Policy Implications for the United States: Comments

HIROSHI OTA

Japan's growing technological capability represents both a challenge to, and an opportunity for the United States. First it is widely viewed as a challenge to the United States. In recent years, U.S. technological leadership, which in the 1950s and 1960s was undisputed, has gradually eroded. Industries such as consumer electronics, steel, automobiles, machine tools and semiconductors have one by one lost their competitive strength, and the main challenger has been Japan. In addition, there is concern in the United States that in coming years, the competitive edge that America enjoys now in such industries as computers, aerospace and biotechnology may also erode.

It seems evident, however, that the significance of the Japanese technological challenge is not so much with regard to specific industries as to industrial competitiveness in general. It is related to the question of technology policy at the governmental level and to the question of the management of technology at the corporate level.

At the government level, the Japanese challenge seems to have raised a series of questions related to technology policy such as: (1) What should the role of the government be in the development of technology? (2) What kinds of initiatives should the government take in promoting research consortia? (3) What kinds of fiscal, monetary, legal and regulatory policies should the government have in order to lessen or eliminate obstacles and create favorable conditions for the private sector to strengthen industrial competitiveness?

During the past decade, a considerable amount of debate has taken place concerning the competitiveness of U.S. industry and how to strengthen



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Japan's Growing Technological Capability: Implications for the U.S. Economy Policy Implications for the United States: Comments HIROSHI OTA Japan's growing technological capability represents both a challenge to, and an opportunity for the United States. First it is widely viewed as a challenge to the United States. In recent years, U.S. technological leadership, which in the 1950s and 1960s was undisputed, has gradually eroded. Industries such as consumer electronics, steel, automobiles, machine tools and semiconductors have one by one lost their competitive strength, and the main challenger has been Japan. In addition, there is concern in the United States that in coming years, the competitive edge that America enjoys now in such industries as computers, aerospace and biotechnology may also erode. It seems evident, however, that the significance of the Japanese technological challenge is not so much with regard to specific industries as to industrial competitiveness in general. It is related to the question of technology policy at the governmental level and to the question of the management of technology at the corporate level. At the government level, the Japanese challenge seems to have raised a series of questions related to technology policy such as: (1) What should the role of the government be in the development of technology? (2) What kinds of initiatives should the government take in promoting research consortia? (3) What kinds of fiscal, monetary, legal and regulatory policies should the government have in order to lessen or eliminate obstacles and create favorable conditions for the private sector to strengthen industrial competitiveness? During the past decade, a considerable amount of debate has taken place concerning the competitiveness of U.S. industry and how to strengthen

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Japan's Growing Technological Capability: Implications for the U.S. Economy the U.S. technological base. A conspicuous increase in recent years in the discussions about U.S. technology policy seems to be, to a great extent, a response to Japan's technological and industrial challenge to the United States. For a Japanese observer, it is striking that after such serious discussions for almost a decade, often carried out with a deep sense of crisis, there still does not seem to be a consensus on the need for an appropriate technology policy. This may well be because an adoption and implementation of a technology policy could be considered a path towards the adoption and implementation of an industrial policy, which seems to be conceptually rejected by many in the United States. To a Japanese observer, the most important response by the United States to the challenge of Japan's growing technological capability seems to be forging a consensus on the need for a technology policy. Although it is difficult to assign priority to various elements of U.S. technology policy, from a Japanese point of view a need to remedy the inclination of American corporations to have short time horizons seems to be one of the most crucial elements. It is widely pointed out that the short-term inclination of U.S. corporations is a major constraint to conducting patient research and development activities and investing in plant and equipment on a long-term basis, both of which are crucial in introducing competitive products into the market. A number of the factors contributing to the short-term thinking of U.S. corporations have been pointed out. Among them, the character of the U.S. stock market seems to play an important role. One possible measure for the U.S. government to take, as suggested by an American friend of mine, is to introduce tax measures to discourage quick turnovers of shares by institutional investors and to reward those who hold shares over a longer period of time. In formulating and implementing a technology policy, one cannot possibly ignore the recent phenomenon of rapid growth in international technological and economic interdependence. Government-level cooperation in various aspects of science and technology and the activities of multinational corporations have contributed to the emergence of a transnational technology base. "As a result, it is becoming increasingly difficult to distinguish one firm's technology from another's or one nation's technology base from another's."1 In such an environment, it is desirable and perhaps even necessary to try to avoid including "technonationalistic" elements in technology policy. Such elements would surely restrain the capability of private corporations 1   Thomas H. Lee and Proctor P. Reid, eds., National Interests in an Age of Global Technology (Washington, D.C.: National Academy Press, 1991), p.72.

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Japan's Growing Technological Capability: Implications for the U.S. Economy to take advantage of the emerging transnational technology base. From this point of view, a move to interpret the meaning of "national security" of the Exon-Florio amendment more broadly to include the concept of "economic security" causes concern on the part of many. If, for example, foreign direct investment in the United States were to be screened by the Committee on Foreign Investment in the United States from a broadly defined economic security point of view as well as from the standpoint of national security more narrowly defined, it could run counter to trends in the world economy, and might well limit the possibilities of contributions of foreign corporations to U.S. economic growth and technological and industrial strength. Another visible element in U.S. technology policy that might be characterized as technonationalistic is the limitation of U.S. government-funded research grants or access to the fruits of U.S. government-funded research to U.S.-owned companies. Exclusion of foreign participation in SEMATECH is a conspicuous example. Such an approach does not seem to reflect the reality of increasing global alliances being formed by U.S. corporations and may well limit the potential of such research to contribute to the increase in technological capabilities in the United States. With regard to the U.S. private sector, which is of course the main actor in the technology and competitiveness theater, the challenge of Japan's growing technological capability is related to the ability to apply technologies efficiently to manufacture competitive and high-quality products. The Japanese production system raises many issues for U.S. corporate managers, including the increasing importance of needs-oriented, as opposed to more basic research and development; the value of lean and flexible manufacturing systems versus the traditional mass production system; the significance of designing for manufacturability and quality; the advantage of teamwork in the product development process; the vital importance of a focus on the manufacturing process and continuous improvement; the need to train skilled workers and engineers; and the serious negative impact of short time horizons. 2 Now U.S. corporate managers seem to be faced with questions about the suitability of various aspects of U.S. corporate practice to the requirements for competitive production based on high technologies. The need to respond to the Japanese challenge does not mean that U.S. corporate managers have to emulate Japanese management in its entirety, but it seems that at least some aspects of U.S. corporate practice have to change. As a matter of fact, some elements of Japanese practice have already been adopted by American industries. One such example is the introduction of production keiretsu in the form of the stable supply of parts in the U.S. 2   Michael L. Dertouzos, Richard K. Lester, and Robert M. Solow, Made in America (Cambridge: The MIT Press, 1989).

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Japan's Growing Technological Capability: Implications for the U.S. Economy automobile industry. Here perhaps Japan should not claim that U.S. corporations started adopting Japanese corporate culture. It is more likely that U.S. corporations are simply following the path Japanese corporations happened to tread first. In addition to these challenges, Japan's growing technological capability presents opportunities to the United States. It is a very important part of the convergence in technical capabilities of industrialized nations, a trend that has accelerated since the mid-1970s. This trend has been accompanied by another feature that has become increasingly visible during the past two decades, which is a surge in international foreign direct investment and a proliferation of transnational corporate networks. In the context of U.S.-Japan relations, there has been rapid growth in Japanese direct investment in the U.S. manufacturing sector since the mid-1980s. There has also been a rapid increase in Japan-U.S. corporate linkages in such high technology industries as aerospace, computers and peripherals, semiconductors and semiconductor manufacturing equipment. Investment in Japanese R&D facilities by U.S. corporations has increased, and now more than 70 U.S. organizations operate R&D facilities in Japan.3 These developments mean that there is a growing tendency for U.S. and Japanese technologies to get mingled and that the technological base for U.S. corporations is broadening, which has important implications for U.S. technological competitiveness. In order for the United States to seize these opportunities effectively, it seems important for the United States to overcome a traditional psychological attitude toward foreign technology, namely, the "not-invented-here" syndrome or "parochialism" with regard to technology and industry. There seems to be a growing realization in the United States that today technological capabilities are globally distributed and that the diffusion of technological advance across national borders is rapidly expanding. The fact that the U.S. government insisted on "comparable access" in the negotiations to amend the U.S.-Japan Agreement on Cooperation in Research and Development in Science and Technology reflects such a recognition. The United States may well try harder to have access to and to utilize Japanese technology. This implies that on the psychological level, it might be necessary for Americans to adjust their views on and approaches to foreign technology to reflect the changing position of the United States from an undisputed technological leader of the world to the first among equals. As for possible U.S. policies to take advantage of opportunities presented by Japan's increasing technological capability, I would like to make the following observations: 3   National Science Foundation, Survey of Direct U.S. Private Capital Investment in Research and Development Facilities in Japan (Washington, D.C.: 1991).

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Japan's Growing Technological Capability: Implications for the U.S. Economy Measures may be taken to further encourage the flow of technology from Japan to the United States. They include efforts to gather and disseminate information on Japanese technology, which are already under way in various forms. The Japan Technology Program of the Department of Commerce is doing valuable work in this respect. The U.S. government could perhaps step up efforts to secure "comparable access to major government-sponsored or government-supported programs".4 Recent U.S. interest in the Intelligent Manufacturing System and New Information Processing Technology projects is a welcome development. Corporate alliances and joint ventures between U.S. and Japanese corporations could and should be further encouraged. Such alliances, needless to say, are primarily a matter for private corporations to decide. But the U.S. government could encourage such moves through measures that might include the relaxation of the application of antitrust regulations and allowing Japanese corporations to participate in U.S. research consortia.  It is desirable for the U.S. government to continue to ask the Japanese government to play its role in enhancing collaboration in technological and industrial fields. Although much has to be done by the United States to seize opportunities presented by Japan's growing technological capability, Japan can also be called upon to behave in such a way as to turn technological development into a positive-sum game. The Japanese government should establish it as a rule that government-sponsored research projects will be opened internationally, and hopefully the U.S. government would respond by doing likewise. Japan should step up efforts to redress the still existing imbalance in the flow of researchers between the two countries by expanding fellowship programs and by upgrading the research facilities of Japanese universities and national research laboratories. Japan should also improve its business environment so that obstacles for U.S. corporations to increase substantially direct investment in Japan are removed. Japanese corporations should make greater efforts to transfer their technology more smoothly. It is also necessary to increase transparency concerning their strategies, especially with regard to direct investment in the United States. Japanese corporations should ensure that their investments are not merely or primarily intended to extract technology from the United States. For the United States to ask Japan to play its role will not be putting gaiatsu (external pressure) on Japan, because it is in Japan's own interests to harmoniously share the fruits of technological development. Japan can prosper towards and into the twenty-first century only if the U.S. technological base is maintained and strengthened, and if U.S. industries remain competitive. 4   Agreement between the government of Japan and the government of the United States on Cooperation in Research and Development in Science and Technology.