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Science Technology and the Economic Future edited by Susan Raymond
Daniel Burton
President, Council on Competitiveness
Based on remarks delivered at the New York Academy of Sciences on February 23, 1995.
Where the U.S. stands in terms of global competitiveness depends, to some extent, on the indicators chosen to ascertain position and momentum. Traditional economic indicators may tell a very different story than indicators based on global technology use and diffusion. Indeed, the competitiveness debate is in the midst of transition. In the 1980s, the concern was denominated in terms of classic struggles for productivity and quality in manufacturing industries. In the 1990s and into the future, even the definition of economic products will change, and so must the analysis of competitiveness.
Predicting Competitiveness Using Standard Measures
Bright and Sunny
When compared to much of the 1980s, the performance of the U.S. economy relative to Europe and Japan in the early 1990s is a cause for celebration. In 1993, the U.S. standard of living rose more than in any other G–7 country (U.S., U.K., France, Germany, Japan, Italy, Canada). In 1994, the U.S. exported over $600 billion in merchandise, goods, and services, more than any other nation in the world. Productivity also rose by over 4 percent, the largest gain since 1987.
Moreover, a 1994 Council on Competitiveness survey of the nation's chief executive officers and leading university presidents found similar optimism. Management quality and technology were rated as very good and getting better. The human resources emerging from the university system were also viewed as excellent. Taken together, such standard measures can create a certain complacency about the global competitiveness of U.S. industry.
...With Storm Clouds Gathering
But complacency is most definitely unjustified. Although indicators for the most recent year appear vibrant, they are exceptions. The rise in the standard of living in 1994 stands in contrast to the last 20 years, during which the U.S. had the lowest growth rate of any G–7 country.
The same 1994 survey of executives echoed concern over long–term weaknesses in the U.S. position on two particular measures: In terms of savings–the cap– non on two particular measures: savings and education.
Since 1973, the U.S. net national savings rate has hovered at around 2 percent, about one–tenth that of Japan, one–third of that Germany, and less than half that of France and Italy. For six of the past seven years, U.S. investment in plant and equipment was also the lowest of any G–7 country. Comparisons with Asia are striking: The U.S. gross savings rate is about half that of Hong Kong, Indonesia, Singapore, South Korea, Taiwan, or Thailand. Asian countries are accumulating capital at twice the rate of the United States.
The second dominant concern is weaknesses in the nation's K–12 and worker training systems. Changes in the economy and in the nature of the nation's industrial base have not been matched by changes in the technological preparation of the labor force. The traditional manufacturing base in the United States was built around apprenticeships. There was no significant premium on superior primary and secondary education. This is no longer the case, especially as the economy moves to the provision of advanced services. Overall, education and training programs have not kept pace.
Sorting the Near Term From the Long Term
These two very different pictures reveal near–term improvements and long–term problems. Private executives see hard times ahead. Despite a decade of restructuring, layoffs, and downsizing, the executives surveyed, by a margin of two to one, predicted that U.S. industry will continue to face difficult competitiveness hurdles in the future.
After the last five years of focusing internally and managing a difficult reunification process, Germany will return to the international market. It will become an economic powerhouse in Europe that the world has not seen in half a century. Japan, despite current economic weaknesses, will also return to be a strong competitor. The difference is that it may not come back from Japan. Japanese technology, capital, and managers are pervasive throughout Asia, and Japanese competition will come from Taiwan, Indonesia, Malaysia, Singapore, and China.
Innovation Will Drive Long–Term Competitiveness
In the 1980s, much of the competitiveness debate was about quality. American cars and semiconductors were said to be the vital sign of U.S. competitiveness, and they were simply not of a high enough quality to compete in global markets. But U.S. quality has improved. The next hurdle for competitiveness will be innovation.
Innovation implies more than simply focusing on product improvement. It means continuous learning, constant improvement, and the creation of entirely new types of enterprise. Critical to the health of innovation is the commitment to research and development. Over the long term, the pace of innovation, and hence the competitiveness of U.S. industry, will depend on investments in research and development.
To ensure those investments, the nation must have a technology policy. Over the last four decades, the United States has had a defense policy, a space policy, a basic research policy, and a variety of other concerted efforts to address national S&T issues. But there has never been a policy designed to stimulate industrial productivity and industrial technology.
A New Set of Indicators: Technology Within a Networked Economy
The U.S. economy is moving from a traditional industrial structure to a networked structure. Indeed, it is farther along this path than virtually any other economically advanced nation. When U.S. competitiveness is viewed through this new set of optics, a very different picture of the U.S. role in the world emerges. A comparison with Japan is instructive.
The number of personal computers workers per 100 workers in the U.S. is four times that in Japan. In the United States there were 3,900 domestic commercial databases in 1992; in Japan there were 900. In the U.S. there were between two and three million people signed up on the Internet in 1992. In Japan in 1994, there were 39,000. In the U.S., there are about 4.4 local area networks per 100 personal computers. In Japan there are 1.4.
These are not macroeconomic indicators. They do not purport to address economic growth rates or trade balances or productivity. They do not measure traditional economic parameters. But they do show a very different economy, one which is moving very quickly into a series of networked relationships that will drive economic activity in the future.
Moreover, the U.S. role in producing as well as using these technologies is improving. In 1990, a Council on Competitiveness survey showed the U.S. was weak or losing badly in a third of the top 100 technologies deemed to be critical to economic advance over the next decade. In 1994, the same survey showed very different results. In 20 out of the 30 technologies in which the U.S. had lagged, American private industry was growing and regaining competitive ground. America's position in critical technologies has changed from chronic gradual erosion to a gathering strength.
The Role of Telecommunications
The vital sign for this new economy is the telecommunications industry. Telecommunications are the bedrock of the national information infrastructure, which itself will broadly affect the future strength of the U.S. economy.
Five years ago, many observers—both in government and in the private sector—were concerned that directed efforts in France, Singapore, Germany, and Japan were resulting in levels of investment in information infrastructure that would put those economies significantly ahead of the United States. Today the perspective has changed. Instead, the emphasis has shifted from publicly supported telecommunications investment to deregulation. The United Kingdom is now viewed as one of the most advanced in terms of telecommunications investment because it is also one of the most deregulated telecommunications environments in the world.
Whichever policy mode ultimately proves best—directed public programs or widespread deregulation—it is clear that investments in telecommunications will prove key to the economy of tomorrow.
Changing Focus of Private Initiative
Much of the momentum that has been gained in U.S. competitiveness over the last forty years has come from concerted private sector efforts. In the private sector, the emphasis has been on streamlining, cost reduction, efficiency increases, productivity enhancement. All of these initiatives in the industrial economy came as a response to market forces. The emphasis was on maintaining the nation's industrial leadership in global markets.
The private sector focus has begun to change over the last five years, and will change further into the next century. Private industry is in the process of reinventing R&D. Centralized R&D institutions, akin to the old Bell Labs model, are declining or disappearing. The private sector's appreciation of research has not declined, but the process has changed as the product cycle has become more rapid.
The strength of the United States is innovation, flexibility, entrepreneurship, and openness in higher education. Taken together, these features give the nation an advantage in the global marketplace. American industry in the future will do more than streamline and squeeze more productivity out of existing products and markets. Using innovation with technology as building blocks, and with telecommunications as the pathway, U.S. industry will create new markets for goods and services unanticipated only a decade ago.
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