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economic trends—in particular, the high valuation of the dollar—for much more fundamental signs of structural deterioration. Nevertheless, the general picture is one of stronger performance in the 1990s on a variety of dimensions, among them investment, export market share, R&D spending, and profitability. Although not universal and not without dislocations to particular firms, groups of workers, and regions, this improvement is true of much of the service sector as well as manufacturing. Foreign competition has been a driver of change in some cases but not in all. Domestic competition, often from new entrants, has played an important role. In trucking, banking, food retailing, and most manufacturing industries, applications of information technology have enabled the introduction of new products and services and recasting of logistics and other processes to be more efficient.

Although precise causal relationships and rankings cannot be determined, in the 1990s the U.S. government followed a supportive mix of macroeconomic and microeconomic policies—deficit reduction, conservative monetary policy, scaling back of economic regulation of transportation, finance, and communications, trade liberalization, relatively permissive antitrust enforcement, and strengthening of intellectual property rights. As it had in previous decades, the federal government continued to support research across a broad range of scientific and engineering fields, although the 1990s saw the beginning of a change in the research portfolio that may not bode well for the future—in particular, a decline in support of several physical science and engineering fields.

Improved U.S. industrial performance also reflects a variety of private sector strategies—repositioning, product specialization, firm consolidation, internationalization of operations, manufacturing process improvement, and cost reduction—that were market driven, not guided by public policies. These benefited some established firms at the expense of others and in many industries opened opportunities for new entrants. As a result, on the eve of 2000 the structure of most industries looks very different than it did even 15 years ago.

Several enduring characteristics of the American political system and economy bode well for the future—the sheer size of the domestic market, encouragement of experimentation, and relatively little protection accorded enterprises resistant to change. Indeed, contrary to recent conventional wisdom about investors' myopia, U.S. capital markets over time do a reasonably good job of favoring firms with high growth prospects.

Nevertheless, in the long run international shifts in comparative advantage are inevitable, as a result of changes in national political, legal, educational, and capital market institutions, wars and other destabilizing events. Today, Americans should be wary of assuming that the 1990s marked an enduring turnaround in U.S. industry performance.

Despite its general satisfaction with the progress of the last decade and guarded optimism about the future, the STEP Board concludes from its investigations that there are four policy concerns that need to be addressed:



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