Comments on Policy Implications

ERICH BLOCH

INTRODUCTION

By the last session of a two-day symposium, and the last speaker, which I am, the audience may conclude that everything worthwhile has already been discussed. By this time one has also seen that different viewpoints can lead to radically different conclusions. I am not going to resolve these diverse opinions and conclusions, but maybe I can add to their understanding.

One point everyone can agree on: Japan's increasing technical capabilities are real, and their importance is not only affecting Japan's economic and political standing, but the relevant standing of all other nations as well—including our own.

THE U.S. ECONOMY

Over the last decade we have seen vast changes in the composition of our industry and our export trade. We have seen the demise of many growth sectors, such as electronic consumer products, photographic equipment, robotics, instrumentation and machine tools, optical glasses and ceramics. Many of these sectors were lost because of increased competition, or better products from other sources of supply; others were lost because the primary sector they were supplying was no longer centered in this country. The United States has lost other sectors because the needed capital investment was not available; still others are gone because of the shortsightedness of management.



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Japan's Growing Technological Capability: Implications for the U.S. Economy Comments on Policy Implications ERICH BLOCH INTRODUCTION By the last session of a two-day symposium, and the last speaker, which I am, the audience may conclude that everything worthwhile has already been discussed. By this time one has also seen that different viewpoints can lead to radically different conclusions. I am not going to resolve these diverse opinions and conclusions, but maybe I can add to their understanding. One point everyone can agree on: Japan's increasing technical capabilities are real, and their importance is not only affecting Japan's economic and political standing, but the relevant standing of all other nations as well—including our own. THE U.S. ECONOMY Over the last decade we have seen vast changes in the composition of our industry and our export trade. We have seen the demise of many growth sectors, such as electronic consumer products, photographic equipment, robotics, instrumentation and machine tools, optical glasses and ceramics. Many of these sectors were lost because of increased competition, or better products from other sources of supply; others were lost because the primary sector they were supplying was no longer centered in this country. The United States has lost other sectors because the needed capital investment was not available; still others are gone because of the shortsightedness of management.

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Japan's Growing Technological Capability: Implications for the U.S. Economy In other fields like semiconductors, the United States has lost significant market share, just as she has in computers. This loss of market share, and loss of industry sectors, is reflected in a negative trade balance. This negative trade balance has persisted even though the value of the dollar fluctuated from high to low. Not even increasing exports of paper, wood, agricultural products, or scrap iron can offset our failure to maintain world market share in high-value products and growth sectors. Content in trade does matter. Technology standing does matter. In fact, trade and our technology leadership—or lack of it—are leading indicators of what is in store for us. It does not take much intelligence to predict that the future competitiveness of the United States is seriously jeopardized if we do not fundamentally change our ad hoc technology policy. WHY THIS CHANGE FROM THE 1950s? These changes cannot be explained in their totality by simply stating that other nations are catching up with U.S. leadership, as some people assert. Neither can this change in status be explained by observing a shift in the technology paradigm, although both of these changes have an influence on the position of the country relative to its trading partners. There are more fundamental forces at work. There is a certain amount of complacency in the business community, which has been hanging on to the past for too long. The Taylor approach to mass production is superseded today by new techniques that stress flexibility and variability. This change is supported by new tools and devices like robots, computers and programmable manufacturing cells. Economy of scope, rather than scale, is the organizing principle in this global economy, with information technology and knowledge-based industries playing an increasingly important role. But other reasons contribute equally. For most of the postwar period, we created a vast array of new industrial sectors. Good times, and a growing economy, created waste and bureaucracy simultaneously, which left us with overbloated organizational structures that had too many levels, in a tall and narrow organizational pyramid. Business decisions came to be based on criteria that were more curtailing and narrow in scope. The time horizons of business decisions narrowed considerably. Tomorrow's short-term profit-and-loss statements became more important and sacrosanct than the decisions required to ensure the long-term survival of the enterprise. Financial manipulations too often took priority over technical or product strategies. These attitudes and shortsightedness can be laid at the door of industry and its managers. However, the federal government is not blame free. The comfortable and self-righteous position of the last and present administration to ''let the market decide" can only work if one's major trading

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Japan's Growing Technological Capability: Implications for the U.S. Economy partners live by the same rules and philosophy. This, however, has not been the case. The coordination, guidance and national strategies of other governments that are used to help their own industries collaborate among various sectors of society constitute a formidable handicap for the United States to overcome, because we are structurally and philosophically unwilling to accommodate ourselves to even a modicum of priority setting and cooperation between our public and private sectors. This separation of the private and public sectors is a severe handicap at a time of rapid change. Technologies are advancing at an increasing speed; the time to market is shorter; competition is increasing, while the cost of research, technology development and manufacturing capital is increasing equally fast. The pace of progress, and the need for a modern infrastructure are such that individual companies cannot possibly muster the investment needed to stay competitive, without the nation investing in a modern technical infrastructure that is world class. This long-term goal must be simultaneous and cooperative. Above all, confusing technology policy with industrial policy does not help stem the erosion of our leadership. In addition to the adverse effects of outmoded management strategies and policies, the United States is also handicapped by the high burden the Cold War has imposed on us. It inhibited and curtailed investments in education, technology, and technical infrastructure, which are now so urgently needed. The ''spin-off", or crossover, from our investment in military research and development, into the civilian sector, is significantly decreasing as the drivers and precursors of technology increasingly come from consumer products—a development that will only accelerate in the future. The change from the national self-contained market to a global one was an event that profoundly changed the way we should be doing business, and the forces that are acting on our companies and our industry. WHAT TO DO? We need to recognize forthrightly our deteriorating ability to compete successfully in an expanding and ever-changing world market. We can not afford to ignore it or explain it away with views that are comfortable, but not true, such as the inevitability of others catching up. We have long passed the catch-up phase. Along with realism, we need leadership—leadership at the highest level. We have a science policy. But our so-called technology policy is a series of unconnected events at best. A technology policy would give the United States a vehicle to right many of our current wrongs, such as the imbalances in the federal budget between defense and civilian research and

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Japan's Growing Technological Capability: Implications for the U.S. Economy development, between technology and science, and between university and government laboratories. Such a policy could also address the urgent needs of educating and retraining our work force. An aggressive technology policy would deal with priorities. In research and development, the needs and opportunities are always greater than the resources that are available. We must choose. This means sharing the cost with others, and cooperating in return. LEARNING FROM OTHERS By putting a technology policy in place, it behooves us to define technology appropriately. It not only includes the hardware and software aspects of a process or product, but also the intangibles—the human factors—that make up our manufacturing and technology system, the social and management system that provides the environment in which an individual or group operates and works. This broader definition of technology, and engineering in particular, also needs to be reflected in our college education curriculum. Today that is not the case. If we allow this expanded definition of what constitutes a technology policy, then it becomes clear that the management approach is as decisive as a breakthrough in hardware, or that the breakthroughs in the soft sides of technology, like inventory control concepts, are as determining to success as new inventions. Add to this the emphasis on quality as one of the areas of focus and one realizes that Japan has been ahead of both the United States and Europe in considering the systems aspects of technology. Through this approach, Japan has gained inside advantages over the more compartmentalized formula practiced here in the United States. We are too obsessed with Japan, as has been pointed out elsewhere in this discussion. We need to define and exploit our comparative advantages. We have a lot of them. This would be a more positive step than simply bemoaning the fact that our system does not allow or provide some of the flexibilities and advantages of the Japanese system. WHAT ABOUT JAPAN? Japan also has its share of problems, including an increasing disinterest on the part of its engineering and science students in manufacturing fields of employment. These critical manufacturing fields are still suffering from a bad image by being nicknamed "3 D"—dull, dangerous, and difficult. Japan has also shown an abysmal neglect of its university research establishment, and in its lack of home-grown basic research. Japan is a country that is faced with an aging population and a declining college-age

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Japan's Growing Technological Capability: Implications for the U.S. Economy population. Its inappropriate trade policies have caused friction not just with the United States, but with Europe and other countries as well. Japan's domestic policies and infrastructures reflect a fortress mentality. If some of these observations about Japan sound contradictory, it is because they reflect the contradictions that one encounters in Japanese society. As an example, statistically Japan is one of the richest countries in the world, but this wealth is not reflected in the individual living standards of its citizens. Just as Japan touts education—to the point of making it the focus of competition in early childhood—university research is still comparatively weak. U.S.-JAPAN RELATIONS I want to spend a couple more minutes on what we can do together—the United States and Japan—in this vital area of technology policy. First, we must cooperate and compete, and do both simultaneously. This is not a contradiction, but two dimensions of our national relationship. The litmus test will be if the interactions we have contribute to building the domestic strength of both nations, or advance one to the detriment of the other. Because this test will depend as much on perception as on reality, we should not be surprised to find that friction and misunderstandings occur. The frictions will be with us for some time to come, because they are not about one issue—such as symmetry in basic research—they have to do with a plethora of things, spanning technological questions, as well as political and even cultural ones. There are institutions on both sides to serve as facilitators and conveners for discussions, as well as serving to provide an objective assessment of benefits that collaboration should yield. The Japan Society for the Promotion of Science and its committees here and in Japan, and the National Research Council's Committee on Japan are two quasi-private organizations that can serve this purpose. Venues are not sufficient, however. We should agree on a number of objectives that address these issues. I would suggest more symmetry in basic research between the two countries; increased participation by U.S. university and industry researchers in Japanese government-sponsored programs; developing new international "rules of the road" to govern high technology competition. The importance of technology and technological globalization means that we cannot be content with the traditional trade policy framework, but must consider issues that relate to fundamental, systemic differences. These include R&D subsidy policies, integration of information networks and global

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Japan's Growing Technological Capability: Implications for the U.S. Economy standards, intellectual property rights and other standards that affect global competition as much as trade questions do. It will take some time to build these new rules. In the meantime, the U.S., European and Japanese governments can support some cooperative R&D ventures and develop joint efforts to address global problems, as has been proposed in the past. We need to remember, however, that there is a need for earlier and more in-depth consultations among countries on global program proposals, such as the Intelligent Manufacturing System, the Human Frontiers Program, the Superconducting Super Collider, and others to avoid misunderstandings. A major obstacle to cooperation and understanding is a lack of symmetry in market access. Neither the U.S. nor the Japanese market is completely open, but the U.S. market is more so than the markets of Japan or of most European Community countries. A key to the solution lays with multinational corporations and the key role they play in setting the context. To the extent that they transfer technology, assure value-added production, and train and employ locally, they will be welcomed by host countries. On the other hand, there can be problems if foreign investments lead primarily to the buying up of small innovative companies or plants, add little to the technological infrastructure of the country, and are not designed for the long term. Foreign investment will then be seen as problematic, and will not serve as a tool for international understanding and cooperation. CONCLUSIONS We must recognize that we are now in a new global environment, where knowledge itself is the driving force behind global competition. For that reason, my focus has been on the increasing importance of technology to the fate of countries and nations, on the accelerated pace of technological development, as well as on the spread of technology across the globe. We must also recognize that there are tensions between the globalization of technology, and national interests in building economic and technological strength. These are just a few of the issues that need to be addressed. As I said in the beginning, the United States needs to bring its own house in order, including its economic and education infrastructure, as well as its technical capabilities. These issues form the basis of all the questions covered in the last two days. All these conferences, observations, papers and reports that have been written will be for naught unless we begin to act constructively to deal with these issues.