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1 Introduction The history of foreign involvement in the development of the U.S. economy and its technology base is as old as the Republic itself. A relative latecomer to industrialization, the United States rose swiftly to world industrial leadership dur- ing the latter half of the nineteenth and the early twentieth centuries by drawing heavily on technology, talent, and capital from abroad. The chemical industry, today one of the central pillars of the U.S. industrial research and development (R&D) enterprise, was built on technologies licensed from the leading German chemical manufacturers. First-generation immigrants such as Steinmetz, Tesla, Bell, and Berliner provided critical intellectual capital to the nascent electrical man- ufacturing and telephone industries. European investors financed the development of America's railroads and helped launch a number of major U.S. industries. By the end of World War I, the United States had become the world's fore- most industrial power. Nevertheless, the American economy continued to draw heavily on European science and technology through the end of World War II. The immigration of leading European scientists and engineers to the United States during and after the two world wars was instrumental in laying the foundation for postwar U.S. leadership in virtually all major areas of scientific and engineering research. The 1950s and 1960s brought the consolidation of American leadership in the development and application of civilian and military technology, as well as a newfound preeminence in basic science and engineering research. During this period, the role of foreign participation in the U.S. domestic economy and R&D enterprise diminished. Europe and other parts of the industrialized and industri- alizing world continued to provide the U.S. economy with a modest stream of 15
16 FOREIGN PARTICIPATION IN U.S. RESEARCH AND DEVELOPMENT immigrant scientists and engineers, as well as graduate students in science and engineering. However, their numbers were dwarfed by an explosion in the sup- ply of U.S.-born entrants into the system. U.S. multinational companies emerged as major forces in the transfer of technology and know-how from the United States to foreign economies. Yet, foreign direct investments in U.S. manufactur- ing and foreign participation in U.S. industrial R&D remained insignificant. This situation began to change in the 1970s, as technological and economic power became more evenly distributed among a growing number of industrial- ized countries and as markets became increasingly international. At the hands of an expanding population of U.S., European, and Asian multinational companies, the economies and innovation systems2 of all industrialized nations, including the United States, became deeply interconnected. THE NEW WAVE OF FOREIGN R&D PARTICIPATION During the past decade, foreign participation in U.S. R&D has expanded rapidly. By both establishing and acquiring it&D-intensive businesses in the United States, foreign-owned companies have more than doubled their share of total privately funded U.S. R&D since 1980, accounting for over 14 percent in 1992. In the process, foreign companies and their U.S. subsidiaries have estab- lished extensive links with U.S. industrial, academic, and public-sector R&D performers through an array of alliances, joint ventures, personnel exchanges, and other collaborative arrangements. The same period has brought a significant expansion in the number of short-term and extended visits by foreign researchers to U.S. government laboratories, research universities, and other research facili- ties. U.S. research universities, in particular, have become increasingly depen- dent on foreign students, postdoctoral fellows, and faculty in most fields of scien- tific and engineering research and advanced education. A Poorly Understood Phenomenon The trend toward deepening foreign involvement in U.S. research and devel- opment has drawn a mixed response from the American R&D community, policy- makers, and the general public. Those who regard the trend as a positive corol- lary to the expanding involvement of U.S.-owned companies in national markets and innovation systems abroad emphasize the mutual gains to the U.S. economy and the foreign individuals and companies involved. Foreign individuals and firms gain access to U.S. R&D organizations and the new knowledge, technol- ogy, and creative research methods they impart. In exchange, they contribute their own intellectual, organizational, and material resources including knowl- edge, technology, and know-how that strengthen the U.S. innovation system and enhance its contribution to U.S. economic development. From this perspec- tive, foreign participation in U.S. R&D offers an increasingly important window
INTRODUCTION 17 on expanding industrial and technological competence abroad an opportunity that many believe should be exploited more effectively by the U.S. public and private sectors (Florida, 1995; Graham, 1992; Graham and Krugman, 1991, 1995, Kenney and Florida, 1993b; Mowery and Teece, 1993; National Research Coun- cil, 1976~. Yet, many Americans look upon the growth of foreign participation in U.S. R&D as a net economic liability for the country. From this perspective, foreign-owned firms and the nations in which they are based are poaching the returns on investment by U.S. citizens in the world's most open and productive research enterprise. Moreover, many believe foreign firms are taking unfair ad- vantage of this openness to target technological capabilities of critical importance to U.S. economic security and development with the intention of controlling them and the future revenue streams they promise. Further, many believe, in contrast to the situation in the United States, that U.S. access to foreign markets and R&D capabilities, particularly those of its foremost competitor, Japan, is considerably circumscribed. Indeed, some ob- servers argue that barriers to U.S. exports and investment abroad have caused U.S. multinational companies to engage in the large-scale transfer of U.S. R&D assets and U.S.-generated technology to other countries. According to this view, foreign nations have erected structural or policy barriers that in effect "extort" U.S. technology and R&D assets in return for improved access to that country's markets. Given the perceived predatory behavior of many foreign firms and the lack of reciprocal market access, critics of foreign participation in U.S. R&D have called for private actions and public policies to stem or contain the tide (Glickman and Woodward, 1989; Spencer, 1991; Tolchin, 1993; U.S. Congress, House, 1989; U.S. Congress, Office of Technology Assessment, 1994~. Despite the intensity of debate surrounding this issue, neither experts nor the public has more than a limited understanding of the many different types of for- eign participation in the nation's technology enterprise. Nor is there an apprecia- tion for the forces driving such activity or its economic consequences. Indeed, the information necessary to understand the situation is hard to come by. There are data that document incompletely the R&D spending of U.S. affiliates of for- eign firms, the number, size, and activities of their U.S.-based R&D facilities, and the extent and nature of foreign involvement in U.S. research universities and federal laboratories. To date, however, no systematic effort has been made to collect comprehensive data on foreign involvement in U.S.-based R&D activi- ties, and only a few attempts have been made to develop more detailed, qualita- tive assessments of various modes of foreign R&D participation and their long- term costs and benefits to U.S. economic development.3 The lack of useful data, however, is only part of the problem. Many of the policy issues deriving from foreign participation in U.S. R&D are poorly defined. In part, this stems from the widespread confusion about the nature of R&D, how it contributes to technological innovation and national economic development in general, and how the multiple economically valuable outputs of R&D are trans-
18 FOREIGN PARTICIPATION IN U.S. RESEARCH AND DEVELOPMENT ferred domestically and internationally. More confusion arises from the gener- ally poor understanding of the profound differences in the structure, organization, strengths, and weaknesses of major national innovation systems, and of the impli- cations these differences have for economic and technological relations between nations (Ergas, 1987; Imai, 1990; National Research Council, 1989a, b, 1990; Nelson, 1993~. Further clouding the picture is the fact that many of the issues raised by foreign participation in U.S. research and development are deeply en- tangled rightly or wrongly with U.S. foreign economic policy and the future goals and organization of the U.S. research enterprise. CALLS FOR PUBLIC-POLICY ACTION As foreign involvement in U.S. research continues to expand, pressure for public-policy limits on such involvement is likely to intensify with or without a thorough assessment of the costs and benefits to the United States. American research universities and nonprofit research institutes that are supported heavily by tax dollars have come under heavy criticism from members of Congress and the public for providing foreign-owned firms and their U.S. affiliates with access to academic research facilities, personnel, and research results through industrial liaison programs, technology licensing agreements, and contract research (U.S. Congress, House, 19894. Moreover, some within Congress and other parts of the public policy community argue that the U.S. government should rethink the pro- cedures by which it monitors, evaluates, and regulates prospective foreign acqui- sitions of U.S. companies in "strategic" it&D-intensive sectors (Gaster, 1992; Glickman and Woodward, 1989; Spencer, 1991; Tolchin, 1993~. To date, federal attempts to regulate foreign participation in U.S. R&D in areas other than national security have focused on prospective foreign involve- ment in publicly funded4 civilian R&D activitieschiefly university-based re- search and research conducted in federal laboratories and as part of government- sponsored collaborative R&D initiatives. Recent federal initiatives to provide limited direct support of precommercial industrial R&D (e.g., the Semiconductor Manufacturing Technology Consortium tSEMATECHJ, the National Science Foundation's Engineering Research Center program, the Advanced Technology Program [ATP] within the Department of Commerce, and the multiagency Tech- nology Reinvestment Project [TRP]) have included restrictions on foreign-firm participation.5 Eligibility criteria for foreign participation in publicly funded U.S. R&D have been designed to ensure that most of the resulting intellectual property and asso- ciated economic value remain in the United States and that the home govern- ments of foreign firms offer reciprocal access to similar publicly subsidized R&D initiatives.6 Advocates of more aggressive management of foreign participation in U.S. publicly and privately funded R&D propose prohibiting foreign firms from licensing technology developed in U.S. government laboratories or publicly
INTRODUCTION 19 funded research universities or industrial consortia, more extensive screening of foreign direct investment, or requiring foreign firms to either exploit or license their technologies within the United States. FOREIGN R&D PARTICIPATION IN CONTEXT To appreciate the intensity as well as the nature of the public debate about the growth of foreign involvement in U.S.-based R&D activities, three changes in the global economic and technological environment must be considered. First Among Equals in an Integrated Global Economy The first major challenge to the U.S. innovation system derives from a shift, which has accelerated in recent decades, in the relative economic and technologi- cal strength of the United States compared with its trading partners. Twenty years ago, the preeminence and comparative self-sufficiency of the U.S. economy and national innovation system were taken for granted. Today, however, techno- logical and economic power are much more evenly distributed among North America, the Pacific Rim, and the European Community. Moreover, the econo- mies and innovation systems of all industrialized nations, including the United States, are now deeply interconnected (National Academy of Engineering, 19931. Comparisons of national trends in R&D investment, patenting, scientific and engineering literature citations, high-technology production and trade,7 and pro- ductivity growth all document a rapid increase in the ability of America's trading partners above all Japan to develop, absorb, and effectively exploit new knowledge and technology worldwide (Table 1.1~. Likewise, the rapid expan- sion of international trade, foreign direct investment, and transnational corporate alliances during the past decade attests to the significant internationalization of industrial production and its associated advanced technical activities (Figure 1.11. Overall, the internationalization of industrial R&D activity has lagged be- hind that of industrial production, marketing, and component sourcing. In some countries and industries, the internationalization of the entire value-added chain is proceeding more rapidly than in others. Foreign penetration of the U.S. economy and R&D enterprise has been particularly rapid in recent years, albeit starting from a relatively low base compared with foreign participation in the R&D systems of other nations. Today, foreign-controlled firms account for sig- nificantly larger shares of manufacturing output and employment in Germany, France, the United Kingdom, and Canada than they do in the United States (Table 1.21. As a share of total private R&D spending, R&D spending by foreign-owned affiliates in Europe and the United States is roughly equivalent. In Japan, by contrast, foreign penetration of the economy and industrial R&D base through foreign direct investment has remained insignificant compared with other indus- trialized countries (U.S. Congress, Office of Technology Assessment, 19941.
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INTRODUCTION 1,200 1 ,000 800 on A 11 Lo ~ 600 x - 400 200 O 21 Foreign direct investment outflows - World trade World GDP World domestic investment __, / 1 1 1 1 1 1 1 1 1 1 1 1975 1977 1979 1981 1983 1985 1987 1989 1991 FIGURE l.l Growth in world trade, output, domestic investment, and foreign direct investment: 1975-l99l. SOURCE: U.S. Department of Commerce, International Trade Administration, Office of Trade and Economic Analysis, unpublished data, 1993. U.S. multinational corporations have played a leading role in internationaliz- ing the economies and technology enterprises of the United States and its trading partners. During the 1980s, U.S. direct investment abroad more than doubled. In the process, a rapidly expanding population of U.S.-owned multinational compa- nies greatly expanded their presence in foreign markets and innovation systems. Today, foreign markets account for a large share of the total sales and revenues of U.S.-owned companies in many it&D-intensive industries. For example, more than 60 percent of all revenues of U.S. computer manufacturers derive from for- eign markets. As of 1992, U.S.-owned multinational companies were perform- ing $13.6 billion worth of R&D abroad annually, or roughly 10 percent of all U.S.-company financed R&D. American multinationals have been deeply in- volved in the proliferation of transnational corporate technical alliances during the past decade (Hagedoorn and Schakenraad, 1993; Mowery, 1988a; Peters, 1987~.
22 FOREIGN PARTICIPATION IN U.S. RESEARCH AND DEVELOPMENT TABLE 1.2 Three Measures of Foreign Involvement in Manufacturing for Seven Countries, by Percent Share Share of Business Enterprise R&D Share of Share of Expenditures Employment Gross Output 1989 1989 (1990) 1989 (1990) United Statesa 10.0 10.0 14.9 France 12.4 (23.8) (28.4) United Kingdom 17.0 (16.2) (25.1) Sweden 13.6 14.0 15.3 Germany * (7.2) (13.2) Canada 46.0 37.8b 49.0c Japan 1.0 1.1 2.4 Data not available aThe United States defines foreign-controlled firms as nationally incorporated and unincorporated business enterprises in which foreign persons have at least a 10 percent interest. All other nations listed define foreign-controlled firms at a higher level of equity interest. bl980 data C1987 data SOURCES: Organization for Economic Cooperation and Development (1994) and unpublished data. The Changing Character of Technology-Based Competition A second major challenge to the U.S. innovation system stems from rapid changes in corporate and industrial structure and the changing nature of competi- tion in many industries during the past 2 decades. In particular, a virtual revolu- tion has occurred in the human and technical dimensions of industrial production systems, radically redefining the standard of competitive organizational and managerial performance for most companies. At the same time, the technical intensity of many manufacturing and service industries has risen dramatically (Dertouzos et al., 1989; National Academy of Engineering, 19931. In the context of these trends, product development and product life cycles are shortening in many industries. Time to market has become an increasingly critical measure of competitive success, and R&D costs are rising rapidly. Along with the increasingly important move toward technology fusion the marriage of disparate technologies as a source of product innovation, these changes have posed new challenges to the organization and management of public and private R&D in all industrialized countries. Competitive pressure is mounting for com- panies in many industries to integrate R&D more closely with production and marketing and to look beyond their own institutional and national borders for new sources of innovation (Kodama, 1991; National Academy of Engineering, 1993; Roberts, 1995a, b; Roussel et al., 19911.
INTRODUCTION The Changing Relationship Between Military and Civilian Technologies 23 The third major challenge, evident over the last 20 years, is a profound shift in the relationship between military and civilian technology, which has affected dramatically long-standing public R&D priorities and strategies of the U.S. inno- vation system. For most of the past 40 years, the federal government has directly funded more than half of all R&D performed within the United States (Table 1.31. During this period, defense-related R&D accounted for between 50 and 85 per- cent of total federal R&D spending. In 1994, the defense share of federally funded R&D stood at roughly 60 percent. In the l950s and 1960s, federal defense-related R&D and procurement of advanced technology products created important technology spin-offs in the ci- vilian sector. Indeed, some of those defense spin-offs were seminal to the growth or development of major civilian industries, such as microelectronics, aerospace, computers, and telecommunications. By the 1980s, however, the rapid growth of global commercial R&D capa- bilities and civilian markets for advanced technology products had dwarfed fed- eral R&D spending and procurement as contributors to the U.S. innovation sys- tem. At the same time, the end of the Cold War weakened considerably the claims of national defense on U.S. technological resources. Today, advances in TABLE 1.3 Federal Funding of U.S. R&D, in Percent 1960 1970 1980 1990 1994 (prelim.) As a share of total U.S. R&D spending 57 65 57 47 41 36 As a share of total U.S. spending in: basic research * 60 70 70 62 58 applied research * 56 54 45 39 37 development * 68 55 43 36 30 For defense-related research as a share of total R&D spending 48 52 33 24 25 20 For health-related research as a share of total R&D spending 2 3 4 6 5 6 For space-related research as a share of total R&D spending 1 3 10 5 4 4 For energy-related research as a share of total R&D spending * 3 2 6 2 2 As share of R&D spending by U.S. industry 47 59 43 32 26 19 As share of R&D spending by the U.S academic sector 54 63 71 68 59 60 *Data not available. SOURCE: National Science Foundation (1990a, 1992, l995a,b).
24 FOREIGN PARTICIPATION IN U.S. RESEARCH AND DEVELOPMENT civilian technology set the pace in most fields critical to national defense. As a result, most military weapons systems and subsystems depend on technology developed and applied first in the commercial sphere (Alic et al., 1992~. Recasting U.S. Public- and Private-Sector Technology Strategies In recent years, these three broad trends in the global economic environment have stimulated a fundamental reassessment of U.S. public- and private-sector strategies for the effective development and exploitation of technology. In par- ticular, these trends have revealed weaknesses in the U.S. technology enterprise that have compromised the nation's ability to develop, organize, and use technol- ogy to economic advantage. In some instances, public concern about growing foreign involvement in U.S. R&D has been fueled by these revelations and by the first corrective steps taken by U.S. companies, research universities, and federal and state governments. U.S. companies have come under increasing pressure to manage more pro- ductively their in-house R&D assets and to exploit more aggressively external sources of new knowledge and technology, both at home and abroad. Many companies have taken steps to integrate more effectively in-house R&D activities with design, production, and marketing. In an effort to leverage internal R&D capabilities, a growing number of U.S. companies have entered into technical alliances with competitors, suppliers, and publicly supported research institutions. Indeed, under pressure to cut costs, many U.S. companies in it&D-intensive in- dustries have cut back on long-term basic and applied research, presumably with the expectation that research universities, federal laboratories, and other nonprofit research institutions will fill the gap (Government-University-Industry Research Roundtable, 1989; Roberts, 1995a; Wolff, 1994~. Global economic trends have also forced the United States to reassess the sharp division of roles between government and private-sector participants in the innovation system that emerged following World War II. Under this unwritten compact, the federal government assumed primary responsibility for mobilizing scientific and technical resources for accepted public missions, such as national security, public health, and world leadership in basic research. Responsibility for developing, diffusing, and harnessing technology for national economic develop- ment fell almost exclusively to private-sector players and competitive markets. However, in the face of declining U.S. competitiveness, the changing nature of technology-based competition, slow economic growth, and massive economic restructuring promised by the contraction of the defense industry, the federal gov- ernment has begun to assume a more active role in the nation's civilian innova- tion system. Urged on by federal and state lawmakers, other R&D performers in the U.S. innovation system most notably research universities and federal laboratories- are becoming more directly involved in the nation's quest for improved competi-
INTRODUCTION 25 tiveness and economic development. Witness, for instance, the proliferation of university-industry cooperative research centers or of cooperative research and development agreements between companies and federal laboratories (Cohen et al., 1994; U.S. General Accounting Office, 1991a, 1995~. Similarly, federal leg- islation and government initiatives of the past decade, such as ATP, TRP, and SEMATECH, have encouraged private firms to enter into collaborative R&D agreements with each other in the interest of enhancing U.S. competitiveness (Committee on Science, Engineering, and Public Policy, 1992~. As efforts to recast the roles of major institutional players in the nation's innovation system proceed,9 the dividing line between the proprietary R&D ac- tivities of companies and the taxpayer-subsidized (and public-mission-oriented) R&D activities of universities and federal laboratories is becoming increasingly blurred. This blurring of roles and mixing of research cultures has raised new concerns about the use of public research monies to advance the economic inter- ests of individual companies, potential conflicts of interest for publicly subsi- dized researchers, and the accountability of publicly supported research institu- tions generally (National Institutes of Health, 1994a,b; Rose, 1993a,b; Schmidt, 1993; U.S. General Accounting Office, 1992~. Still others question whether closer integration of the nation's diverse public and private research institutions, and other attempts to manage the nation's collective R&D assets more strategically, might in fact undermine the comparative strengths of the U.S. innovation system in a misbegotten effort to compensate for its weaknesses (Brooks, 1993; Dasgupta and David, 1992; Rosenberg and Nelson, 1994~. Many of these concerns, in turn, have focused greater attention on the potentially exploitative role of foreign com- panies in the national innovation system. Asymmetries of Capability and Access Among National Innovation Systems Two of the greatest comparative strengths of the U.S. innovation system- the nation's large, highly productive basic research enterprise and its unrivaled capacity for spawning new technology-intensive products, services, and indus- tries are built on institutions (universities) and markets (financial, labor, corpo- rate security) that are highly accessible to all interested partiesdomestic and ~ . rorelgn. Nevertheless, for various reasons, many U.S. companies have demonstrated a relative inability to exploit some of the system's greatest comparative strengths. Compared to their counterparts in Germany and Japan, for instance, many Ameri- can companies are weak in the areas of managerial and organizational practice, workforce training, and external technology scanning, and do not invest as much in production processes, plant, and equipment (Competitiveness Policy Council, 1993; Dertouzos et al., 1989; National Academy of Engineering, 1993; Roberts, 1995a,b). Given these findings, it is easy to understand U.S. concerns that for-
26 FOREIGN PARTICIPATION IN U.S. RESEARCH AND DEVELOPMENT eign-owned companies in certain industries may be better equipped to exploit U.S. basic research capabilities and start-up companies than their U.S.-owned counterparts. These concerns have clearly affected the American outlook on for- eign R&D participation. At the same time, many of the perceived comparative strengths of the Japa- nese and German innovation systems in particular, in applied R&D and tech- nology commercialization are, for various reasons, less accessible to U.S. firms than are the U.S. system's comparative strengths to foreign companies. Not only do these prime foreign-based R&D assets reside in proprietary institutions (rather than publicly accessible universities), but U.S. access to them is often impeded by government policies or corporate practices (Imai, 1990; Keck, 1993; National Research Council, 1989a, b, 1990; U.S. Congress, Office of Technology Assess- ment, 1994~. Access to foreign markets and technological resources is becoming increas- ingly important for U.S. firms. Therefore, these long-standing asymmetries in the relative strength and accessibility of national innovation systems have as- sumed heightened economic and political relevance. Calls for greater interna- tional reciprocity and equity in things technical as well as economic resonate much more with the American public, U.S. industrialists, and U.S. policymakers today than they did a decade ago. The currency of these and related issues suggest the timeliness of an assess- ment of the causes, nature, and economic consequences of foreign participation in U.S. R&D, in its many guises. Limited understanding of the causes and con- sequences of foreign involvement in the U.S. R&D enterprise increases the like- lihood of ill-conceived public and private policy responses that may actually weaken the enterprise and undermine the economic welfare of U.S. citizens. Lack of understanding may also allow the debate over foreign participation in U.S. R&D to distract our attention from challenges that are arguably much more press- ing, such as the need to improve R&D and technology management in U.S. com- panies or to develop closer links between the R&D capabilities in industry, aca- deme, and the federal government. Ultimately, public- or private-sector actions to restrict or manage foreign participation in U.S. R&D may be justifiable on a variety of grounds that have little or nothing to do with the costs or benefits of such participation to the U.S. economy. National security, the defense of sovereignty, and the need for reci- procity or fairness may all be legitimate reasons for restricting foreign access to the U.S. R&D enterprise, even if such action would be economically damaging. The aim of this study is to increase public understanding of the nature and eco- nomic consequences of foreign involvement in the U.S. R&D enterprise and, by so doing, to improve the quality of the debate and the policy responses that result from that dialogue.
INTRODUCTION 27 NOTES 1. The U.S. government defines foreign direct investment as the ownership by a foreign person or business of 10 percent or more of the voting equity of a company located in the United States. A 10 percent or more equity interest is considered evidence of a long-term interest in, and a measure of influence over, the management of the company. New foreign direct investment can take two forms- the acquisition of an existing company or the establishment of a new company. (U.S. Department of Commerce, 1991) 2. A national innovation system is defined by Patel and Pavitt (1994) as "the national institu- tions, their incentive structures and their competencies, that determine the rate and direction of tech- nological learning (or the volume and composition of change-generating activities) in a country." 3. For a discussion of growing foreign involvement in U.S. industrial R&D, see Dalton and Serapio (1993, 1995), Herbert (1989), Kenney and Florida (1993a,b), Peters (1991, 1992, 1993b, 1995), U.S. Congress, Office of Technology Assessment (1994), U.S. Department of Commerce (1993a), Voisey (1992), and Westney (1993). For a discussion of foreign involvement in publicly funded U.S. R&D, see Massachusetts Institute of Technology (1991), National Science Board (1990), Press (1990), Stalson (1989), U.S. Congress, House (1989, 1993), and U.S. General Accounting Office (1988a,b). 4. Although some R&D activities in the United States are supported by a mix of public- and private-sector funding (both direct and indirect), the vast majority are financed predominantly through either public- or private-sector sources. Privately funded R&D is directed at the generation, assimilation, and application of knowl- edge and technology to advance the economic interests of stakeholders in the company making the investment. In market economies, it is generally accepted that under most circumstances, private companies should be allowed to dispose of the products of their R&D investments as they see fit. In contrast, publicly funded R&D and its proprietary and nonproprietary outputs are viewed as public property to be used to advance specific U.S. national interests. For the most part, institutions that conduct or use the outputs of publicly funded R&D are subjected to greater public scrutiny than those who conduct or use the outputs of privately funded R&D. Since only a small fraction of privately funded U.S. R&D is accounted for by private noncom- mercial/nonprofit organizations, the term "privately funded R&D" is used throughout the report as a synonym for company-funded R&D. 5. For descriptions of each of these programs and supporting references, see Chapter 4, pp. 108, 116-118. 6. For further discussion of these requirements, see Chapter 4, pp.114-116 . 7. There are several legitimate methods for identifying high-technology industries. All rely on some calculation of R&D intensity (typically, R&D expenditures and/or numbers of technical people divided by industry value added or sales). This report draws on data gathered by the U.S. Department of Commerce and the Organization for Economic Cooperation and Development (OECD). The two organizations use different yet comparable definitions of high-technology industries. The OECD classification of "high-intensity technology products" relies on directly applied R&D expenditures and includes those products with above-average R&D intensities. Direct R&D expenditures are those made by the firms in the product group. The OECD classifies the following industries as high tech: drugs and medicines (ISIC 3522); office machinery, computers (ISIC 3825); electrical machinery (ISIC 383 less 3832); electronic components (ISIC 3832); aerospace (ISIC 3845); and scientific instruments (ISIC 385). The Department of Commerce definition of high-technology products (DOC-3 high-technol- ogy products) includes products that have significantly higher ratios of direct and indirect R&D ex- penditures to shipments than do other product groups. Direct R&D expenditures are those made by the firms in the product group. Indirect R&D describes the R&D content of input products. The DOC-3 industries include guided missiles and spacecraft (SIC 376); communication equipment and electronic components (SIC 365-367); aircraft and parts (SIC 372); office, computing, and accounting
28 FOREIGN PARTICIPATION IN U.S. RESEARCH AND DEVELOPMENT machines (SIC 357); ordnance and accessories (SIC 348); drugs and medicines (SIC 283); industrial inorganic chemicals (SIC 281); professional and scientific instruments (SIC 38 less 3825); engines, turbines, and parts (SIC 351); and plastic materials and synthetic resins, rubber, and fibers (SIC 282). Comparisons of U.S. production data for high-intensity technology products, as reported to the OECD, with U.S. total shipment data for high-technology products as reported to the Depart- ment of Commerce, according to DOC-3 definition show that the OECD data represented 96 per- cent and 100 percent of the DOC-3 data in 1980 and 1986, respectively (National Science Board, 1989). 8. Dalton and Serapio (1995) identify over 100 overseas R&D facilities of U.S.-owned compa- nies. See, also, Peters (1992). 9. With the Congressional elections of November 1994, political support in both the House of Representatives and the Senate for many of these recent technology-policy-for-competitiveness ini- tiatives has waned significantly. Witness, for example, mounting Congressional skepticism regarding the new industrial competitiveness contributions of federal laboratories, and Congress' efforts to "zero out" funding for the Advanced Technology Program, the Technology Reinvestment Project, and the Department of Commerce's Technology Administration. See American Association for the Advance- ment of Science (1995). Prior to the election, SEMATECH's CEO, William Spencer, announced that the consortium would no longer seek public funding from the Department of Defense (Corcoran, 1994).
