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Manufacturing Pivotal to Economic Growth, NIST Report Says

March 15, 2002

Because knowledge-based services can be supplied anywhere across the world due to increased international investment in IT infrastructure, future U.S. competitiveness hinges on diversification and broadening of the technology-based manufacturing sector, according to NIST Senior Economist George Tassey.

Tassey's lastest report, R&D and Long-Term Competitiveness: Manufacturing's Central Role in a Knowledge-based Economy, lays out the critical role manufacturing and manufacturing R&D plays in the U.S. economy, presents the dire forecast for low-R&D intensive manufacturers, and presents a framework for analyzing federal R&D investment strategies consistent with a national innovation system.

Tassey also argues that the zeal or enthusiasm for information technology that dominated policy discussion during the past few years and overshadowed and "induced and unbalanced perspective" on the appropriate strategies to secure economic competitiveness.

Manufacturing accounts for 17 percent of U.S. gross domestic product (GDP) through nearly $1.5 trillion in profits and wages and salaries for 20 million workers. The report points out, though, that manufacturing's importance for future economic competitiveness is more evident when looking at the nation's R&D investments: Industry conducts 75 percent of all U.S. R&D and the manufacturing sector accounts for more than 70 percent of all industrial R&D and much of the economy's technology, including information technologies.

While the geographic barriers of most knowledge-based services can be overcome by investments in the IT infrastructure, co-development of critical technologies by manufacturing and service firms, especially through partnering, is aided by geographic proximity and access to the same technical infrastructure.

The report further identifies that, because private sector R&D investment has become more driven toward short-term goals, "traditional funding gaps found in the early phases of R&D are magnified." The result, Tassey says, is that the level of U.S. R&D investment is "too low in most industries and too concentratred geographically to spawn enough economic clusters to achieve high, long-term national growth rates and thereby maintian corporate profit growth and consistently raise real income of workers." He also suggests R&D funding must target longer-term, higher-risk research activities.

"Thus, overall economic growth requires a diverse and competitive manufacturing sector...(T)echnology-related policies need to be continually examined and adjusted to provide an environment in which private sector incentives to invest in technology are strong," Tassey concludes.

R&D and Long-Term Competitiveness is complete with useful tables and graphs and is available at: http://www.nist.gov/director/prog-ofc/report02-2.pdf