERGENCE

During the quarter century after World War II the United States led the other countries of the world in productivity, income levels, and command of technologies across a very wide front. I believe it is useful to distinguish two components to the U.S. technological lead. One component was in mass production industries like automobiles, steel, and meat packing, and this was of long standing. It reflected the fact that, as long ago as the close of the nineteeth century, the United States was the world's largest, richest common market, and international trade in manufactured goods was limited. The other component, the commanding U.S. lead in ''high tech" industries, was new. Before World War II the United States was scarcely a slouch in high tech, but Europeans felt no sense of inferiority here. What led to the American lead here was the massive investment in education in science and engineering, and in research and development, that the Americans made after World War II. The investments made by other industrial nations were much, much lower.

Over the last five years or so there has grown up a significant economic literature on "convergence." For the most part, that literature treats the American postwar lead as something of a "sport," having to do largely with the fact that our major industrial rivals had been badly hurt by World War II, and therefore as something that naturally would dissolve as they recovered. My argument above is that the U.S. lead was not a sport and had something but not very much to do with the wartime devastation of our industrial rivals. And there was nothing "automatic" about the convergence process that did occur after they recovered.

There were two major factors behind convergence. First, largely as a result of U.S.-pressed policies, the world increasingly became a common market in manufactured goods. With easy access to foreign markets, the size of one's home market mattered much less. And so the United States lost its long-standing advantages in mass production industries. The second major factor was that other advanced industrial nations came to match the large investments in science and engineering education, and in research and development, that the United States had been making. In the early stages of this catch-up, firms in foreign countries became more sophisticated and more rapid imitators of technologies first introduced in the United States. But by the late 1970s in many areas foreign firms were close to where U.S. firms were.

These two developments interacted strongly. Internationalization of trade and business, combined with the catching up of other countries to U.S. levels in science and engineering education, and in research and development, to make technologies international rather than national.

How is all this germane to the topic at hand? It is germane because



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