IMPACTS ON US TECHNOLOGY IN A CHANGING WORLD

PHILIP H. ABELSON

We review industrial research and competitiveness, university research, and the federal role in support of research and development in the United States.

Research and development conducted by industry, academe and the federal government in the US is in the midst of change. Many influential factors are involved, including the end of the Cold War, global industrial competition, and evolution of the frontiers of science and technology.

The public is aware of global competition, but after 50 years of world leadership is complacent and tends to be critical of some of the fruits of technology. A high standard of living has raised expectations of achieving a risk–free society. Politicians have responded by enacting laws implemented by thousands of regulations that hinder the ability to innovate in many areas of technology. Other political decisions have contributed to a huge annual international trade deficit.

The climate in which Research and Development is conducted today is quite different from what it was during World War II. Then the top priority was to do whatever was necessary to win the war. At that time, the US displayed great capabilities in rapidly exploiting new technologies based on knowledge gained from scientific research. In of the Cold War helped to maintain a climate that was supportive of fundamental scientific research. High–technology components of industry faced little competition. But in recent years, many external factors have changed, and the US response has not been commensurate.

EVOLUTION OF INDUSTRIAL RESEARCH

Industry performs the largest amount of R&D in the US. It also has responded more rapidly than most universities or federal laboratories to changed circumstances. However, most US industrial companies have also restructured and downsized their R&D activities; some corporate research laboratories have simply disappeared altogether. Of those that remain, most have changed, becoming more responsive to the needs of business. Much of present–day R&D is devoted to incremental improvements of existing processes and products. At the same time, support of long–term research designed to explore nature and lead to innovative products has diminished.

The circumstances in which today’s industrial R&D is conducted in the US contrast greatly with those of the two decades following World War II. Then, the major US competitors were recovering and rebuilding facilities that had been destroyed. The US enjoyed a large trade surplus and was a net exporter of many items, including steel, automobiles, and petroleum. US companies that supported scientific research leading to new products encountered little foreign competition. They were able to move inventions slowly, from laboratories, through many steps, to final production.

The experiences at E. I. duPont de Nemours & Co. in the interval between World War I and 1997 are illustrative of typical experiences encountered by some of the major US companies. Alexander MacLachlan, former Vice President for Research at DuPont, has outlined some of the history of his company.¹

DuPont management was among the first to recognize that industrial research could lead to competitive advantage. In 1926, company leaders decided to establish a group whose focus was on basic research in chemistry. The effort quickly shifted to synthetic polymers. Soon DuPont developed neoprene synthetic rubber, nylon, Teflon TM , and many variants of these materials. After World War II, markets for synthetic polymers grew rapidly. Research expanded correspondingly and included studies that supported product and process development. DuPont leadership was impressed with the results and decided to create a corporate research facility. Management was instructed to find new technologies on which to build new businesses that were related to the company’s chemical and manufacturing skills. The efforts of corporate research were successful and led to the creation of many new products in fields other than polymers.

In the mid–1960s, however, management began to notice that the number of new polymer families was diminishing, profit margins on existing products were dropping, and worldwide competition was growing. Since the company had faith in science–based innovation, it called on all of its businesses to devote research dollars to diversify into new, higher–value markets. Within a few years, 70 new ventures were generated. But the cost of research is small in comparison with development, scale–up, and marketing. DuPont management faced difficult decisions with respect to utilizing the company’s cash flow. It had to decide between exploiting the new business opportunities and strengthening large and valuable polymer and chemical–based businesses. Ultimately, DuPont moved toward support of its historic businesses and engaged in what MacLachlan called “never–ending downsizing, delayering and restructuring.”

MacLachlan has stated that his experience at DuPont was reasonably typical of many technology– based companies that “face the same pressures and constraints as they try to compete in a fierce and unforgiving global competitive environment.”

In the US, while global competition was beginning to emerge, local developments were affecting many companies’ policies with respect to long–term, knowledge–seeking research. During the 1980s, many companies were subject to hostile takeovers, and many companies’ response was to maintain a high price for their stock, thereby making it less vulnerable. In the short term, the price of a stock is responsive to reported quarterly earnings. This led companies to emphasize activities that produce a quick and noticeable effect on the bottom line. In the 1980s, corporate takeovers were soon followed by abandonment of many corporate research laboratories. These topics and many others relating to industrial research are discussed by Fusfeld.²

Most large US companies that engage in R&D are members of the Industrial Research Institute (IRI). Originally, the mission of the IRI was, “To enhance the effectiveness of industrial research.” In December 1994, the goal was changed: “To enhance the effectiveness of technological innovation in industry.” In the 1995 IRI annual report, IRI president Charles J. Bishop stated:

The old way of doing business no longer works! And this includes research and development. We no longer talk about R&D we talk of technology. We no longer talk of isolated units of researchers pursuing independent ideas of intellectual interest; we talk of results–oriented research, and integrated high–performance teams that include engineering, manufacturing, and marketing. We work hard at linking technology efforts to business strategy.... We are the future of our companies; as such, we must accept the challenges the world thrusts at us. We must learn to accept, to adapt, and to prosper under the new rules. The business world can be a harsh place and those who do not adapt no longer exist. Of the first list of Fortune 500 companies issued in 1955, less than 35% exist today. As technologists, it is our responsibility to make sure that we assist our respective companies in meeting the technological challenges for the future.³

STATUS OF US CRITICAL TECHNOLOGIES

From the foregoing, it should be evident that the structure and content of R&D in many US companies have been altered in an effort to increase global competitiveness. What is the recent US competitive status? The most objective source of information on this matter is provided by the Council on Competitiveness, a non-profit, nongovernmental, nonpartisan organization of chief executives from business, higher education, and organized labor. The goal of the Council is to improve the ability of American companies and workers to compete more effectively in world markets while building a rising standard of living at home. Part of the effort is to monitor the changing status of US competitiveness. A 1991 report of the Council, Gaining New Ground: Technology Priorities for America’s Future, evaluated competitive positions as of 1989 in 94 critical technologies. The report showed that America’s technological edge had eroded. However, since then, the US has improved its competitive position in critical technologies, and in 1994 the Council published a sequel to the 1991 report, titled Critical Technologies Update 1994.⁴ This report noted substantial improvements in commercialization and production systems, which is illustrated in the Table 1 taken from the 1994 report.

The report also noted that in those categories in which the US was strong in 1991, it remained strong. In 1994, among the other critical technologies, the US had a strong position in 31 and was competitive in 42. Examples of those in which the US had a strong position were genetic engineering, computers, computer–aided engineering, and information technology. The computer strengths, in particular, are valuable for increasing the efficiency of US design, manufacturing, sales, and distribution. For example, The Boeing Company attained significant benefits in the design and manufacturing processes of its 777 aircraft.⁵ A worldwide communications network enabled seven different teams to work simultaneously on the same design and to incorporate input from customers and suppliers. As a result, Boeing was able to reduce the error and re–work rate by more than 50% and thus reduce costs. Cycle time was reduced from 16 months to 12 months.

While the US is strong or competitive in many critical technologies, it has abandoned leadership in the crucial field of energy. Without adequate supplies of energy, standards of living in Organization for Economic Cooperation & Development countries will fall toward those of the Third World. At one time, America was dominant in petroleum discovery and refining and in the production of petro-chemicals. During the past 10 years, however, the major US oil companies moved much of their exploratory activities elsewhere and began to build new refineries in other countries. More than 500,000 well–paid US jobs were lost because the major oil companies found it both politically expedient and financially desirable to hire and train foreign nationals in the countries where the oil is being produced.

At present, the US has a substantial favorable trade balance in chemicals, many of which are derived from petroleum feedstocks. To meet increasing global demand for liquid fuels, new refineries are being installed where feedstocks are cheap, labor is less costly, and environmental regulations are predictable. The US Environmental Protection Agency has caused large expenditures and created great uncertainty by requiring that refineries use “maximum achievable technology.” Maximum achievable technology changes often unexpectedly and costs of meeting new standards can be enormous. It is uncertain whether the public will experience measurable benefits to health. It is certain that US technology will be transferred to other countries.

A similar loss of world leadership is occurring in nuclear energy. During the past decade, no new nuclear power reactor has been contracted for by electric utilities in the US. The total number of US power reactors has remained at 109. At the same time, the total in Asia (mainly East Asia) has risen rapidly.^6,7

RESEARCH AT UNIVERSITIES

The competitiveness of US industry will be greatly affected by the number and quality of scientists and engineers emerging from universities. Industry leaders have repeatedly said that well–trained graduates are the most important academic product.

The end of the Cold War led to uncertainty, poor morale, and limited funding at research universities. During the Cold War, US universities had access to substantial support from the federal government. For much of four decades, funding expanded at an exponential rate. Many universities increased the size of their faculties, and some professors were asked to do full–time research. Often a portion of faculty salaries was supplied by funds derived from the government. Justification for federal support was the belief that scientific discoveries might be crucial in safeguarding the country. During World War II, academic scientists had made major contributions to the nation’s war effort by developing important military technologies. But by the end of the Cold War and with the emergence of concerns about global competitiveness and the federal deficit, the rationale for continued funding of academic research was questioned. Expansion of academic research ceased. Strong competition for federal funds had increased, and many proposals that included stipends for graduate students were denied.

The relationships of universities to the federal government and to industry are changing. Some research–intensive universities have already experienced heightened financial stress. They may find it necessary to downsize and restructure. Many public universities have responded to fiscal pressure by eliminating parts of their departments. State appropriations around the country have been slashed as much as 20%. Local pressure to devote more effort to teaching also has arisen.

Earlier, when funds and faculties were expanding, graduate students could realistically hope to become professors and engage in academic research. Instead, most physical scientists and engineers now must find jobs in industry. Few can expect to conduct the kind of fundamental exploratory research once performed by their professors.

Research universities are being criticized more than ever, which does little to encourage morale. Among the many complaints are that tuitions are excessive, that insufficient attention is being paid to undergraduate teaching, and that departmental structures have become a barrier to interdisciplinary work and cooperation with industry. I believe the criticism has been overdone, but it has often affected public attitudes and state support.

Despite shortcomings, universities have many assets. They have loyal alumni who give increasingly to their alma mater. The perception that alumni play a key role in educating the young is widely recognized. By modifying their behavior to devote more effort to the students, professors are helping to restore the reputations of their institutions and enhance the support of alumni and other segments of the public.

FEDERAL ROLES IN R&D

Federal government funds support a broad diversity of programs, many of which are supervised by federal departments and agencies. Total annual expenditures for R&D in fiscal 1997 were approximately $74 billion. More than half of this went for development activities in the Department of Defense, which conducts little fundamental research. Of the remaining $36 billion, about $9 billion was spent by the National Aeronautics and Space Agency (NASA). Many scientists question the benefits to society of additional space shuttle flights and the future space station. The annual R&D budget for the Department of Energy totals about $6 billion. The approved budget for fiscal 1997 includes $45.9 million for petroleum R&D, $120 million for natural gas R&D, and $252 million for solar and renewables. Within this last item was support for producing ethyl alcohol from vegetation. Funds administered by the National Institutes of Health (NIH) totaled about $12 billion. These funds are leading to improvements in human health and have led to a flourishing biotechnology industry. The National Science Foundation (NSF), with a total budget of about $3.3 billion, devoted $2.4 billion to support a broad spectrum of scientific and engineering research.

R&D OPPORTUNITIES

Almost weekly, the media gives substantial publicity to announcements of biomedical discoveries affecting health. Public support for NIH appropriations is excellent and remains strong. Much of the biomedical research is conducted using equipment or instrumentation invented by physical scientists, many of whom were supported by NSF. However, NSF has limited visibility and no organized constituency. It deserves and needs more funds than it gets.

The performance of R&D everywhere is greatly affected by the instrumentation available in various fields. In most instances, computerized instrumentation has brought enormous benefits. Electronic devices can respond to phenomena and record data more than a million times faster than humans. At the same time, the computer can control the conduct of an experiment or process and analyze the resulting data.

During the past 50 years, hundreds of thousands of skilled scientists have had access to increasingly powerful instrumentation. In the physical sciences, the simple and the most important phenomena have been investigated. A vast body of knowledge is available for exploitation by scientists and engineers who may be concerned with practical applications. In addition, new frontiers in the physical sciences have been identified, leading to knowledge that expands global competition. Examples include the physics of condensed matter, materials science, new catalysts, cluster chemistry, applications of lasers, and plasma physics.

The US is entering a new era in the availability of medicines designed to treat hitherto refractory diseases. The discovery process is being expedited by the use of large quantities of costly but powerful instrumentation, expert data processing and analysis, and new and rapid means of synthesis and testing of large families of chemicals. This is leading to extensive libraries of small molecules of medically important classes of chemicals designed to inhibit crucial enzymes. Automated testing of the efficacy of these libraries is also being developed. Rapid advances are being made in sequencing the human genome, and genes whose mutations give rise to diseases are being identified. Detailed information about normal and pathological processes is providing targets for intervention.

Great progress has been made in the study of living creatures. But the complexities of life processes are such that they will not be quickly fathomed. Only about 1% of marine microorganisms have been identified. Only about 1% of soil microorganisms have been cultured. Our food supply is largely dependent on the outcome of continuing biological warfare, which is in turn dependent on soil conditions, some of which could be controlled if crucial knowledge was available.

Great opportunities exist for increasing food, energy, and materials supplies by altering plant genomes. Genomes of major crops have changed gradually over the passing centuries, and the rate of change will continue to increase. The possibilities inherent in manipulating plant genomes are great, and their limitations are unknown.

COMPETITION WITH EAST ASIA

Since the early 1970s, Japan has demonstrated remarkable capabilities in global competition. It was especially adept at identifying and exploiting emerging technologies that originated in the US. Japan was a leader in the cheaper production of improved automobiles and consumer electronics. Other East Asian countries have recently demonstrated world–class capabilities in mastering high technology.

Current trends in US competitiveness in critical technologies are positive. However, the US merchandise trade balance is negative; in 1997 the deficit amounted to $199 billion. Major factors in the deficit are the cost of importing petroleum and an imbalance of trade with Japan. Together, those two factors annually contribute more than $100 billion to the trade imbalance. Trade imbalances are also growing with other East Asian countries which once constituted the world’s fastest growing economies.⁸ Of these, the two most technologically advanced are South Korea and Taiwan, but other places such as the People’s Republic of China, Hong Kong, Indonesia, Malaysia, Singapore, and Thailand have made rapid economic progress.

As the economies of Korea and Taiwan expanded, their product mix changed.⁹ In 1989, the leading export from Taiwan to the US was footwear. In 1994, Taiwanese footwear exports to the US declined, while the value of automatic data processing equipment exceeded footwear by nearly a factor of 10. A similar pattern existed in the export of other high–tech items, which increased, while exports of low–tech articles such as clothing diminished.

In South Korea, footwear was the leading export to the US during 1989, 1990, and 1991. Now high–tech items have become the leaders, and exports of footwear and other low–tech items have diminished. South Korea has become a leading exporter of high-technology memory chips.

The People’s Republic of China has the world’s fastest–growing economy. Its trade imbalance with the US has also been the fastest–growing of any country. In 1988, it had a net positive trade balance with the US of $3.5 billion. In 1995, China’s favorable balance was about $32 billion. Based on the results of the first eleven months of 1996, the balance for all of 1996 is likely to be about $40 billion. In 1994, footwear was a large Chinese export to the US. Other low–tech items, such as adult clothing, were also major contributors to the imbalance. High–tech items were minor components, but their rate of growth was much faster than that of low–tech items. How long these current trends will continue is hard to predict. But if they lasted a few years, the US trade imbalance with the People’s Republic of China would exceed that with Japan.

The Chinese have considerable intellectual and technical potential. Many of the great achievements in Taiwan and other East Asian countries have been made by expatriate Chinese. They have also proven exceptionally successful in the US in the fields of science and engineering. Unless there is some kind of disaster—military or otherwise—in East Asia, China is likely to become a science and technology giant. The intellectual capital of East Asian countries is being enhanced by students emerging from newly established universities there. Large numbers of engineers who will be essential to the improvement of competitive processes and products are being trained. In 1990, six Asian countries (including Japan) produced more than 250,000 first-degree engineers,10 compared with the US, which graduated 65,000. In the decade ending in 1991, the proportion of engineering Ph.D. degrees awarded in the US to foreign students grew from 40% to about 55% among a total of 5,000 such degrees. At present, about half of foreign engineering Ph.D. students remain in the US, but as attractive opportunities arise in their homelands, more of the most competent will leave. Many were educated at top US universities and have had industrial experience in such companies at Intel Corp., Hewlett-Packard Co., and IBM Corp.

POLITICAL BIASES AGAINST INDUSTRY

The long–term competitiveness of nations is affected by many factors, including their people’s propensity to value knowledge, an appetite for improved standards of living, and the strength of their motivation to achieve. Observers have noted that all these factors are apparent in Koreans and Chinese. In the US, these factors are present but are not as intense. The US already has a high standard of living, and many people are not inclined to exert themselves to attain a higher one.

Industry in the US is handicapped by unrealistic public attitudes that have accompanied the achievement of a high standard of living. When basic needs such as food, clothing, shelter, health care, and energy are satisfied, people develop appetites for other things or circumstances. Perhaps the most costly goal is a desire for a perfect, risk–free environment. Individual citizens may willingly choose to take large risks, but they are unwilling to be exposed to insignificant risks imposed by others. Aversion to risk has been fostered by the US Environmental Protection Agency.¹¹ It has enormously over–exaggerated risks, and its alarming statements have been highly publicized by the media. During the past two decades, politicians have responded to public fears by enacting laws that have led to thousands of new regulations that impose a burden on industry of hundreds of billions of dollars a year. A few health benefits may result, but the competitiveness of industry has been damaged.

Since the 1970s, there have been governmental requirements to engage in expensive environmental remediation involving substantial litigation and legal fees. To minimize the overall cost of cleanups, an ever–greater proportion of corporate research dollars and creative talents are being employed. Some chemical companies have been required to spend on the order of 7% of product sales on environmental matters. Costs of federal regulations have also influenced decisions to conduct innovative research aimed at products for new markets. For example, in the past the corporate research laboratory of W.R. Grace & Co. was heavily involved in new product development. Today, Grace is less inclined to invest resources in creating new items. Costs associated with introducing a product (including costs due to governmental regulations) can amount to $50–100 million. Other companies are facing enormously costly product– liability lawsuits where, in many instances, the claims are unjustified.

In addition to creating a hostile attitude toward US industry, the federal government tolerates the restrictive behavior of some so–called trading partners. For instance, the huge trade deficits with Japan and the People’s Republic of China are in part due to practices that would not be legal in the US. A US Department of Commerce book includes the following comment about Japan:

Informal obstacles have largely prevented manufactured goods, especially high–technology products, from entering Japan’s markets. These barriers include administrative guidance; opaque customs procedures, testing standards, and certification requirements; restrictive public procurement and industrial promotion policies; intellectual property regulations; and impenetrable local distribution channels. Some deregulation has opened Japan’s markets in recent years, but its trade structure remains substantially different from that of any other industrial country. Japanese exports are mainly manufactured goods, and its imports are raw materials, food, and industrial components. Most of Japan’s imported goods come from its foreign subsidaries.

The publication also included the following:

China maintains an intricate system of import controls to implement its industrial and trade policies. Many products are subject to quotas, import licensing requirements, or other restrictions. Laws and regulations that affect trade often go unpublished. Some exports to China are hampered by product standards and testing requirements that are more demanding than ones applied to domestic goods. Other trade–related problems include indirect export subsidies, import substitution measures, and limits on the geographic and business scope of US financial and other services firms. In addition, senior government officials intervene in market activities to preserve social stability or to protect key state companies.¹²

THE GROWING US FOREIGN DEBT

The tendency of the US government to talk rather than act decisively concerning certain practices among its trading partners is an important factor in the creation of the enormous US foreign debt. The annual merchandise trade deficit, which in 1996 approached $185 billion, was only partially offset by trade in services amounting to about $73 billion. Some components of the services category include revenues from licensing technology and air fares. The merchandising trade deficit is increasing faster than income from services. Moreoever, the US is the world’s largest debtor, having seen its status deteriorate by more than $1 trillion since 1980. Interest payments to foreign investors on federal and other securities and funds sent elsewhere by foreign subsidiaries located in the US are combining with the trade deficit to create an ever–increasing foreign debt.

Payments for foreign oil and its products are another cause of much of the foreign debt. At present, approximately half of US petroleum supplies are imported, at an annual cost of about $50 billion. In most advanced countries, gasoline is taxed at the rate of $2 or more per gallon. In contrast, taxation of oil–based motor fuels in the US is minimal. Were the US to adopt policies comparable with those of other advanced countries, the US populace would grumble. However, conservation of energy would be encouraged, consumption of petroleum would decline, and imports would decrease. Moreover, the rate of development of domestic renewable fuels would be enhanced.

If present trends of amassing foreign debt are allowed to continue, any triggering event might lead to a drastic decline in the relative value of the dollar. How would this affect the US economy? How would it affect US national prestige? Would foreign suppliers of liquid fuel be willing to sell their products in return for paper dollars? East Asian countries will again be expanding their imports of oil and will constitute a large competitive market for it. At that time, they would be able to pay for oil by their exports of many kinds. This scenario represents only one possible form that a crisis might take.

The US has splendid resources of land and climate, scientists, engineers, and technology. Expertise in molecular biology, biotechnology, and agriculture will continue to lead to increasing yields of crops. This will free additional land for production of bio–fuels and chemical feed-stocks. Progress in medicine, including development of new pharmaceuticals, will continue to be world–class, and innovation in critical electronic and other technologies will continue to be competitive.

The US may find it necessary to develop technology aimed at drastically decreasing the cost of low–tech products. Simultaneously, it should be possible to improve their quality. Almost all of the merchandise the US imports could be manufactured there.

The mood in the US is such that alarm bells must ring loudly before there is an awakening. The US has no lack of potential for future leadership in a changed and changing world. But it is handicapped by a complacency based on past dramatic accomplishments such as the man on the moon and the Gulf War. The media, the population in general, and the federal government are preoccupied with the excitement of the moment. The future has practically no organized constituency.

The US standard of living cannot forever be based on an expanding dependence on credit cards and borrowed money. At some moment the public must realize that, just like industry, its behavior must be restructured. The public and politicians should also realize that while a great multi–trillion dollar traumatic crisis can develop suddenly, financial, scientific, engineering, and technological solutions may require years of effort. Modest steps soon could lessen, even avert, a major crisis. The politicians should emerge from preoccupation with the politics of the moment and take the following actions:

• Raise taxes on oil–based motor fuels to a level comparable to those of other advanced countries
• Increase research to improve prospects for future energy supplies
• Safeguard the health of research–intensive universities
• Foster student education in science, engineering, and technology
• Curb unfair foreign competition
• Diminish unnecessary and wasteful regulatory burdens on industry

Acknowledgment: This article was adapted from a chapter of a special issue on “Science, Engineering and Technology in Government,” first published in Technology in Society 19, 595–607 (1997).

NOTES

Philip H. Abelson (CC ‘53) was Editor of Science and President of the Cosmos Club (‘72) and
is the Science Advisor for the American Association for the Advancement of Science,
1200 New York Avenue, NW, Washington, DC 20005;
phone: (202) 326-6641

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