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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings (1997)

Chapter: National Policies in Support of High-Technology Industry

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Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
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Session 3
National Policies in Support of High-Technology Industry

Moderator:

Horst Siebert, IfW

CHARLES WESSNER: We are particularly happy to have this distinguished panel here today. We have Horst Siebert, the president of the Kiel Institute of World Economics, who is well known in Germany and throughout the world for his work. We have Dr. Nicholas Ziegler, who is an associate professor at MIT [Massachusetts Institute of Technology] and knowledgeable about European technology policies. Next is Dr. Takeda, who is an expert on successful technology policies of the Hitachi Corporation.

We also are very pleased to have a representative of the Japanese Ministry of International Trade and Industry, Kazuhiko Hombu, who is based here in Washington where he works with the New Energy and Industrial Technology Development Organization. And, last but not least, we have someone who is well known to many of you, Chris Hill, who is to talk about current American technology policy or perhaps the demise of American technology policy, whichever he thinks most appropriate.

HORST SIEBERT: The topic of this session is ''National Policies in Support of High-Technology Industry," and the panelists will discuss technology acquisition, diffusion, and development in Europe, France, Germany, Japan, and the United States.

French and German Technology Acquisition, Diffusion, and Development

J. Nicholas Ziegler, Massachusetts Institute of Technology

Much of the debate about technology-intensive industry has focused on the proper links between trade policy and technology policy. Proponents of govern-

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

ment activism argue that trade and technology are inextricably linked, and that the federal government should therefore take a "coordinated" approach to both. Opponents of activist policies argue that government intervention in either area—trade or technology—is equally undesirable.

In my view, both sides of the debate have seriously oversimplified the issues, especially with regard to technology development. The simple contrast between government intervention and laissez faire is too crude to capture the key mechanisms by which public agencies promote technological change. Indeed, Professor Scott's contrast between consumer-oriented and producer-oriented economies suggests that a wide range of institutions beyond the central government play an important role in public efforts to promote technological change.

By comparing Germany and France—Europe's two largest economies and the world's third and fourth largest economies—I would like to illuminate some of the institutional arrangements that other countries deploy in the service of technological advance.

My argument is twofold. First—and this may surprise some of our German colleagues—I would like to argue that German public policy makers have learned much more in the last 20 years than their French counterparts about how to promote technological advance in industry. Second, I would like to mention some of the important reasons illuminated by the Franco-German comparison for separating rather than linking government activities in technology and government activities in trade.

France and Germany represent two very different cases of technology promotion. The French model of state-led or deregiste development, which is drawn primarily from the Gaullist projects of the 1960s and 1970s, has often been likened to Japan's efforts to integrate trade and technology policy in a single developmental strategy. Of course, France's diplomatic strategies consistently made self-sufficiency in military technologies a high priority—an objective that was regularly subordinated to other goals in the case of Japan or, for that matter, Germany.

Let me turn to Germany. In the 1980s and 1990s, Germany took over France's role as the European analog for Japan's successful performance in high-technology competition. At least in the eyes of many French (and some American) observers, Germany appeared to have some of the characteristics of the successful Japanese performance.

The reason I want to emphasize Germany is that Germany does not easily fit the categories that we have been using in our discussions so far today. Germany is clearly a producer-oriented economy, probably Europe's clearest example of a producer-oriented economy. Yet it shares very few of the characteristics of the East Asian growth model. Indeed, it is not clear to me that we can speak of a coherent national "strategy" at all when we are discussing Germany. On the contrary, I would argue that German trade performance rests on a series of indirect policies and institutional features that help German firms to adjust quite effectively to changing technologies and markets.

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

Some of these policies and institutional features concern macroeconomic aggregates. Not entirely unlike Japan, Germany has several structural restraints on consumer spending. These include legally restricted hours of opening for retail stores; stringently enforced limits on discounting in the retail trade; and a powerful cultural resistance to the use of credit cards, which is only slowly being eroded.

The savings that result from these restrictions on consumer spending tend to be channeled through the well-known German banking system toward industrial development. This pattern is, to be sure, changing, and there is terrific debate among specialists about the way the German banking sector functions. But there is nonetheless a tendency toward high savings and a financial system directing those savings toward industrial development.

In addition to the savings pattern, high wage levels and a strong currency push German producers toward high value-added strategies, which in turn force German firms to adjust rapidly to changing markets and technologies. There is a bundle of public policies and supply-side institutions that assist firms in this adjustment process at the firm or industry level.

Apprenticeship: The famous system of industrial apprenticeships have given German employers a well-qualified and certified work force for industrial production. This system of apprenticeships is idealized regularly in the United States. It is not clear that the model of industrial apprenticeships will work effectively for growing service industries such as banking and insurance, but it has worked well so far for manufacturing firms.

Industrial associations: Strong industrial associations in Germany, much as in Japan, encourage carefully managed competition among producers rather than the cutthroat price competition that is often promoted in the United States under the banner of consumer welfare.

Federal programs: A range of programs are financed by the Federal Technology Ministry in Bonn. These programs include direct research support for many industries, such as aerospace, energy, and electronics. Most of this support is channeled through intermediary institutions, research institutes, or the trade associations just mentioned. Since the late 1970s, such direct support has been balanced with programs to encourage small firms to incorporate generic technologies—including microelectronics, sensors, and some micro machine technologies. These small-firm programs are carefully designed so as to avoid overturning market signals. They are indirectly administered by private agencies—indicating again the importance of intermediary bodies. Rather than targeting particular sectors, they are open to any firm that fulfills formal eligibility criteria. And they provide only partial support for any particular research plan. All of these characteristics help the defenders portray these policies as market-conforming measures.

Länder programs: Beyond the explicit technology policies of the Federal Ministry for Research and Technology—recently merged with the Ministry of

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

Education—the subnational regions or Länder have extensive technology promotion efforts of their own. Staring in the 1980s, the southern Länder of BadenWuerttemberg and Bavaria surrounding the cities of Stuttgart and Munich, respectively, became locked in an energetic competition to build and attract high-technology industry. These regional governments supported educational institutions, helped finance applied research institutes, and used tax incentives to attract new investment. Regional governments in Eastern Germany are now playing a similar role in promoting reindustrialization. In Saxony, for example, the regional government in Dresden has persuaded Siemens and the American producer AMD to build state-of-the-art semiconductor fabrication facilities, which are in turn attracting some of the world's top equipment manufacturers (such as Applied Materials). These regional efforts are crucial because they provide a diversity of experiences. They therefore encourage an institutional competition among the different arrangements that work more or less well in different local economies.

As has Germany, France has undergone very significant changes in the last decade. The earlier Mitterrand governments in the 1980s undertook major efforts at decentralizing the state apparatus, and the Ministry of Industry has actively adopted "diffusion-oriented" technology strategies to supplement France's more traditional strategy of national champions.

These recent efforts toward decentralization and diffusion have, however, been hindered by the absence of the institutions that enable Germany to implement such approaches. In particular, France has no analog to the institutional diversity supported by Germany's federal system of governance. Thus, even the Ministry of Industry develops outreach programs (such as the DRIRE, or Direction Régionale de l'Industrie, de la Recherche et de L'Environnement). The regional delegates find themselves bound by uniform and inflexible procedures. In addition, French vocational education is only beginning to recover from decades of neglect; as a result, France is only beginning to build a pool of intermediate-skilled technicians and practically oriented engineers needed for technology-intensive production. Finally, France's industry associations, traditionally weak in their relations with the centralized French state, cannot become strong partners for managing competition and technology diffusion overnight.

In their different ways, both France and Germany attempt to retain technological capabilities within their territorial boundaries. In so doing, neither country has tied itself exclusively to the principles of allocational efficiency or consumer sovereignty. Yet the two countries promote technological development for different reasons and with different policies.

In France, the goal of technology autarky, which has been so important in the country's military policies since the end of World War II, naturally spills over into its policies for technology promotion. France's comparative advantage in public policy rests on those technological capabilities that can be built through highly centralized and coordinated technology programs, such as nuclear power,

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

ocean exploration, telecommunications, and aerospace. The goal of independence remains paramount in France.

In Germany, the goal of maintaining a balanced domestic economy has taken priority since World War II. By emphasizing technology transfer within the national territory, the German state also achieves important elements of autarky in technology. In contrast to France, however, Germany's comparative advantage in public policy continues to rest on the diffusion of generic capabilities through a broad range of small, medium, and large firms in a variety of sectors.

This contrast also helps to explain the respective behavior of French and German officials in trade policy. The French tend to use trade policy actively to promote the country's most important industries and firms. The German government has its share of nontariff instruments for promoting national firms, but adopts a strong position in favor of openness. By de-linking trade and technology policies, German governments since the early 1970s have been able to promote technology-based capabilities at home while espousing open markets abroad. This contrast between revenue-based and capabilities-based policy strategies underlines the all-too-often overlooked advantages of keeping the state's activities in technology development quite separate from its activities in trade negotiations.

Thank you.

DR. SIEBERT: We will now hear from Mr. Takeda. He is senior executive managing director and a member of the board of Hitachi, where he is responsible for Hitachi's R&D, intellectual property, and instrument business divisions.

Japanese Technology Acquisition, Diffusion, and Development

Y. Takeda, Hitachi

Different phases: Since World War II, Japanese electronics firms have made great progress by acquiring, developing, and transferring technologies. This process has had several distinct phases. Until 1960, Japanese electronics firms followed successful examples of U.S. businesses and imported both patents and technologies.

In the 1960s, however, these firms watched the trend of development in other countries and began to participate in this trend. During that decade it was not always necessary for Japanese companies to import technologies.

In the 1970s, Japanese electronics firms were still acquiring basic concepts of technologies worldwide, but were developing new ways to apply the concept to industries. Thus, they were vigorously obtaining their own patents and were exporting or transferring many of those technologies.

Finally, from 1980 to the 1990s, these firms were actively carrying out their own basic research, while remaining in the forefront of applications. Japanese electronics firms started to recognize that it is essential to create core technologies by expanding R&D activities.

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

Hitachi's growth during these 50 years is just one example of the growth of Japanese electronics firms. During the 1980s and 1990s, Hitachi continued to invest 10 percent of its sales in R&D activities, including basic research.

In the 1990s, however, the recession that was triggered by the crash of the bubble economy in Japan led to a saturation of domestic markets. To continue operating production facilities, Japanese industries had to rely heavily on exports. One result of this was the tremendous trade imbalance and the marked appreciation of the Japanese yen, which drove many industries to shift their manufacturing and sales centers to other countries.

For example, more than 10 percent of the production of the Hitachi group now occurs outside of Japan, approximately 15 percent of the equipment and materials used by the group are imported, and approximately 20 percent of Hitachi's domestic production is exported. Hitachi will continue to increase overseas production and international procurement.

Alliances: Now another step of technology management appears in electronics firms. Instead of each individual corporation developing all the technologies it needs, they now establish intercorporate alliances or cross-licensing, which constitutes a technology matrix among the necessary elements that have become more important and advantageous.

This matrix involves core technologies, which are the hallmarks of each company. Each core technology should be developed through intensive R&D efforts within the individual companies, whereas other elements of the technology matrix can be acquired through alliances.

"Strategy," "marketing," and "core technology": these three factors constitute the so-called ''core competence" for high-technology industries today.

Globalization: Now to touch the second topic, many Japanese manufacturing companies are trying to change their business structure in the following ways. The first challenge is a "new business globalization."

Many Japanese manufacturing firms have already shifted their manufacturing and sales centers outside of Japan and now their globalization efforts are approaching the next stage: global sharing of intellectual resources and global cooperation. Two typical examples of this are globalization of R&D activities and intercorporate alliances.

Hitachi has already established various collaborations and has exchanged researchers with several well-respected research institutes outside of Japan. In 1989 Hitachi established overseas R&D laboratories in Hitachi America and Hitachi Europe, Ltd.

Hitachi & TI: An example of a global intercorporate alliance is the cooperation between Texas Instruments [TI] and Hitachi in developing new generations of semiconductor memories. TI and Hitachi started to develop jointly a 16-megabyte DRAM [dynamic random access memory] in 1988. We have continued to cooperate in developing a 64-megabyte DRAM and are conducting a feasibility study on a 256-megabyte DRAM. As a result of these cooperative efforts,

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

TwinStar Semiconductor, Incorporated was established in Texas in January 1995 for manufacturing advanced semiconductor memories.

New frontier: The second challenge is pioneering new business frontiers. It is essential for R&D personnel in private companies to sow the seeds for new industrial concepts. Although revolutionary innovation is a high-risk activity, it also offers high returns. The flat-panel display business is an example of innovative areas in which Japanese companies have made major contributions.

In 1992 Hitachi's major display business was a cutout display tube [CDT] and a cutout picture tube [CPT]. They have been shifted to overseas production, and LCD [liquid crystal display] has created a new market so as to contribute to reducing the hollowing of domestic industries.

This type of dedicated company activity is especially valuable, not only because it benefits the company itself, but also because it creates new industries and job opportunities, both domestically and worldwide.

In Japan, most R&D investment is done by industries. Government R&D investment is less than one-fifth of total R&D spending. To become an effective source of advanced information, the Japanese government will have to increase its R&D investment in academic circles and public research institutes to the same level as that of governments in other advanced countries. When industries, universities, and the government cooperate in R&D, each needs to clearly understand its own mission and responsibility.

The 1990s have been and will continue to be a crucial period for Japanese electronics firms to change their business structure. The challenges will include further steps toward globalization, creative marketing, and developing core competence. I conclude my presentation by emphasizing that advanced countries have a mission to conduct R&D not only in low-risk but also in high-risk fields that promise significant human benefits.

Such areas include health and welfare, disaster and crime prevention, and energy conservation and environmental protection. In the past, technology has been developed from a perspective overwhelmingly oriented toward the natural sciences. From now on, however, technology cannot be handled without a deep understanding of its impact on global society. R&D activities combining technology, science, and sociology need to be based on the well-being of our global human society.

Thank you.

Evolution in National Policy Support

Kazuhiko Hombu, MITI

NEDO: I am the chief representative of the New Energy and Industrial Technology Development Organization (NEDO], a quasi-governmental organization and an affiliate of the Ministry of International Trade and Industry [MITI]. NEDO is a managing organization of MITI R&D activities.

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

My presentation is divided into three parts. The first part is how the R&D activities in Japan have changed recently. Second, I will talk about past MITI policies on industry and science technology R&D. And third, I will discuss the direction of these policies.

Small government role: Compared with the European countries and the United States, the role of government in the R&D expenditure in Japan has been very low, especially in the 1970s and 1980s. During this time private industry R&D expenditures rose rapidly.

Recently, there have been some big changes. Private industry R&D decreased dramatically the past two years after the crash of the bubble economy. Since 1992 and 1993, the annual gross rate of the private industrial expenditure on R&D has decreased. This had a shocking result for our economy.

Compared with other developed countries, Japanese governmental expenditure is approximately 20 percent of total expenditure. On the other hand, in the United States, Germany, France, and the United Kingdom, the level of expenditure is approximately 35, to 45, or 46 percent.

In the United States, the expenditure for defense activities plays a key role in governmental R&D funding. The U.S. governmental R&D is defense-related, which is possibly a driving force. Most private companies do not want to spend such large amounts of money by themselves.

You need to understand the recent shift of the R&D levels that have been sent overseas by Japanese enterprises. Before the 1970s, or within the first half of the 1980s, there were not many Japanese companies that had R&D levels overseas. However, in the late 1980s and early 1990s, the number of Japanese companies with R&D facilities overseas, especially in Europe and the United States, increased dramatically. The number of researchers overseas also increased. On the other hand, the number of foreign visitors or foreign researchers who come to Japan is very low. We are very anxious about a deficit of the R&D resources, both in facilities and in human resources for the future.

Lagging government expenditure: My final issue here today is the difference in the government expenditure in leading-edge technology areas. I have selected two different areas: information technology and life sciences. There is a big difference between Japan and the United States regarding governmental expenditure in these two areas. For information technology, Japanese expenditures are approximately one-third of U.S. expenditures; for life sciences, our expenditures are approximately one-fifth of the U.S. expenditures.

In conclusion, recent R&D activity in Japan can be outlined by five points:

  • industry's R&D effort is stagnating;

  • there is insufficient government effort in some specific areas;

  • there is a loss of Japanese R&D businesses to other countries;

  • there is a lack of leading-edge technologies; and,

  • we hope to learn some strategic efforts for national competitiveness from the United States.

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

MITI S&T activities: What are the MITI's industrial science and technology activities? The very basic technology is science. Science moves up from basic generic technologies for welding, heating, etc., to applied technologies and then commercial technologies with R&D efforts.

MITI covers some parts of applied technology and science. Of course, the Science and Technology Agency and the Ministry of Education of the Japanese government cover the basic technologies and science areas. Japanese industry, of course, covers the goods, market, and commercial technology.

Consensus on technology's importance: In Japan, there is a consensus that science and technology are the biggest driving forces supporting our society, but unfortunately the status of the R&D policy is very low, very quiet, because the outcome is not clear. And the facilities of the universities are tremendously bad. So we need to use private industries' R&D abilities to promote R&D research. At MITI I have an interest in the science and technology policy, but this policy is heavily affected by other policies that have been affected by industrial policy, which later were affected by energy and the environmental policy.

In the 1980s other issues arose. We are now thinking about other policies. We cannot focus only on industrial science technology policy.

Finally, I want to say something about the future directions of the MITI's policies. Our R&D budget is covered mainly by a special account on energy. This account is funded by the tax on energy, oil, and electricity. We can keep spending some amount of money on R&D. For future R&D policies, we are considering three major points. The first point is the need for continuing support. MITI has to support industry R&D activities continuously. The main area is leading-edge technologies or infrastructure of R&D or the R&D activities of medium and small-size enterprises.

The second point is that the MITI should lay emphasis not on applied technology, but on basic or generic technology areas. The last point is that we have to contribute to the economy and society through the outcome of R&D activities that we are conducting.

Of course there is criticism that Japan profits from the science conducted by European countries and the United States, but we are thinking of how to contribute with our R&D efforts from applied to basic technologies.

Thank you.

U.S. Technology Acquisition, Diffusion, and Development: Assessment of Current Trends

Chris Hill, George Mason University

I focus on aspects of the U.S. technology policy that encourage and support the development and use of new technology in the commercial marketplace. I will not address such equally important aspects of technology policy as those that

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

are focused on military or environmental markets. Nor will I address the aspects of technology policy reflected in the regulation of technological applications.

GOVERNMENT ROLES

I intend to identify some important trends in the area of commercial technology policy and—despite the current strong opposition to technology policy in the Congress—I intend to suggest some future directions and opportunities in the field. Because the present congressional leadership seems determined to terminate much of the nation's explicit technology policy, regardless of the consequences, I am not going to attempt a grand synthesis of what is going on today in terms of broad economic, political, or constitutional principles.

Expenditure: To keep in mind the domain of interest, it is useful to remember that the federal government has recently directly financed approximately $70 billion worth of R&D activity annually. It indirectly finances billions more through tax preferences for industrial R&D and for charitable contributions to institutions of higher education and other nonprofit organizations, through reimbursements on government procurement contracts for portions of contractors' "independent R&D" costs, and through grants-in-aid to graduate students and postdoctoral fellows.

Infrastructure and procurement: In addition to providing funds for R&D directly and indirectly, the government plays other important roles in encouraging commercial technology development and use. It pays for important complementary assets such as parts of the nation's communications and transportation systems. It subsidizes the markets for new technologies in such key areas as medicine, aviation, agriculture, and construction. The federal government also encourages collection, interpretation, and dissemination of technologically relevant information.

IPR and standards: It is not widely appreciated on Capitol Hill today, but the federal government helps to strengthen the market for new technologies by setting and enforcing the standards of safety, quality, and environmental impact that give consumers confidence that untried new technologies can be considered reasonably safe and effective for their ostensible purposes. Other federal government incentives and contributions to technology development and use include, for example, maintenance of a system of intellectual property (patents, trademarks, copyrights, and their specialized derivatives), opening new markets by way of trade policies, and encouraging private investments to commercialize new technologies by way of direct and indirect support for industrial consortia, new commercial ventures, and plant expansion.

Developmental states: In other words, the modern developmental state—and I include the United States within this rubric—is awash in technology policy. Such states have no choice but to adopt and implement such policies if they are to thrive. Today, no modern state attempts to evade responsibility for a technology policy.

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

The visible technology policy programs that are the focus of current policy debates are important, but they represent only a small portion of the total public sector support for technology development and use in the United States. More important than such programs is the growing and widespread recognition that technology is important and an integral component of both corporate strategy and national policy. This recognition will persist, I believe, regardless of current political developments.

THE CENTRAL ROLE OF TECHNOLOGY

I refer here not only to the pervasive and ever-growing role of technology in shaping individual lives and society in general. More important is the adoption, development, and adaptation of a new understanding of the place of technology in all of life's activities. We now understand that wise management of technology and technology development can be manipulated to the advantage of individuals, firms, or nations. In other words, technology development has taken its place alongside more traditional concerns of societies such as the development and exploitation of land, natural resources, people, and capital as a key factor in national well-being. To deny a national responsibility for technology policy is to deny the essence of modern society.

Evidence for this new understanding of technology's role abounds. "High-tech" is in the news every day. Countries that seek to advance to the front rank of nations now try desperately to adopt technology policies, adapting a mix of policies and practices typical of those of Europe and the United States as well as those typical of Japan and the "Tigers" of south Asia. Every modern business makes development and deployment of technology a key element of both strategy and operations. It is now recognized that effective management of technology is integral to a firm's future and that, as such, it is too important to be relegated to the R&D department. Every American state has a technology program of some type. Even the Speaker of the House of Representatives articulates vague futurist visions of a technological society.

Yet another piece of evidence is that the traditional MBA [master of business administration], concerned with managing finances and people, is giving way to advanced education in the management of technology that is concerned with managing the means for generating and using "the new." Some people even recognize the pervasive role of technology in public affairs, and they study, teach, and do research on science and technology in schools of public policy.

AMERICAN POLICIES FOR INNOVATION

During the past three decades, the United States has led the world in experimenting with new elements in technology policy. Although the Stevenson-Wydler Technology Innovation Act of 1980 got the contemporary ball rolling, during the mid-1960s several efforts had already been made to install technology policy at the national level, and several of these efforts were emulated success-

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

fully in other countries before they were finally adopted on a permanent basis in the United States. The approaches we have used include encouragement of technology transfer and spin-off from federal mission R&D programs; incentives for private R&D spending and for the formation of research and development consortia involving firms, universities, and federal laboratories; and new approaches to protecting the unique intellectual property typical of modern technological economies.

The importance of teaming: One of the aspects of the current debate over science and technology policy that I find most unsettling and counterproductive is the view that each R&D institution in the country—especially each federal laboratory—should determine its mission and stick with it. A decade ago this view was widely held, and concerted efforts were made to break down the barriers among institutions implicit in this model of how the world should work. And yet, one of the characteristics of the modern technological society is that it is often difficult to tell who is working on what, for whom at any given time. Teams, coalitions, joint ventures, partnerships, and many other forms of mission-blurring organizations are now widely understood to be more effective at rapid technological change than the "stove-piped" structures in which each cog in the wheel has its role and sticks with it. To the extent that policymakers in the Congress and elsewhere try to roll back the clock and rebuild the barriers that separated the various R&D institutions from one another from the 1960s through the mid-1980s, they are making an unfortunate mistake.

NEW VICTORIANS?

At present time, the new Victorians who have taken charge of the Congress would like to get the United States out of the technology policy business—or, at least like good Victorians, they would like to repress the visible parts of this policy and put a heavy curtain around the rest. In view of the history of the idea of technology and its place in national strategies and policies, I believe that the congressional attacks on programs, such as the Advanced Technology Program, the Technology Reinvestment Program, and Cooperative Research and Development Agreements (CRADAs) are thoughtless at best, probably destructive, and certainly ill-considered.

I do not mean to imply that the existing U.S. technology policies and programs are faultless. I have my own list of reservations about these programs and activities, and I have spoken and written about a number of my reservations in the past.

CURRENT U.S. TECHNOLOGY POLICY

The Clinton administration's approach to technology policy has suffered from a number of ills. The administration has been excessively timid and has lacked resolve on technology matters from almost the beginning. It has focused too heavily on support of research and development rather than on a broader range of initiatives and actions.

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

A focus on R&D only: To illustrate, it was a major error to structure the interagency committees of the new National Science and Technology Council [NSTC] around R&D funding rather than around major national goals and problems for which R&D funding is but one policy option among many. Structuring the Council committee around traditional domains of R&D funding also effectively precluded consideration by the Council of significant shifts of resources across national goals and across scientific and engineering disciplines, as had been promised in the Clinton-Gore campaign.

Poor coordination with Congress: In addition, the administration was insufficiently responsive to congressional initiative on technology policy during its first two years in office when it faced a Congress of its own party. For example, disagreements over treatment of foreign company participation in U.S. technology support programs precluded passage of the congressional leadership's flagship National Competitiveness Technology Act (S. 4 and H.R. 820 in the previous Congress). The bill should have been clarified, passed into law, and implemented aggressively early in the new Clinton administration. Instead, it languished and died at the end of 1994, in part, due to a lack of administration leadership and resolve.

Process vs. initiative: Finally, the NSTC process seems to have substituted an accretion of unwieldy and resource-consuming bureaucratic procedures for straightforward policy initiatives that might have been undertaken successfully when the administration's party controlled Congress. Now such action is essentially impossible, even if there were to be vigorous articulation of the need for policy changes of a type not typical of the first two Clinton years.

A LOOK TO THE FUTURE

In view of the powerful congressional opposition to technology policy as it has taken shape in recent years and in view of the nature of the Clinton administration' s technology policy, how might we begin to think about new approaches for the future?

Temporary opposition: I believe that the present climate of vigorous opposition to federal funding of government-industry partnerships and to other forms of technology policy is only temporary. Such opposition was not articulated as part of the congressional campaigns of 1994, and the next election in 1996 is unlikely to ratify this opposition.

Need for a new agenda: We need to begin thinking now about a new agenda for an American technology policy that

  • reflects the vast opportunities inherent in the continuing unfolding of new possibilities;

  • incorporates the fact that technology is no longer peripheral to modern governance but is absolutely central to it;

  • recognizes explicitly the importance of establishing and empowering an

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

institution—a government agency or department—to be responsible for the detailed design and implementation of the next generation of technology policy.

Contrary to a widely held view, to get an important job done by government it is necessary to give an agency the power to do that job. Important tasks cannot be accomplished by interdepartmental coordinating bodies or by agencies that are asked to work on them as marginal additions to their core assignments. We need to begin to think about the form, powers, duties, and resources appropriate to a truly effective federal institution that can be at the center of a new round of federal/ state/ industrial/ academic technology development and application partnership.

Careful studies should be done of experiences over the past six years with experimental programs such as the NIST [National Institute for Standards and Technology] Advanced Technology Program and the multiagency Technology Reinvestment Program so as to extract lessons useful for building more successful and efficient programs in the future. We also need more thoughtful studies of the successes, problems, and pitfalls of the technology policies used by other nations and regions of the world.

This is a difficult time for supporters and implementers of technology policy in the United States. Hard-won gains of the last two decades seem likely to be swept aside. Yet the need to justify such policies has stimulated fresh thought about what they can and should become. The current climate will change, and the community should be ready with a coherent and well-developed action agenda when it does.

DISCUSSION

KARL-HEINZ PAQUÉ: My question is directed to Nicholas Ziegler in regard to the performance of the German economy in general. Germany has a relatively high research R&D intensity, despite its traditional concentration on medium-technology industries that are the backbone of the German chemical industry, mechanical engineering, car industry and so on. Despite this and Germany's relative weakness in microelectronics, it has a very high R&D intensity.

The reason for this is that Germany basically—within these medium-technology industries—specializes in the high-technology segments. Therefore, we should be very careful not to attribute too much to a technology policy because in this case, Germany has a very long-run pattern of specialization, which has not changed dramatically in the past 20 years. We need to be careful about the idea of reasonable competition because most of these firms are medium-sized. They compete in very narrow world markets, and there is no way they can control the type of competition they are in.

ERHARD KANTZENBACH: I have two short comments, specifically to Mr. Ziegler and to Mr. Hill. First to Mr. Ziegler. I am not sure whether your evalua-

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
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tion of the Germany R&D policy performance is too optimistic, because if you look at the export structure of the German economy, you will find that the export of medium technology is rather strong, whereas on the high-technology level, we actually have some weaknesses. This raises much concern in the German economy and for German economic policy. We now have a debate about the competitiveness of the German economy that is at least as strong as the debate in the United States.

To Mr. Hill. You talked about the necessity of R&D policy, and in this respect, we should separate two different aspects. One aspect might be the necessity from a national point of view. If you see different nations competing in world markets, it may seem that, for one nation, it is necessary to have R&D policy. But we are trying to look for common framework conditions for the world economy, and for that we need different criteria for the necessity of technology policy.

We should find out whether technology policy gives a welfare gain for the world economy as a whole. From that point of view, we have different criteria. We have to look for external effects, which might or might not exist, but I believe that any technology policy has less convincing arguments if you look straight from the perspective of the world economy than from the national economy.

CLAUDE WOLFE: I have two corrections to Dr. Ziegler's assessment concerning France. The first one concerns the education system. In the past 30 years we have developed a system of what we call higher technicians, which are formed with the agreement of the industry and fairly fit the needs of the industry. We have also developed a permanent educational system.

I also want to say something about the centralization of the public support for industrial R&D and for the diffusion of generic technologies. This is no longer true. Our national agency for the validation of research and the Ministry of Research have no regional offices—local offices with financial autonomy and decisional autonomy. They can allow support for up to approximately $100,000 under their own responsibility.

NICHOLAS ZIEGLER: I want to respond first to Mr. Wolfe. Your observations are pertinent, but I do not quite agree with the full thrust of them. The system of engineering education in France through their national schools, nonetheless, continues to create a political elite, which does, I would argue, dominate public technology policy in France very, very strongly.

The other educational initiatives that you have mentioned are very important, but they have not yet made a real switch in the hierarchical structure of enterprises in manufacturing, though they may very well in the service industries.

Regarding centralization, your point is an important one; however, for the Ministry of Industry, at least, the regional agencies are still forced to use uniform procedures so that there is nothing like the regional experimentation possible in

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

France that one sees in Germany. Even though the implementation of policies occurs in the periphery, you do not get the kind of variability that is necessary to comparing experiences across geographic locations.

So I agree that all of these things are happening, but they have not yet caused a fundamental change.

On performance issues and how much we can attribute to technology policy, of course, I think that Dr. Paqué is correct in pointing out the very persistent pattern of specialization of German firms in medium-technology sectors, but that persistence itself is quite remarkable when you think of all the technological changes that have occurred in the metal bashing industries or in machine tools, for example. By comparison, certainly with France, the policies of the German research ministry have to be viewed at worst as neutral, which is good compared with what the French Ministry of Industry did to the French machine tool industry.

I am not an economist. I compare these policy histories, and if you look at them closely, you can see how the French Ministry of Industry systematically undermined this industry while, at the same time, these indirect specific programs in Germany did help small-firm sectors to modernize.

As to the degree of competition, whether it is determined by domestic institutions, such as trade associations or world market conditions, this is a very complicated question. I am not sure there is a short answer, but I would argue that the very intricate structure of the trade associations does impose certain types of governance restrictions on markets that German firms can and cannot enter easily.

To answer Professor Kantzenbach, your question was very similar. It is the emphasis in Germany on medium-technology sectors and, in fact, one of the reasons I emphasized in my remarks the indirect specific programs, these small-firm programs run by Bonn, is that they are designed precisely to help the so-called German mittlestaundt, which often are in medium-technology rather than high-technology sectors.

I certainly agree that there is a vigorous debate in Germany about the role of technology policy and about the performance of firms in what we usually think of as high-technology sectors. That is precisely why I put such emphasis on these institutions and policies that do support small and medium-sized firms in medium-technology sectors, such as mechanical engineering.

DICK SAMUELS: I direct three questions to our Japanese participants. The first question is by way of clarification. There was a contradiction in the numbers about where R&D is headed in Japan. Dr. Takeda described a Hitachi case in which there was an increase or investment of 10 percent, a fairly constant and rather high continued reinvestment in R&D. However, Mr. Hombu described in the aggregate a post-bubble decline—I presume it was real and not nominal terms of investment—in R&D.

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

I would like some clarifications as to how to explain this discrepancy. Is it large firms versus small firms that are going in opposite directions or is there something else, multinational versus domestic oriented?

DR. TAKEDA: My numbers are in a very wide range. Since 1950 to 1980 to 1990, we grew very rapidly and steadily. But when we rose up in that rather small range, particularly after the 1990s, there were some costs. Also, 10 percent of our annual revenue is spent in R&D, but the revenue itself is now decreasing.

DICK SAMUELS: That is very helpful. Also in your presentation you stated that 15 percent of Hitachi's equipment and materials were now imported. There is a great deal made of the difference between intraindustry trade between the United States and Europe, which is very robust. We sell cars to Europe. They sell cars to the United States. We sell them steel. They sell us steel. There is a very different pattern between the United States and Japan, in which there is far less intraindustry trade. The question I have is, what portion of that 15 percent of Hitachi's comes from related firms?

DR. TAKEDA: I do not have that number at this moment.

DICK SAMUELS: The problem is that, in general trade discussions, that number never appears, and it would be very useful as a general matter to have those numbers. Actually it is a request from all of us for better data.

Next, you talked about the 10 percent of Hitachi's production being located overseas. That is slightly higher than the 8 percent aggregate that is reported for Japanese firms overall, and it is approximately half of the 20 percent of U.S. manufacturing production that is reported for U.S. firms overall. You expressed a concern about hollowing in the Japanese economy, and you gave a wonderful example of LCD technology, which you increased at home as you migrated other display technologies overseas.

My question is, what criteria do you use as a research director and as a director of Hitachi overall? What types of criteria do you invoke when you think about what to move overseas and what to keep at home? How important is this concern for hollowing? How does it weigh against other types of criteria, such as the desire to acquire technology abroad, supplier relations, access to foreign markets, and dealing with foreign trade barriers?

DR. TAKEDA: I would like to give my answer to the third question.

PARTICIPANT: Before Dr. Takeda answers, I have a question along the same line. In the opening session it was suggested that the East Asian model is drastically different from the Western model. But in this session I am hearing just the opposite. I find this confusing.

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
×

So I would like an answer from the two Japanese participants whether they disagree with the presentations during the first session this morning, or whether they are operating very differently from American firms.

There is something that is not right in this picture. Both views cannot be right. So if you could either tell us if you disagree with this morning's discussion or give us a little bit more in terms of how you differ from American firms?

DR. TAKEDA: I would like to answer Professor Samuels third question. As to which businesses are conducted overseas or in domestic markets, this should be decided by the managers of the business groups, not by the technology manager.

In addition, this selection is based on marketing more than technology. For example, we are now distributing semiconductors and automobile components into the United States. Of course, when we create new businesses, we are forced to create new businesses for the company, not only, for example, Hitachi but also for General Electric. When we create new business, our resources are intensive. For example, at this moment, Hitachi has strong research resources near Tokyo.

CHRIS HILL: In response to Dr. Kantzenbach's observations on my comments, two quick points. First, it is important to realize that we are not talking about R&D policy. You may have been using that as shorthand, but that is simply grossly inadequate to characterize the subject of technology in modern economic development.

The second point is that it seems to me so clearly self-evident that the development application and integration of technology and culture are at the root of economic development. To suggest that there are no positive benefits from this activity is to ignore the last 5,000 years of history. Now, what does lie before us is a need to find constructive ways to cooperate internationally and not to use this as a substitute for shooting each other in the future.

Suggested Citation:"National Policies in Support of High-Technology Industry." National Research Council. 1997. International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings. Washington, DC: The National Academies Press. doi: 10.17226/5902.
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