NOT FOR QUOTATION WITHOUT PERMISSION OF THE AUTHOR
H I G H TECHNOLOGY AND INDUSTRIAL POLICY
M. J. Peck
February 1986 CP-86-6
Cot taborative Papere
r e p o r t work which h a s n o t been performed s o l e l y a t t h e I n t e r n a t i o n a l I n s t i t u t e f o r Applied Systems A n a l y s i s and which h a s r e c e i v e d o n l yl i m i t e d r e v i e w . V i e w s
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o t h e r o r g a n i - z a t i o n s s u p p o r t i n g t h e work.INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS
A-2361 Laxenburg, A u s t r i a
PREFACE
Former economic research at IIASA focused on comparative studies of structural changes in developed countries. The intensity of these changes has serious, and sometimes severe social implications. One area of current concern throughout the world is the diffusion of new technologies with a high potential in substituting labor in manufacturing and services, as well as drastically changing the existing patterns of international trade.
In the process of formulating an agenda for the research within the Technology-Economy-Society (TES) Program, IIASA organized an expert meeting on "Socio-Economic Impacts of New Technologies", which was held in Warsaw, Poland, from 18 to 20 November 1985. Twenty-six participants from eleven countries and four international organizations discussed possible IIASA re- search in this field and came to an understanding that IIASA can and must contribute to the development of a conceptual framework for analyzing and forecasting the impact of high technology (e.g. robotics).
M.J. Peck, an outstanding scholar contributing greatly to this issue, helped us structure the discussions during the meeting, in particular as a chairman of the final session.
Prof. Peck was a Chairman of the Department of Economics of Yale Uni- versity and also served as a Member of the Council of Economic Advisors.
He worked at IIASA as a Research Scholar within the "Minerals Trade and Markets" Project in 1983 and has been one of the very helpful IIASA alumni
in the last years.
This paper, which was presented at the meeting, stimulated the dis- cussions on the macroeconomic problems of High Technology and the final conclusions. We hope that it will also stimulate IIASA staff and other scholars in their thoughts about the very complex problem of industrial policy at a time of high technology diffusion on the industrial sector.
Anatoli Smyshlyaev
HIGH TECHNOLOGY AND INDUSTRIX POLTCY M. J. Peck*
Contribution to the T U S A Task Force Meet2ng on ttSocio-Economic linpacts of New Techno1og2es~"
Warsaw, November 18-20, 1985
*
Merton J. Peck is Professor of ~conomics at Yale Unlhersity, New Haven, Connecticut 06520, USA.
INTRODUCTION
My a s s i g n e d t i t l e i s s o broad t h a t i t does n o t t r o u b l e my conscience t o l i m i t t h e t o p i c , . One l i m i t a t i o n i s geographic. I w i l l d e a l o n l y w i t h f i v e c o u n t r i e s
-
t h e United S t a t e s , Japan, t h e F e d e r a l Republic of Germany, t h e United Kingdom, and France. They a r e c o u n t r i e s I know a b i t more about t h a n o t h e r s , b u t a more s c h o l a r l y j u s t i f i c a t i o n i s t h a t t h e s e f i v e c o u n t r i e s account f o r 85 p e r c e n t of t h e R&D i n t h e 2 1 OECD c o u n t r i e s . Among t h e s e 21, t h e f i v e a l s o a r e t h e most R&D i n t e n s i v e a s measured by t h e r a t i o of R&D e x p e n d i t u r e s t o GNP w i t h t h e e x c e p t i o n of Sweden, S w i t z e r l a n d , and t h e N e t h e r l a n d s . I l o o k forward t o t h e d i s c u s s i o n s a t t h i s conference t o b r i n g o u t i n f o r m a t i o n about R&D i n o t h e r c o u n t r i e s , p a r t i c u l a r l y t h o s e t h a t a r e more c e n t r a l l y planned t h a n t h e OECD n a t i o n s .I . DEFINITIONS AND THE R&D EXPENDITURES
I d e f i n e t h e h i g h technology i n d u s t r i e s a s what t h e OECD c a l l s t h e e n g i n e e r i n g and chemical groups. The group t i t l e s a r e n o t very d e s c r i p t i v e ; I t i s more i n f o r m a t i v e t o simply l i s t t h e i n d u s t r i e s i n t h e two group:. I n t h e e n g i n e e r i n g group a r e a e r o s p a c e , e l e c t r o n i c s , e l e c t r i c a l p r o d u c t s , i n s t r u m e n t s , machinery, computers, motor v e h i c l e s , and s h i p b u i l d i n g ; i n t h e chemical group a r e c h e m i c a l s , p h a r m a c e u t i c a l s , and petroleum r e f i n i n g ( s e e Table 1 ) . S u r e l y t h i s i s a d i v e r s e l i s t , b u t t h e i n d u s t r i e s have i n common a h i g h r a t i o of R&D e x p e n d i t u r e s t o v a l u e added compared t o o t h e r i n d u s t r i e s . High technology i s a good j o u r n a l i s t i c p h r a s e b u t t h e more a c c u r a t e term would b e t h e r e s e a r c h i n t e n s i v e i n d u s t r i e s .
While i t is obvious t h a t R&D e x p e n d i t u r e s a r e c o n c e n t r a t e d i n t h e r e s e a r c h i n t e n s i v e i n d u s t r i e s , i t i s s t r i k i n g how g r e a t i s t h e c o n c e n t r a t i o n . Table 2 t e l l s t h e s t o r y : t h e r e s e a r c h i n t e n s i v e i n d u s t r i e s account f o r
TABLE 1
The Research I n t e n s i v e I n d u s t r i e s E n g i n e e r i n g Group
Aerospace E l e c t r o n i c s
E l e c t r i c a l p r o d u c t s I n s t r u m e n t s
Machinery Computers Motor V e h i c l e s S h i p b u i l d i n g Chemical Group
Chemicals
P h a r m a c e u t i c a l s P e t r o l e u m r e f i n i n g
Source: OECD S c i e n c e and Technology I n d i c a t o r s , (OECD, P a r i s , 1984)
TABLE 2
P e r c e n t of T o t a l R&D E x p e n d i t u r e s i n Research I n t e n s i v e I n d u s t r i e s , 1979
P e r c e n t of P e r c e n t of
Research Value
E x p e n d i t u r e Added
U.S.
J a p a n
F.R. Germany U.K.
F r a n c e
Source: C a l c u l a t e d from d a t a i n OECD S c i e n c e and Technology I n d i c a t o r s (OECD, P a r i s 1984)
47 t o 62 p e r c e n t of t h e t o t a l R&D e x p e n d i t u r e s i n each of t h e s e f i v e n a t i o n s . I should u n d e r l i n e t o t a l R&D e x p e n d i t u r e s which i n c l u d e s e x p e n d i t u r e s of u n i v e r s i t i e s , government l a b o r a t o r i e s , and s e p a r a t e r e s e a r c h i n s t i t u t i o n s . Note a l s o t h a t t h e c o n c e n t r a t i o n v a s t l y exceeds t h e s h a r e of r e s e a r c h i n t e n s i v e i n d u s t r i e s i n GNP. These n a t i o n s a r e b e t t i n g much of t h e i r R&D on a r e l a t i v e l y small p a r t of t h e i r economy.
The b e t s a r e even more c o n c e n t r a t e d t h a n Table 2 r e v e a l s . Despite a l l t h e t a l k i n t h e United S t a t e s about t h e s m a l l R&D f i r m s s t r u n g along Route 128 o u t s i d e Boston o r t h e " b r a i n companies" i n Japan, R&D i n t h e s e c o u n t r i e s i s c o n c e n t r a t e d i n a few firms. I n t h e United S t a t e s , t h e twenty l a r g e s t f i r m s i n terms of R&D spending account f o r 44.2 percent of t h e n a t i o n l s R & D e x p e n d i t u r e s , i n t h e United Kingdom 43 p e r c e n t , and i n Japan
19.7 p e r c e n t . Indeed, t h e b i g g e s t R&D spenders pay o u t a s t a g g e r i n g amount.
General Motors i s t h e b i g g e s t R&D spender i n t h e United S t a t e s ( a p a r t from t h e Pentagon). I f General Motors were a n a t i o n , i t s R&D e x p e n d i t u r e s would rank i t n i n t h among t h e 21 OECD n a t i o n s , j u s t behind t h e Netherlands and ahead of Sweden. The Japanese e l e c t r o n i c s f i r m H i t a c h i would r a n k w i t h F i n l a n d , and t h e Swiss pharmaceutical f i r m Giba-Geigy would rank j u s t a f t e r F i n l a n d . R&D then i s concentrated i n t h e l a r g e f i r m s i n t h e r e s e a r c h
i n t e n s i v e i n d u s t r i e s .
One f u r t h e r c o n c e n t r a t i o n deserves mention, though I am n o t s u r e how t o e v a l u a t e i t s s i g n i f i c a n c e . The United S t a t e s accounts f o r 55 p e r c e n t of t h e t o t a l R&D e f f o r t of t h e f i v e n a t i o n s . But t h a t c o n c e n t r a t i o n i s simply a r e f l e c t i o n of t h e s i z e of t h e U.S. economy. I f t h e comparison i s by t h e p e r c e n t of GNP devoted t o R&D, t h e United S t a t e s ranks a f t e r t h e F e d e r a l Republic of Germany among t h e f i v e n a t i o n s ; i f t h e comparison i s l i m i t e d t o c i v i l R&D e x p e n d i t u r e s as p e r c e n t of GNP, t h e United S t a t e s r a n k s a f t e r both Germany and Japan.
My t a l k r e q u i r e s one more comparison. Up t o t h i s p o i n t I have focused on R&D e x p e n d i t u r e s , b u t t h a t i s n o t t h e same t h i n g a s who pays f o r t h e
r e s e a r c h . Table 3 r e p o r t s who pays f o r t h e r e s e a r c h conducted by b u s i n e s s e n t e r p r i s e s . U n f o r t u n a t e l y , d a t a i s u n a v a i l a b l e t o show how R&D i s f i n a n c e d i n t h e r e s e a r c h i n t e n s i v e i n d u s t r i e s , b u t t h e s e i n d u s t r i e s a r e such a
l a r g e p a r t of a l l i n d u s t r i a l R&D t h a t t h e r e s u l t s i n Table 3 would be a f a i r r e p r e s e n t a t i o n of t h e s i t u a t i o n f o r t h e r e s e a r c h i n t e n s i v e i n d u s t r i e s .
I n a l l f i v e n a t i o n s c l e a r l y two-thirds o r more of i n d u s t r i a l r e s e a r c h i s f i n a n c e d by i n d u s t r y from t h e revenue r e a l i z e d i n t h e market p l a c e .
The United S t a t e s s t a n d s a t one extreme a s t h e n a t i o n w i t h t h e most i n d u s t r i a l R&D f i n a n c e d by t h e government; Japan i s a t t h e o t h e r extreme w i t h v e r y
l i t t l e s o f i n a n c e d . That i s i n c o n t r a d i c t i o n t o t h e p o p u l a r s t e r e o t y p e t h a t Japan d o e s much t o h e l p i t s r e s e a r c h i n t e n s i v e i n d u s t r i e s and t h e United S t a t e s does l i t t l e .
The i m p o r t a n t f a c t o r i n e x p l a i n i n g t h e d i f f e r i n g r o l e of government f u n d i n g of r e s e a r c h i n i n d u s t r y i s n o t i n d u s t r i a l b u t d e f e n s e p o l i c y . U.S. d e f e n s e and s p a c e R&D a c c o u n t s f o r 78 p e r c e n t of F e d e r a l R&D f u n d s f l o w i n g t o i n d u s t r y . T h i s e x p l a i n s , i n t u r n , why about 56 p e r c e n t of F e d e r a l R&D f u n d s a r e s p e n t i n t h e a e r o s p a c e i n d u s t r y , a n d F e d e r a l f u n d s a c c o u n t f o r r o u g h l y 90 p e r c e n t of t h e t o t a l R&D e x p e n d i t u r e s i n t h i s i n d u s t r y . A
somewhat s i m i l a r p a t t e r n p r e v a i l s i n t h e United Kingdom. Defense R&D i s l a r g e l y r e l a t e d t o s p e c i f i c p r o j e c t s ; t h e r e i s d i s p u t e a s t o how much economic b e n e f i t i s d e r i v e d from R&D d e f e n s e c o n t r a c t s .
I f w e set a s i d e t h e s p e c i a l c a s e s of d e f e n s e , t h e r e s e a r c h i n t e n s i v e i n d u s t r i e s l a r g e l y f i n a n c e t h e i r R&D by t h e revenues t h e y r e a l i z e i n t h e market. To s a y more, t h e n , r e q u i r e s l o o k i n g a t how market f o r c e s i n f l u e n c e R&D. There s h o u l d a l s o b e a n a n a l y s i s of decision-making v i t h i n t h e l a r g e f i r m . E c m o m i s t s , however are n o t o r i o u s l y r e l u c t a n t t o examine what goes
TABLE 3
Financing of Industrial Research (Percent)
United States Japan
F.R. Germany France
United Kingdom
Industry Government Abroad
Source:Calculated from data in OECD Science and Technology Indicators (OECD, Paris 1984)
on with the firm, preferring instead to rely on the simple assumption of profit maximization on the part of the firm. I will follow that tradition, partly because of ignorance of what goes on within the firm and partly because the operation of the market on R&D itself presents more than enough issues for this talk. In the first part of my talk then I will concentrate on the market and R&D.
But what of industrial policy? And you also have noticed I left that term undefined. Industrial policy is defined here as government
actions that influence the high technology industries in these five nations.
Even though markets are the important part of the story, industrial
policy has its influence largely by affecting the operation of the markets of the RbD intensive industries. If we regard market forces as a stew, then industrial policy is its pepper. The pepper is a small part of the dish, but it can surely influence its taste. The second part of my talk will deal with industrial policy.
11. THE MARKET AND R&D
Economists have t r i e d t o e x p l a i n R&D by u s i n g supply and demand framework. C e r t a i n l y t h a t can be done, but I p r e f e r t o s t r e s s two o t h e r f a c t o r s : (1) t e c h n o l o g i c a l opportunity and ( 2 ) a p p r o p r i a b i l i t y .
Technological Opportunity i s t h e a b i l i t y t o use R&D t o d e v i s e new products t h a t g a i n g r e a t market acceptance and new p r o c e s s e s t h a t s i g n i - f i c a n t l y reduce c o s t s . Technological o p p o r t u n i t y e x i s t s t o some e x t e n t f o r a l l i n d u s t r i e s ; t h e q u e s t i o n i s one of degree. There i s some con- t r o v e r s y a s t o whether t e c h n o l o g i c a l o p p o r t u n i t y i s endogenous o r exogenous t o a n i n d u s t r y . C l e a r l y i t i s endogenous i n t h a t i n d u s t r y ' s p a s t
R&D e f f o r t s c r e a t e i t s c u r r e n t t e c h n o l o g i c a l o p p o r t u n i t i e s . But i f we a r e i n t e r e s t e d i n e x p l a i n i n g why some i n d u s t r i e s a r e r e s e a r c h i n t e n s i v e and o t h e r s a r e n o t , p a s t R&D i t s e l f needs t o be explained.
It must be then t h a t i t i s t h e exogenous f a c t o r s t h a t g i v e more t e c h n o l o g i c a l o p p o r t u n i t y t o one i n d u s t r y than a n o t h e r . W e can v i s u a l i z e a l l i n d u s t r i e s a s s t a r t i n g e q u a l , but some a r e r e c e i v i n g more f r e e i n p u t s of technology t h a n o t h e r s .
The c u r r e n t R&D i n t e n s i v e i n d u s t r i e s have had t h a t s t a t u s f o r a c o n s i d e r a b l e l e n g t h of time and s o one s i n g l e f r e e i n p u t , a dramatic s c i e n t i f i c breakthrough, cannot b e t h e e x p l a n a t i o n f o r t h e i r r e s e a r c h i n t e n s i t y . Rather t h e s e i n d u s t r i e s must be r e c e i v i n g a continuing stream of g r e a t e r t e c h n o l o g i c a l o p p o r t u n i t i e s t h a t keeps them r e s e a r c h i n t e n s i v e over many decades. The l i t e r a t u r e suggest t h r e e sources f o r t h e f r e e i n p u t s : (1) b a s i c s c i e n c e which i s c r e a t e d i n u n i v e r s i t i e s and r e s e a r c h i n s t i t u t e s ; (2) r e s e a r c h from government l a b o r a t o r i e s ; and (3) R&D c a r r i e d o u t by u s e r s of t h e i n d u s t r i e s products. A l l of t h e s e a r e f r e e goods t o t h e f i r m . I would stress t h a t t h e s e t h r e e sources do n o t provide
f i n i s h e d knowledge t h a t can be u t i l i z e d a s an i n p u t t o f u r t h e r R&D by t h e i n d u s t r y . Rather they a r e i n p u t s f o r t h e R&D p r o c e s s i t s e l f and r a i s e t h e p r o d u c t i v i t y of R&D expenditures compared t o o t h e r i n d u s t r i e s r e c e i v i n g l e s s of t h e f r e e i n p u t s . Higher p r o f i t a b i l i t y , i n t u r n , l e a d s t o more R&D spending.
These f r e e i n p u t s a r e t o be d i s t i n g u i s h e d from o t h e r s o u r c e s of p r o d u c t i v i t y i n c r e a s i n g i n p u t s from o u t s i d e t h e i n d u s t r y ; namely,
equipment and m a t e r i a l i n n o v a t i o n s t h a t a r e made by s u p p l i e r s o u t s i d e t h e i n d u s t r y . These, however, a r e i n f i n i s h e d form and s o r e q u i r e l i t t l e o r no R&D by t h e r e c e i v i n g i n d u s t r y . T e x t i l e s i s an example. Equipment
i n n o v a t i o n s , such a s t h e s h u t t l e l e s s loom, and m a t e r i a l i n n o v a t i o n s , such a s s y n t h e t i c f i b e r s , have r a i s e d t h e p r o d u c t i v i t y of t h e t e x t i l e i n d u s t r y w i t h o u t much R&D i n t h e t e x t i l e i n d u s t r y i t s e l f . The d i s t i n c t i o n i s t h a t b a s i c s c i e n c e raises t h e p r o d u c t i v i t y of R&D i n a n i n d u s t r y , whereas new equipment and m a t e r i a l s raises t h e p r o d u c t i v i t y of t h e i n d u s t r y ' s product i o n .
A p p r o p r i a b i l i t y i s t h e a b i l i t y of t h e i n n o v a t i n g o r g a n i z a t i o n t o r e a l i z e t h e g a i n s of i n n o v a t i o n i n terms of i n c r e a s e d p r o f i t s . Ever s i n c e Kenneth Arrow's p i o n e e r i n g a r t i c l e i n 1961, economists have s t r e s s e d t h e s p e c i a l r o l e of a p p r o p r i a b i l i t y i n t h e p r o d u c t i o n of new knowledge. The i n i t i a l view emphasized t h e p u b l i c good c h a r a c t e r of new knowledge and t h e r e l a t e d i d e a of i t s i n a p p r o p r i a b i l i t y . Innovators would p l a c e t h e i r new p r o d u c t s on t h e market a t p r i c e s t h a t would
i n c l u d e a r e t u r n on t h e i r investment i n R&D. Competitors would observe t h e new product and i m i t a t e them. The r e s u l t i n g c o m p e t i t i o n between t h e i n n o v a t o r s and i m i t a t o r s would d r i v e down t h e p r i c e of t h e new product and i n t h e p r o c e s s d e s t r o y t h e p r o f i t s of innovation.
Of c o u r s e , t h e r e would be some r e t u r n s t o i n n o v a t i o n a r i s i n g from t h e t i m e l a g between i n n o v a t i o n and i m i t a t i o n . And p a t e n t s could p r o t e c t t h e monopoly p o s i t i o n of t h e i n n o v a t o r . But t h e p o i n t i s t h a t g e n e r a l l y t h e r e i s a wedge o r d i f f e r e n c e i n t h e s o c i a l r e t u r n s and t h e p r i v a t e
r e t u r n s from i n n o v a t i o n . Competition p a s s e s on p a r t of t h e s o c i a l r e t u r n s t o consumers, l e a v i n g only p a r t t o be r e a l i z e d by t h e i n n o v a t o r . The d i v i s i o n between s o c i a l and p r i v a t e r e t u r n s , however, w i l l vary between i n d u s t r i e s , a n d t h e r e s e a r c h i n t e n s i v e i n d u s t r i e s presumably w i l l be t h e ones i n which a p p r o p r i a b i l i t y i s t h e h i g h e s t .
Empirical T e s t i n g would t a k e t h e form of whether a p p r o p r i a b i l i t y and t e c h n o l o g i c a l o p p o r t u n i t y can e x p l a i n t h e e x i s t e n c e of d i f f e r i n g r e s e a r c h i n t e n s i t i e s a c r o s s i n d u s t r i e s . Both t e c h n o l o g i c a l o p p o r t u n i t y and appro- p r i a b i l i t y , however, a r e n o t d i r e c t l y observable. Nor have t h e r e been obvious p r o x i e s f o r e i t h e r t e c h n o l o g i c a l o p p o r t u n i t y o r a p p r o p r i a b i l i t y
t h a t can be used t o test t h e r o l e of t h e s e two f a c t o r s i n e x p l a i n i n g d i f f e r i n g R&D i n t e n s i t i e s .
A team of economists a t Yale has c r e a t e d a set of d a t a t o r e p r e s e n t both t e c h n o l o g i c a l o p p o r t u n i t y and a p p r o p r i a b i l i t y . The work of Levin and h i s a s s o c i a t e s i s , I t h i n k , important and n o t a s widely known a s i t should be.
Levin used t h e survey approach; a method t h a t i s uncommon among economists. The e s s e n c e of t h e survey approach i s t o a s k economic a g e n t s t h e i r views r a t h e r t h a n t o r e l y on t h e data generated by economic t r a n s a c t i o n s , which i s t h e more common approach. Good surveys are a n a r t i t s e l f ; I only .
l i s t t h e major c h a r a c t e r i s t i c s of t h e Levin survey:
1. The u n i t of o b s e r v a t i o n w a s a l i n e of b u s i n e s s as d e f i n e d by t h e F e d e r a l Trade Commission. A l i n e of b u s i n e s s g e n e r a l l y corresponds t o t h e 400 some 4 d i g i t i n d u s t r i e s i n t h e U.S. Census
of Manufacturers, and s o they a r e narrower than t h e i n d u s t r y c a t e g o r i e s t h a t a r e used by t h e OECD.
2 . The survey was l i m i t e d t o 688 p u b l i c l y traded f i r m s , w h i c h . i s a n e a r l y comprehensive l i s t of s i g n i f i c a n t R&D performing firms i n t h e U.S. economy.
3.The respondents were s e n i o r R&D executives i n a p a r t i c u l a r l i n e of business,and they were t r e a t e d a s o b s e r v e r s of t h e R&D process i n t h e i r l i n e of business r a t h e r than r e p o r t e r s
of t h e a c t i v i t i e s of t h e i r firm. They were asked t o rank t h e i r answers t o v a r i o u s questions on a s c a l e of one t o seven.
The survey s c o r e s were used i n a m u l t i p l e r e g r e s s i o n t o e x p l a i n t h e dependent v a r i a b l e of r e s e a r c h i n t e n s i t y ; t h a t i s , t h e r a t i o of R&D
e x p e n d i t u r e s t o s a l e s i n a p a r t i c u l a r l i n e of b u s i n e s s . The independent v a r i a b l e s were t h e s c o r e s r e p o r t e d by respondents a s t o t h e importance of v a r i o u s f a c t o r s i n t h e i r l i n e s of business. Table 4 l i s t s t h e v a r i a b l e s t h a t were s i g n i f i c a n t i n a l l t h e v a r i o u s s p e c i f i c a t i o n s of t h e model.
The t h r e e s i g n i f i c a n t v a r i a b l e s a r e s c i e n c e base, government
l a b o r a t o r i e s , and t h e p r o p o r t i o n of r e c e n t l y i n s t a l l e d p l a n t and equipment i n t h e l i n e of business. Science base was measured by t h e r e s p o n d e n t ' s r a t i n g of t h e importance of any one of eleven b a s i c s c i e n c e f i e l d s t o t e c h n i c a l p r o g r e s s i n h i s o r h e r l i n e of business. The higher t h e average s c o r e i n any of t h e s e f i e l d s , t h e higher t h e v a l u e assigned t o s c i e n c e base. A s i m i l a r procedure w a s used t o r e p r e s e n t t h e c o n t r i b u t i o n of government l a b o r a t o r i e s .
One would expect t h a t g r e a t e r importance of s c i e n c e base and
government l a b o r a t o r i e s would i n c r e a s e R&D i n t e n s i t y . They a r e t h e f r e e i n p u t s i n t o t h e r e s e a r c h process discussed e a r l i e r and they s e r v e t o
make a n i n d u s t r y ' s R&D more p r o f i t a b l e . The Levin r e s u l t s then confirm t h e simple hypothesis of t h e importance of f r e e i n p u t s .
TABLE 4
Determinants of R&D Intensity (R&D Expenditures/~ales)
Significant
SCIENCE BASE
GOVERNMENT TECHNOLOGY NEW PLANT
Insignificant
MATERIAL TECHNOLOGY EQUIPMENT TECHNOLOGY USER TECHNOLOGY APPROPRIABILITY IMITATION LAG CONCENTRATION
Source: Adapted from Levin
--
et al, "R&D Appropriability, Opportunity and Market Structure: New Evidence on Some Schumpeterian Hypotheses. " American Economic Review, May 1985It i s more d i f f i c u l t t o e x p l a i n t h e r o l e of investment, d e f i n e d h e r e a s t h e p e r c e n t of t h e l i n e of b u s i n e s s investment i n p r o p e r t y , p l a n t , and equipment i n s t a l l e d s i n c e 1976. More R 6 D spending may l e a d t o a h i g h e r r a t e of investment and obsolescence,or a l t e r n a t i v e l y ,
i n d u s t r i e s w i t h a h i g h r a t e of turnover i n t h e i r c a p i t a l stock may be b e t t e r a b l e t o c a p i t a l i z e on t h e i r c u r r e n t R 6 D . S t i l l a n o t h e r i n t e r p r e t a t i o n i s t h a t high R 6 D l e a d s t o more new p r o d u c t s and a n expansion of s a l e s t h a t i n t u r n r e q u i r e s more investment.
Perhaps of e q u a l i n t e r e s t a r e t h e v a r i a b l e s t h a t t u r n o u t t o b e
i n s i g n i f i c a n t . Three of t h e s e a r e o t h e r s o u r c e s of t e c h n o l o g i c a l knowledge e x t e r n a l t o t h e i n d u s t r y
-
namely s u p p l i e r s of m a t e r i a l s , equipment,and u s e r s of t h e product. But except f o r u s e r information, none oft h e s e r e q u i r e l a r g e R 6 D e x p e n d i t u r e s by f i r m s i n t h e i n d u s t r y .
A p p r o p r i a b i l i t y measures ( i n c l u d i n g p a t e n t s , l e a d t i m e , s e c r e c y , marketing advantages) t u r n o u t t o be i n s i g n i f i c a n t . This i s somewhat s u r p r i s i n g c o n s i d e r i n g t h e importance a s s i g n e d t o a p p r o p r i a b i l i t y i n t h e economic l i t e r a t u r e . There may w e l l be s c a l i n g problems i n t h i s v a r i a b l e .
F i n a l l y , c o n c e n t r a t i o n
-
t h e s h a r e of s a l e s of t h e f o u r l a r g e s t f i r m s-
i s n o t s i g n i f i c a n t ; a r e s u l t t h a t t e n d s t o c o n t r a d i c t previous f i n d i n g s . I f only c o n c e n t r a t i o n i s r e g r e s s e d a g a i n s t R6D i n t e n s i t y , then c o n c e n t r a t i o n i s s i g n i f i c a n t . But once t h e measures of t e c h n o l o g i c a l opportunity a r e introduced c o n c e n t r a t i o n becomes i n s i g n i f i c a n t .
To sum up, r e s e a r c h i n t e n s i v e i n d u s t r i e s a r e t h o s e t h a t have a
s t r o n g s c i e n c e b a s e , l a r g e government c o n t r i b u t i o n s t o t e c h n o l o g i c a l knowledge, and a high r a t e of investment i n p l a n t and equipment. Hardly s u r p r i s i n g
r e s u l t s , but i t i s w e l l t o have them confirmed q u a n t i t a t i v e l y . What remains t o be e x p l a i n e d i s why some i n d u s t r i e s have a s t r o n g s c i e n c e b a s e and
o t h e r s do n o t . That t a k e s u s i n t o t h e l o g i c and h i s t o r y of s c i e n c e , a s u b j e c t t h a t remains mysterious t o a n economist.
Some Other Concepts deserve mention even though they have n o t been e m p i r i c a l l y t e s t e d , n o r do they f i t n e a t l y i n t o t h e explanation of t h e e x i s t e n c e and p e r s i s t e n c e of t h e r e s e a r c h i n t e n s i v e i n d u s t r i e s .
The f i r s t of t h e s e i s a t e c h n o l o g i c a l t r a j e c t o r y defined a s tech- llological progress which proceeds along c e r t a i n dimensions t h a t , a t l e a s t i n r e t r o s p e c t , appear f a i r l y smooth. Technological knowledge seems t o f o l l o w a c e r t a i n p a t h , with one innovation proceeding a p p a r e n t l y l o g i c a l l y from t h e preceding invention and b u i l d i n g on t h e knowledge obtained i n t h a t innovation. An example would b e random a c c e s s memories i n which t h e t r a j e c t o r y i s a n i n c r e a s i n g c a p a c i t y of a s i n g l e c h i p
-
from4K t o 16K t o 64K and now 256K.
There can be b r e a k s i n t h e technological t r a j e c t o r y ; t h a t i s , t h e s u c c e s s i v e i n t r o d u c t i o n of innovations suddenly begins t o f o l l o w a d i f f e r e n t course. An example would be t h e s h i f t from vacuum t u b e s t o s e m i - conductors i n e l e c t r o n i c s , o r t h e s h i f t from p i s t o n t o jet engines i n a v i a t i o n . These breaks i n technological t r a j e c t o r i e s make t h e accumulated knowledge of l e s s v a l u e i n making f u r t h e r innovations. Perhaps a s a r e s u l t , breaks i n t h e t e c h n o l o g i c a l t r a j e c t o r i e s are o f t e n accompanied by t h e
e n t r y of new f i r m s . Thus t h e i n t r o d u c t i o n of j e t engines w a s accompanied by t h e e n t r y of General E l e c t r i c and Westinghouse i n t o t h e manufacture of a v i a t i o n engines,and t h e i n t r o d u c t i o n of semiconductors was accompanied by t h e rise of new f i r m s such a s Texas Instruments.
A second concept i s t h a t of a dominant product. Economists
c o n s i d e r t h a t a product h a s v a r i o u s a t t r i b u t e s valued by consumers. Some products a r e dominant i n some a t t r i b u t e s ; o t h e r s i n s t i l l another s e t of a t t r i b u t e s . A dominant new product i s one t h a t i s s u p e r i o r t o e x i s t i n g ones i n every a t t r i b u t e . Table 5 i l l u s t r a t e s t h e e v o l u t i o n of t h e
t r a n s i s t o r as a dominant product. h e valued a t t r i b u t e s a r e lower c o s t ,
TABLE 5
Transistor Performance
Frequency (megahertz)
\
1 1 I I I I I .
Source: Burton H. Klein, Dynamic Economics (Cambridge, Mass: Harvard University Press, 1977), p.130
fewer f a i l u r e s and h i g h e r frequency. Note t h a t t h e s u c c e s s i v e t r a n s i s t o r s gave a b e t t e r product i n a l l t h r e e dimensions. There was no n e c e s s i t y f o r a t r a d e - o f f between, s a y , c o s t s and r a t e of f a i l u r e . It i s n o t s u r p r i s i n g t h e n t h a t new p r o d u c t s supplanted t h e o l d ones.
I n examining t h e h i s t o r y of t h e r e s e a r c h i n t e n s i v e i n d u s t r i e s . i t a p p e a r s t h a t they a r e c h a r a c t e r i z e d by a t e c h n o l g i c a l t r a j e c t o r y t h a t generatesdominantproducts. I o f f e r t h i s a s a h y p o t h e s i s t h a t may b e a r f u r t h e r examination.
A t h i r d concept i s t h a t of a d a p t i v e R&D. Such R&D i s t h a t r e q u i r e d t o a d a p t and i n c o r p o r a t e i n n o v a t i o n s t h a t come from o u t s i d e t h e f i r m o r c o u n t r y . The concept of a p p r o p r i a b i l i t y sketched o u t p r e v i o u s l y assumes i m i t a t i o n i s c o s t l e s s . But even when t h e g e n e r a l concepts a r e known and t h e product on t h e market, c o n s i d e r a b l e R&D may be r e q u i r e d f o r a f i r m t o produce a comparable product. Indeed, i n Levin's s u r v e y , r e s p o n d e n t s e s t i m a t e t h a t a n i m i t a t o r ' s c o s t f o r i n t r o d u c i n g a product is 50 t o 75 p e r c e n t t h e c o s t of t h e i n n o v a t o r . Expenditures on i m i t a t i v e R6D would mean t h a t i n i n d u s t r i e s w h i c h h a v e s i g n i f i c a n t i n n o v a t i o n s t h e r e a r e two
t y p e s of R&D
-
t h a t of i n n o v a t o r s and t h a t of i m i t a t o r s s t r u g g l i n g t o keep up w i t h t h e i r a d a p t i v e RCD. Once i n n o v a t i o n o c c u r s , t h e need f o r a d a p t i v e R&D by i m i t a t o r s might w e l l e x p l a i n t h e h i g h r e s e a r c h i n t e n s i t y of what h a s come t o b e c a l l e d t h e high technology i n d u s t r i e s .111. INDUSTRIAL POLICY
I w i l l c o n f i n e my remarks t o i n d u s t r i a l p o l i c y i n t h r e e of t h e f i v e c o u n t r i e s
-
The United S t a t e s , Japan, and t h e United Kingdom-
because I am u n f a m i l i a r w i t h t h e d e t a i l s of i n d u s t r i a l p o l i c y i n France and Germany.The Gap Between S o c i a l and P r i v a t e Returns.
Economists have c o n t r i b u t e d only one i d e a t o t h e d i s c u s s i o n of technology p o l i c y
-
t h e p r i v a t e marginal r e t u r n s t o innovation a r e lower t h a n t h emarginal s o c i a l r e t u r n s , because t h e innovator cannot a p p r o p r i a t e a l l t h e marginal r e t u r n s of t h e innovation. The gap between marginal s o c i a l r e t u r n s and p r i v a t e marginal r e t u r n s h a s a c l e a r p o l i c y i m p l i c a t i o n . Firms w i l l spend t o o l i t t l e on R&D from t h e viewpoint of s o c i e t y s i n c e t h e i r d e c i s i o n s a r e guided by p r i v a t e r e t u r n s , whereas t h e s o c i a l optimum l e v e l of R&D spending i s set by s o c i a l r e t u r n s .
The p i o n e e r i n g work of Edwin Mansfield of t h e U n i v e r s i t y of Pennsylvania has provided e s t i m a t e s of t h e gap between p r i v a t e and s o c i a l r a t e s of
r e t u r n s f o r p a r t i c u l a r innovations. H i s r e s u l t s , along w i t h t h o s e of
Tewksbury, a r e shown i n Table 6. S o c i a l r e t u r n s exceed p r i v a t e r e t u r n s a s one would expect. The s u r p r i s i n g f e a t u r e of t h e e m p i r i c a l work i s t h a t s o c i a l r e t u r n s a r e on average t h r e e times t h e p r i v a t e r e t u r n . Around t h i s average t h e r e i s a very l a r g e v a r i a n c e i n c l u d i n g t h o s e c a s e s i n which s o c i a l r e t u r n s a r e n e g a t i v e . The wide range r e f l e c t s t h e g r e a t u n c e r t a i n t y t h a t c h a r a c t e r i z e s R&S a c t i v i t y .
That u n c e r t a i n t y means t h a t t h e gap between s o c i a l and p r i v a t e r e t u r n s cannot j u s t i f y a subsidy t o R&D g e n e r a l l y . The c a l c u l a t i o n s i n Table 6 a r e e x p o s t ; i n advance t h e p o l i c y maker does n o t know whether t h e inno- v a t i o n would be l i k e i n d u s t r i a l process U , i n which t h e r e i s i n f a c t no gap, o r l i k e i n d u s t r i a l p r o c e s s T, i n which t h e r e i s a l a r g e gap. P o l i c y makers might r e l y simply on t h e a v e r a g e t o f i n d R&D underspending and hence t o
TABLE 6
SOCIAL AND PRIVATE RATES OF RETURN FROM INVESTUENT I N 30 INNOVATIONS
Rate of r e t u r n Rate o f r e t u r n
I n n o v a t i o n s i n p e r c e n t I n n o v a t i o n i n P e r c e n t
S o c i a l P r i v a t e S o c i a l P r i v a t e
Primary m e t a l s 1 7 % 10% I n d u s t r i a l 62% 319
innova t i o n p r o d u c t A
Uachine t o o l 8 3 35 I n d u s t r i a l n e g a t i v e n e g a t i v e
i n n o v a t i o n p r o d u c t B
Component f o r 29 7 I n d u s t r i a l 116 55
c o n t r o l s y s tern Product C
C o n s t r u c t i o n 96 9 I n d u s t r i a l 2 3 0
m a t e r i a l p r o d u c t D
D r i l l i n g 5 4 16 I n d u s t r i a l 3 7 9
m a t e r i a l p r o d u c t E
Draf t i n 9 92 47 I n d u s t r i a l 16 1 4 0
i n n o v a t i o n p r o d u c t F
Paper 82 42 I n d u s t r i a l 1 2 3 24
i n n o v a t i o n p r o d u c t G
Thread 30 7 27 I n d u s t r i a l 104 n e g a t i v e
i n n o v a t i o n p r o d u c t H
Door-control 2 7 37 In- t r i a l 113 12
i n n o v a t i o n p r o d u c t I
New e l e c t r o n i c n e g a t i v e n e g a t i v e I n d u s t r i a l 95 40
d e v i c e p r o d u c t J
Chemical 7 1 9 I n d u s t r i a l 472 127
p r o d u c t p r o d u c t K
Chemical 3 2 2 5 I n d u s t r i a l n e g a t i v e 1 3
p r o c e s s A p r o d u c t L
Chemical 1 3 4 I n d u s t r i a l 1 0 3 55
p r o c e s s B p r o c e s s R
m j o r Chemical 56 31 I n d u s t r i a l 29 25
p r o c e s s p r o c e s s S
I n d u s t r i a l 19 8 6 9 p r o c e s s T
I n d u s t r i a l 20 20
-
p r o c e s s Um d i a n rates o f r e t u r n
Social P r i v a t e
f l . O l 1 1 . 5 (
Pourcer Column ( 1 ) 1 Mansfield ( e t a1) -Social and P r i v a t e k t e s o f Return from I n d u s t r i a l I n n o v a t i o n s m W E l u r c h 1977
Column (2): T w k s b u r y ( e t a11 m m a s u r i n g =Societal B e n e f i t s o f I n n o v a t i o n m S c i e n c e O/l/80
Yot.8 k t h a r t i c l a s w e d i d e n t i c a l e s t h t i o n s and data c o l l e c t i o n techniqrwn.
j u s t i f y a g e n e r a l p o l i c y of subsidy f o r a l l R&D s p e n d i n g . I n t h e t h r e e c o u n t r i e s R&D h a s a modest f a v o r a b l e t a x t r e a t m e n t , b u t t h e r e h a s been no g r a n t i n g of g e n e r a l s u b s i d i e s t o R&D.
C i v i l i a n P u b l i c R&D Spending
I n s t e a d , governments have chosen t o be s e l e c t i v e i n t h e disbursement of p u b l i c f u n d s t o s u b s i d i z e R&D. Table 7 shows how such spending h a s been d i s b u r s e d among v a r i o u s p o l i c y o b j e c t i v e s . Note t h a t t h e Table d e a l s o n l y w i t h t h e spending f o r c i v i l i a n purposes. I n both t h e United S t a t e s and t h e United Kingdom a b o u t two-thirds of government R&D spending i s f o r d e f e n s e and a e r o s p a c e . I n Japan t h e corresponding p e r c e n t a g e i s s i x t e e n
p e r c e n t . S i n c e I wish t o f o c u s on t h e r o l e of government i n i n d u s t r i a l p o l i c y t h e Table i s l i m i t e d t o t h e d i s t r i b u t i o n of government R&D spending among c i v i l i a n o b j e c t i v e s . That d i s t r i b u t i o n i s perhaps a good i n d i c a t o r of how t h e t h r e e governments p e r c e i v e t h e i r r o l e s a s promoters of R&D.
A l l t h r e e governments p u t money i n t h e same set of o b j e c t i v e s , b u t t h e emphasis v a r i e s . A g r i c u l t u r e R&D h a s a l o n g t r a d i t i o n of government s u p p o r t i n most c o u n t r i e s , r e f l e c t i n g a view t h a t i n d i v i d u a l f a r m s a r e t o o s m a l l t o c a r r y o u t R&D t o improve t h e i r p r o d u c t i v i t y . One s u r p r i s e i s how much t h e J a p a n e s e government spends on a g r i c u l t u r e , b u t Japan h a s 1 0 p e r c e n t of i t s l a b o r f o r c e i n a g r i c u l t u r e , about t h r e e t i m e s t h e p e r c e n t a g e i n t h e United S t a t e s and t h e United Kingdom.
Energy r e s e a r c h h a s i n c r e a s e d s h a r p l y i n a l l t h r e e c o u n t r i e s s i n c e t h e two o i l shocks of 1973 and 1979, b u t i n a l l t h r e e t h e government was
a l r e a d y involved i n e n e r g y p r o d u c t i o n . B e a l t h i s a l s o a t r a d i t i o n a l
government concern. The p r o p o r t i o n of government spending going t o h e a l t h i s n o t i c e a b l y h i g h i n t h e United S t a t e s , perhaps r e f l e c t i n g t h e p r e o c c u p a t i o n of t h e American p u b l i c w i t h t h e i r h e a l t h .
TABLE 7
Government P6D Spending by Socio-Economic Objective Percentage Distribution
United States Japan United Kingdom
Advancement of knowledge 8.5 19.3 36.5
Energy and other intrastructure 40.1 29.8 28.7
Health and Environment 42.9 10.4 11 .O
Agriculture 7.6 23.1 12.8
Industry
Source: Calculated from data in OECD Science and Technology Indicators
A l l b u t two of t h e i t e m s l i s t e d on Table 7 occur i n s e c t o r s t h a t have a long h i s t o r y of government involvement a s b o t h a r e g u l a t o r and p r o v i d e r of s e r v i c e s a p a r t from R&D support. The d e c i s i o n p r o c e s s i s n o t one which s e a r c h e d t h e e n t i r e economy t o f i n d where government R&D s u p p o r t would be most p r o d u c t i v e . Rather, t h e R&D spending o c c u r r e d i n s e c t o r s i n which t h e governments were a l r e a d y involved. R&D s u p p o r t was simply one more measure t o promote o r improve p a r t i c u l a r s e c t o r s i n which t h e government h a s l o n g made a g e n e r a l commitment.
The e x c e p t i o n s a r e r e s e a r c h spending f o r t h e advancement of knowledge and t h e promotion of i n d u s t r y . Advancement of knowledge i s d e f i n e d a s t h e s u p p o r t of b a s i c r e s e a r c h unconnected w i t h a m i s s i o n agency. Each c o u n t r y h a s a n agency charged w i t h t h e g e n e r a l s u p p o r t of s c i e n t i f i c
knowledge r a t h e r t h a n a p a r t i c u l a r m i s s i o n , such a s h e a l t h . I n t h e United S t a t e s , t h e N a t i o n a l S c i e n c e Foundation, i n Japan, t h e Science and Technology Agency, and i n t h e United Kingdom, t h e Research Councils a r e such a g e n c i e s . Of c o u r s e o t h e r a g e n c i e s s u p p o r t b a s i c r e s e a r c h . Thus i n t h e United
S t a t e s c o n s i d e r a b l e b a s i c r e s e a r c h in biology and b i o c h e m i s t r y i s supported by t h e h e a l t h a g e n c i e s . But t h e two t y p e s of a g e n c i e s u s e d i f f e r e n t
c r i t e r i a t o a l l o c a t e t h e i r funds. The s c i e n c e a g e n c i e s make t h e i r d e c i s i o n s by t h e importance of t h e r e s e a r c h t o advancement of s c i e n c e , t h e mission a g e n c i e s by whether t h e r e s e a r c h i s important f o r performing a mission o b j e c t i v e such a s b e t t e r h e a l t h o r more p r o d u c t i v e a g r i c u l t u r e .
The t h r e e governments r e c o g n i z e t h a t t h e advancement of s c i e n c e i s i m p o r t a n t f o r t e c h n o l o g i c a l p r o g r e s s . That view i s confirmed by t h e e m p i r i c a l r e s e a r c h c i t e d e a r l i e r . Furthermore i t i s recognized t h a t g e n e r a l s c i e n t i f i c p r o g r e s s i s n o t w e l l served by a market system. Appro- p r i a b i l i t y h a s t h e most u n c e r t a i n t y and i s t h e l o n g e s t term a s compared t o a p p l i e d r e s e a r c h and development. The r e s u l t i s t h a t t h e I n d u s t r y
performs l e s s than a f i f t h of a l l t h e b a s i c r e s e a r c h i n t h e s e t h r e e c o u n t r i e s .
I n s t e a d about s i x t y percent of a l l t h e b a s i c r e s e a r c h i s performed i n u n i v e r s i t i e s i n a l l t h r e e c o u n t r i e s with government l a b o r a t o r i e s ranking n e x t . And i n t h e u n i v e r s i t i e s most of i t s formal r e s e a r c h i s supported by t h e government.
Basic r e s e a r c h i s most o f t e n a j o i n t product w i t h education a t t h e advanced l e v e l s , and i n t h a t sense u n i v e r s i t i e s may be regarded a s having a comparative advantage in b a s i c r e s e a r c h . U n i v e r s i t i e s by t r a d i t i o n a r e not engaged i n t h e b u s i n e s s of marketing t h e i r r e s e a r c h ; r a t h e r they encourage p u b l i c a t i o n of r e s e a r c h a s f a s t and f u r i o u s l y a s they can.
The phrase p u b l i s h o r p e r i s h w e l l d e s c r i b e s l i f e i n what used t o be t r a n q u i l academic c l o i s t e r s .
Table 7 shows one p e c u l i a r f e a t u r e about advancement of knowledge:
t h e United Kingdom spends a high p r o p o r t i o n of i t s p u b l i c R&D spending i n t h i s category compared t o t h e United S t a t e s and Japan. The r e s u l t may be an a r t i f a c t of t h e d a t a . Basic RbD expenditures shown i n Table 7 should exclude g e n e r a l u n i v e r s i t y support, t h a t i s government spending p r i m a r i l y f o r t e a c h i n g . It i s e a s i e r t o make t h a t d i v i s i o n i n t h e United S t a t e s and Japan
-
c o u n t r i e s with a s i g n i f i c a n t r o l e f o r p r i v a t e u n i v e r s i t i e s . I n t h e United Kingdom u n i v e r s i t y support i s l a r g e l y from p u b l i c funds.Government R&D t o promote i n d u s t r y i s t h e o t h e r exception. This o b j e c t i v e i s used t o d e s c r i b e government R&D support w i t h an economic o b j e c t i v e t o advance technology i n t h e manufacturing i n d u s t r i e s as opposed t o such s e c t o r s a s a g r i c u l t u r e . Table 7 shows t h e United S t a t e s is a t one extreme of l i t t l e p u b l i c funding f o r such R&D and Japan a t t h e o t h e r . The U.S. government t a k e s t h e p o s i t i o n t h a t i n d u s t r y U D should be c a r r i e d o u t and financed by t h e p r i v a t e s e c t o r . Indeed, i t s r e p l y t o an OECD study
states, "It is against the fundamental principles of United States policy to give direct aid to industrial technicological development." The small positive entry in Table 7 reflects a few old programs tucked away in odd corners of the Federal government.
Japan represents the opposite tradition. The Ministry of International Trade and Industry (MITI) supports R&D with commercial objectives in both its own laboratories and in industry. Table 7, which shows a large role for the Japanese government and a small roleforthe United States, seems at first glance inconsistent with Table 2, where the U.S. government has a large share in the financing of industrial R&D and Japan has a small share.
The difference is explained by the fact that Table 2 reflects defense spending; Table 7 does not. One other matter; Table 7 is stated in per- centage terms,and the U.S. government spending, apart from defense, is eight billion dollars; the Japanese government spending is about five billion dollars. The difference then is not that large in absolute terms.
More specifically, the Japanese government spends about 450 million dollars on the promotion of general industry R&D; the U.S. spends about 92 million dollars.
Still it is important to recall that the Japanese government expendi- tures are only about four percent of all Japanese industrial RCD. The
small percentage still may give the Japanese government considerable influence over the general direction of R&D. This influence may be reflected in the publication which MITI plans, Visions of future R&D priorities. The current Vision for the Eighties, foresees Japan as a "technology based nation."
MITI R&D support is now and will be even more so focussed on three broad fields:(l) materials, (2) biotechnology, and (3) information processing, including computers and integrated circuits.
Japan r e p r e s e n t s t h e o p p o s i t e t r a d i t i o n . The M i n i s t r y of I n t e r n a t i o n a l Trade and I n d u s t r y (MITI) does support R6D with commercial o b j e c t i v e s i n b o t h i t s own l a b o r a t o r i e s and i n i n d u s t r y . MITI h a s published t h e Vision of t h e E i g h t i e s , w h i c h f o r e s e e s Japan a s a "technology based n a t i o n . "
MITI R&D s u p p o r t i s now and w i l l be even more s o focussed on t h r e e broad f i e l d s : (1) m a t e r i a l s , (2) biotechnology
,
and (3) i n £ ormation p r o c e s s i n g , i n c l u d i n g computers and i n t e g r a t e d c i r c u i t s .I n f o r m a t i o n p r o c e s s i n g i s t h e one f i e l d i n which MITI h a s been a c t i v e f o r some time. Its b e s t known program i s t h e Very Large Scale I n t e g r a t e d C i r c u i t program (VLSI), which e x i s t e d from 1975 t o 1979. Its p r i n c i p l e f e a t u r e s i l l u s t r a t e t h e d i s t i n c t i v e Japanese approach t o government support of R&D. These a r e (1) t h e o r g a n i z a t i o n of a r e s e a r c h a s s o c i a t i o n composed of f i v e l a r g e Japanese manufacturers of i n t e g r a t e d c i r c u i t s . The r e s e a r c h a s s o c i a t i o n h o l d s p a t e n t s d e r i v e d from t h e p r o j e c t , d i s t r i b u t e s t h e r e s e a r c h r e s u l t s , and p l a y s a key r o l e i n t h e governance of t h e p r o j e c t . By i t s a b i l i t y t o g r a n t a n d w i t h h o l d s u b s i d i e s , MITI h a s a v e t o over a s s o c i a t i o n d e c i s i o n s . (2) The r e s e a r c h i t s e l f i s g e n e r i c , t h a t i s , t o s o l v e common problems i n d e s i g n i n g and producing v e r y l a r g e s c a l e i n t e g r a t e d c i r c u i t s . The development of s p e c i f i c p r o d u c t s i s l e f t t o t h e r e s e a r c h o r g a n i z a t i o n s of t h e companies and i s company f i n a n c e d . (3) The funding f o r t h e r e s e a r c h done under t h e p r o j e c t i t s e l f comes p a r t l y from t h e government and p a r t l y from t h e companies. (4) The p r o j e c t r e s e a r c h i s done l a r g e l y i n two group l a b o r a t o r i e s and by r e s e a r c h e r s a s s i g n e d by t h e companies from t h e i r s t a f f s . A t t h e end of t h e f o u r y e a r p r o j e c t r e s e a r c h e r s r e t u r n t o t h e i r companies, and i n t h i s way f a c i l i t a t e s t h e t r a n s f e r of technology.
Such a n R&D o r g a n i z a t i o n i s a blending of p r i v a t e and p u b l i c R&D i n i t s f i n a n c i n g and a b l e n d i n g of i n d i v i d u a l company and j o i n t RLD. The VLSI program i s c o n s i d e r e d t o have a good record of r e s e a r c h achievement.
I t s s u c c e s s h a s a t t r a c t e d c o n s i d e r a b l e a t t e n t i o n i n t h e United S t a t e s , and h a s r a i s e d q u e s t i o n s a s t o whether such o r g a n i z a t i o n s would be
v a l u a b l e i n t h e U.S. c o n t e x t . While a n o v e l o r g a n i z a t i o n , t h e VLSI program t o o k p l a c e i n t h e c o n t e x t of a semiconductor i n d u s t r y t h a t was s i m u l -
t a n e o u s l y c a r r y i n g on a h i g h volume of p r i v a t e l y f i n a n c e d R&D. Even a t t h e h e i g h t of t h e VLSI program a b o u t 85 p e r c e n t of t h e R&D was
p r i v a t e l y f i n a n c e d o u t s i d e of t h e VLSI program. The J a p a n e s e p r o d u c t i o n and e x p o r t of i n t e g r a t e d c i r c u i t s h a s i n c r e a s e d n o t a b l y s i n c e 1 9 7 6 .
It i s d i f f i c u l t , however, t o d i s t r i b u t e t h e g a i n between c o n t r i b u t i o n s of t h e VLSI a n d s i m i l a r programs and t h e p r i v a t e l y f i n a n c e d RbD.
Does I n d u s t r i a l P o l i c y M a t t e r ?
There i s d e b a t e a s t o w h e t h e r t h e e x p l i c i t measures of i n d u s t r i a l p o l i c y d i r e c t e d a t RbD m a t t e r a l l t h a t much f o r t h e t e c h n i c a l advance of a n economy. One f a c t o r t h a t may c o u n t f o r more i s e d u c a t i o n a l p o l i c y .
J a p a n h a s r e c e n t l y b e e n h i g h l y s u c c e s s f u l w i t h i t s h i g h t e c h n o l o g y i n d u s t r i e s , p a r t i c u l a r l y i n i n t e g r a t e d c i r c u i t s and computers. A t t h e same t i m e J a p a n h a s i n c r e a s e d s i g n i f i c a n t l y i t s s u p p l y of e l e c t r i c a l e n g i n e e r s . I n t h e mid s i x t i e s b o t h t h e U n i t e d S t a t e s and J a p a n had 80 e l e c t r i c a l e n g i n e e r s p e r m i l l i o n of p o p u l a t i o n . By 1977, J a p a n had 1 8 5 e l e c t r i c a l e n g i n e e r s p e r m i l l i o n of p o p u l a t i o n and t h e U n i t e d S t a t e s had 66. From 1969 t o 1977 t h e number of J a p a n e s e e l e c t r i c a l e n g i n e e r s w h o g r a d u a t e d a n n u a l l y doubled;
t h e a b s o l u t e number i n t h e U n i t e d S t a t e s s t a y e d c o n s t a n t . I f one t a k e s t h e v i e w t h a t e n g i n e e r s a r e t h e f o o t s o l d i e r s of t e c h n o l o g i c a l a d v a n c e , t h e e d u c a t i o n a l p o l i c y t h a t g e n e r a t e d more e n g i n e e r s i s a d i s t i n c t a s s e t
t o t e c h n i c a l p r o g r e s s , p e r h a p s of more importance t h a n t h e measures MITI h a s a d o p t e d .
L e t me r e t u r n t o t h e p o i n t t h a t I made a t t h e o u t s e t
-
t h a t most RbD i n t h e f i v e c o u n t r i e s i s by p r i v a t e companies w i t h t h e i r own f u n d s .A s a r e s u l t , t h e t e c h n i c a l change t h e s e companies g e n e r a t e i s i n f l u e n c e d p r i m a r i l y by market c o n d i t i o n s r a t h e r t h a n government p o l i c y d i r e c t e d a t e i t h e r t e c h n i c a l change o r t h e s p e c i f i c i n d u s t r i e s . Again we must make a n e x c e p t i o n f o r s e c t o r s i n which government involvement i s e x t e n s i v e : a e r o s p a c e , a g r i c u l t u r e , h e a l t h , and energy.
For t h e remaining s e c t o r s , t h e importance of markets does n o t mean t h a t government p o l i c y i s u n i m p o r t a n t , but t h a t government p o l i c y works through i t s impact on markets. The p o l i c y measures t h a t matter, however, may n o t be t h o s e of i n d u s t r i a l p o l i c y , b u t t h o s e of g e n e r a l economic p o l i c y . Under t h i s heading b e l o n g s f i s c a l and monetary p o l i c y , t r a d e p o l i c y ,
t a x p o l i c y , and a n t i t r u s t p o l i c y , and even l a b o r r e l a t i o n s . These p o l i c i e s a r e set l a r g e l y by o b j e c t i v e s t h a t a r e f a r from t h e promotion of R&D o r t h e h i g h technology i n d u s t r i e s . Y e t they have a major impact on t h o s e i n d u s t r i e s . High technology i n d u s t r i e s seem t o t h r i v e o n l y i n a t h r i v i n g economy.
J a p a n ' s s u c c e s s i n t h e h i g h technology i n d u s t r i e s may owe more t o t h e f a c t t h a t i t s economy h a s done much b e t t e r t h a n o t h e r OECD economies
t h a n i t does t o s p e c i f i c MITI p o l i c i e s . And t h e United Kingdom's r e l a t i v e f a i l u r e i n t h e same i n d u s t r i e s may b e l a i d more a t t h e door of i t s
macropolicy makers t h a n a t t h e door of i t s M i n i s t r y of Technology.
T h i s i s a s p e c u l a t i v e c o n c l u s i o n . I began my t a l k w i t h t h e s t e w and pepper a n a l o g y . What w e s t i l l do n o t know i s whether i n d u s t r i a l
p o l i c y r e p r e s e n t s j u s t a pinch of pepper i n a bland s t e w o r t h e teaspoon of pepper i n a pepper p o t s t e w i n which pepper i s t h e dominant i n g r e d i e n t .
REFERENCES
T h i s p a p e r i s based i n l a r g e p a r t on my p r e v i o u s p u b l i c a t i o n s , which a r e a d m i t t e d l y d a t e d . For t h e United S t a t e s s e e Richard Nelson, Merton J . Peck, Edward Kalachek, Technology, Economic Growth and P u b l i c P o l i c y (The Brookings I n s t i t u t i o n , 1 9 6 7 ) ; f o r t h e United Kingdom, Merton J. Peck "Science and
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i n A s i a ' s New G i a n t , How t h e J a p a n e s e Economy Works (Hugh P a t r i c k and Henry Rosovsky, e d s , The Brookings I n s t i t u t i o n , 1976) and Merton J . Peck and A k i r a Goto, "Technology and Economic Growth: The Case of J a p a n , "
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The d a t a i n t h i s p a p e r a r e l a r g e l y from t h e O r g a n i z a t i o n f o r Economic C o o p e r a t i o n and Development, OECD S c i e n c e and Technology I n d i c a t o r s : Resources Devoted t o R&D, (OECD, P a r i s 1 9 8 5 ) . The s t a t i s t i c s a r e u s u a l l y f o r t h e
y e a r s 1979 and 1980. Comparisons o f R&D e x p e n d i t u r e s among c o u n t r i e s have been made w i t h t h e u s e of p u r c h a s i n g power p a r i t y exchange r a t e s .
The s u r v e y by L e v i n and a s s o c i a t e s i s d e s c r i b e d i n Richard L e v i n , A l v i n K l e v o r i c k , R i c h a r d Nelson and Sidney W i n t e r , "Survey Research on R&D A p p r o p r i a b i l i t y and T e c h n o l o g i c a l Opportunity" Working P a p e r , Yale U n i v e r s i t y , J u l y 1984. The r e g r e s s i o n r e s u l t s used i n t h i s p a p e r a r e r e p o r t e d i n R i c h a r d L e v i n , Wesley Cohen, and David Mowery, "R6D Appro-
p r i a b i l i t y , O p p o r t u n i t y and Market S t r u c t u r e : New Evidence on Some Schumpeterian Hypotheses," American Economic Review, May 1985.
F i n a l l y f o r a more complete d i s c u s s i o n of p u b l i c p o l i c y i n a l l f i v e c o u n t r i e s , I recommend R i c h a r d Nelson, High Technology P o l i c i e s : A F i v e N a t i o n Comparison (American E n t e r p r i s e I n s t i t u t e , 1984)
