Competitiveness; FORUM; Letter to the editor
BYLINE: Hatano, Daryl; Hughes, Kent H.; Morgan, James N.; Clough, G. Wayne
The semiconductor industry epitomizes many of the points made by Robert D. Atkinson in "Deep Competitiveness" (Issues, Winter 2007). Atkinson's call for a sense of urgency is underscored by recent trends in where semiconductors are made and sold. In 2002, 30% of semiconductor manufacturing equipment was sold in the United States, but this had fallen to only 19% by 2006. In 2000, more semiconductors were consumed in the United States than in any other region, but by 2004 therewere twice as many semiconductors sold in the Asia/Pacific region than in the United States, and the gap has grown since.
The semiconductor industry's successful comeback against Japanese competition in the 1980s also supports Atkinson's rebuttal of those pundits who dismiss the seriousness of the current competitive challenge on the grounds that we met past challenges. As Atkinson notes, we overcame past challenges precisely because we took them seriously. The United States had fallen behind Japan in worldwide semiconductor market share in 1986, and many executives were determined that the chipindustry not share the fate of the U.S. television industry, a sector that had suffered an irreversible decline that is readily apparent when one browses the flat-panel TV aisles in a store today. The United States responded with economic sanctions to enforce a trade agreement to open the Japan market and end Japanese dumping and with the formation of the SEMATECH industry/government research partnership. These actions were unprecedented at the time and were critical to the United States retaking semiconductor market share leadership in 1993.
Atkinson's focus on an enhanced R & D credit and new industry/government/university research partnerships is echoed in the semiconductor industry's current activities and policy recommendations. The valueof the U.S. R & D credit is far below those of our trading partners,and other nations are quick to point out their tax advantages when companies are deciding where to expand their R & D activities.
The Semiconductor Industry Association has launched a Nanoelectronics Research Initiative (NRI) that pulls together the semiconductor companies, 23 universities in 12 states, state governments, and the National Science Foundation. The purpose of the NRI is to identify the next new logic switch, perhaps based on a particle's spin or a molecule's shape, to replace today's transistor. The country whose companies are first to market will probably lead the coming nanoelectronics era in the way that the United States has led for half a century in microelectronics.
DARYL HATANO
Vice President, Public Policy
Semiconductor Industry Association
San Jose, California
Robert D. Atkinson writes about competitiveness but has a more fundamental purpose in mind. He intends to influence the way we think about the economic past, present, and future.
Atkinson begins his argument by effectively debunking the myth that the 1980s semiconductor challenge from Japan was simply a mirage. He illustrates the way in which the federal government and the states responded with policies to support innovation, speed the movement of ideas from the laboratory to the living room, and forge pragmatic partnerships with a business world that was adapting Toyota's high-performance workplace to U.S. conditions.
Atkinson is equally persuasive in taking on the idea that nations never compete. He favors positive-sum efforts to compete through investment, innovation, and education but warns about national strategiesbased on what he calls "market mercantilism," where countries seek an economic edge through currency manipulation and intellectual property theft.
Finally, he argues for a growth economics defined by our ability to innovate and to translate those innovations into investment and jobs in the United States.
I differ with Atkinson only in calling for even bolder action. Hiscall for a world based on markets, not mercantilism, is sound but not equal to the current challenge. Record trade and account deficits weigh heavily on the U.S. manufacturing base and threaten the country's long-term capacity for innovation. We should be moving now to multilateral negotiations with the world's leading economies to restore trade balance. When the war on terror puts geopolitics ahead of economic priorities, we need to prevent the loss of key industries by compensating them in a way that will strengthen their innovative capacity. After all, the U.S. edge in national security has often depended on the strength of our economy and our capacity for innovation.
In addition to a comprehensive 21st-century competitiveness strategy, we need a periodic presidential report on the state of the innovation system that will drive policy to build on strengths and correct weaknesses. A national commitment to seek new sources of energy can, like the space race of an earlier era, attract young Americans to careers in science and engineering, drive innovation, improve the environment, and add flexibility to foreign policy.
Atkinson makes a very important contribution by pointing to new ways of thinking about the economy and making several imaginative proposals in the policy arena. I can only second his call for a sense of urgency that will lead to action now.
KENT H. HUGHES
Woodrow Wilson Center
Washington, DC
Robert D. Atkinson's article on competitiveness talks of various incentives and subsidies to industry to encourage progress. But any pyschologist will tell you that two motives are better than one, and the lure of profits needs to be supplemented by the fear of competitors.
It took foreign competition to force our automakers to improve. This is not a matter of private enterprise versus government. The reason tractor manufacture in Russia was so bad was that there was only one factory making tractors. Why not look at the massive U.S. mergers and acquisitions that promise to reduce competition and the various other ways in which we protect profits from any erosion? The very fact that economists assume there must be unemployment to prevent inflation implies some lack of real competition. And do we really do the restof the world a favor by exporting subsidized farm products?
JAMES N. MORGAN
Professor emeritus of economics
University of Michigan
Ann Arbor, Michigan
Robert D. Atkinson begins his article with a call for action to meet the challenges facing the United States in a global economy, and he has a point. The factual analysis presented in the recent Council on Competitiveness report Competitive Index: Where America Stands recognizes that despite America's considerable economic achievements overthe past two decades, there are serious warning signs that need to be heeded.
Identifying fundamental research and a skilled workforce as critical to competitiveness also puts him in good company. The National Science Board, the President's Council of Advisors on Science and Technology, and the National Academy of Engineering are among those who make the same case. The need for a genuinely level international economic playing field has been articulated by the Council on Competitiveness.
Atkinson's approach complements what the Council on Competitiveness has called the "innovation ecosystem." Innovation requires the interaction of a number of factors in geographic proximity. It calls for research universities to interact with industry and provide networking for the start-up companies they spin off. It requires the presence of a skilled workforce and of venture capital. It requires tangible infrastructure such as broadband access as well as the intangible infrastructure of innovation-friendly policies. These ingredients must balance and complement each other.
I welcome Atkinson's appreciation for the importance of university/industry interaction, which can have a profound effect on economic development. Twenty-five percent of Georgia Tech's research is conducted with industry, compared to a national average of 8%, and we have operated a successful technology incubator for over 25 years. In the past decade, we have spun off 75 companies. Such activities benefit universities and their students by teaching about the issues facing industry and their customers.
I also commend Atkinson's support for expanding the federal R & D portfolio, which would enable a better balance of the physical sciences and engineering with health and medicine. For too long, patterns of funding have left physical sciences and engineering behind, which makes no sense given that the interdisciplinary nature of innovation requires all disciplines to move forward together. Congress and the president have signaled an intention to address this imbalance, but progress has been slow.
My concern about Atkinson's proposals is his advocacy of a $2 billion fund to support industry/university research alliances. These days funds of this magnitude are scarce, and $2 billion would go a long way toward doubling the budget of the National Science Foundation (NSF), directly addressing the rebalancing of the federal R & D portfolio. Second, past attempts at funding programs for industry/university alliances have caused controversy relative to who gets the funding, why a major industry that already supports research should receive federal funding, and how to balance shares between industry and universities.
Agency-based industry/university/government programs that are carefully structured can and do work. For example, NSF's Science and Technology Centers require industry involvement and support of the research. However, creating a large federal entity to drive industry/university/government collaboration is likely to be unworkable and create more problems than it solves.
G. WAYNE CLOUGH
President
Georgia Institute of Technology
Atlanta, Georgia
Vice-Chair
Council on Competitiveness
Washington, DC
G. Wayne Clough is a member of the National Science Board and of the President's Council of Advisors on Science and Technology.