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U.S. Technology in the Global Marketplace
- Importance of High-Technology Industries to Global Economic Growth
- High-Technology Industries and Domestic Production
- Global Market Shares
- Global Competitiveness of Individual Industries
- Exports by High-Technology Industries
- Global Business in Knowledge-Intensive Service Industries
Policies in many countries reflect a belief that a symbiotic relationship exists between investment in S&T and success in the marketplace: S&T supports industry's competitiveness in international trade, and commercial success in the global marketplace provides the resources needed to support new S&T. Consequently, a nation's economic health is a performance measure for the national investment in R&D and S&T. This is true for the United States and for many countries around the world.
OECD currently identifies five industries as high-technology, i.e., science-based industries that manufacture products while performing above-average levels of R&D: aerospace, pharmaceuticals, computers and office machinery, communication equipment, and scientific (medical, precision, and optical) instruments. Identified as the most R&D intensive by OECD, these industries also rank as the most R&D intensive for the United States (table
This section examines the U.S. position in the global marketplace from three vantage points: U.S. high-technology industry share of global production and exports, the competitiveness of individual industries, and trends in U.S. exports and imports of manufacturing know-how. Before assessing the U.S. role in the global high-technology marketplace, however, it may be useful to consider how high-technology industries are driving global economic growth.
High-technology industries are driving economic growth around the world. According to the Global Insight World Industry Service database, which provides production data for the 70 countries that account for more than 97% of global economic activity, the global market for high-technology goods is growing at a faster rate than for other manufactured goods. During the 24-year period examined (1980–2003), high-technology production grew at an inflation-adjusted average annual rate of nearly 6.4%, compared with 2.4% for other manufactured goods. Global economic activity in high-technology industries was especially strong during the late 1990s (1995–2000), when high-technology industry manufacturing, led by manufacturing in those industries producing communication and computer equipment, grew at more than four times the rate of growth for all other manufacturing industries (figure
Even during the recent, slow-growth, "postbubble" period (2000–03), high-technology industry continued to lead global growth at about four times the rate of all other manufacturing industries. Output by the five high-technology industries represented 8.1% of global production of all manufactured goods in 1980; by 2003, it had doubled to 17.7%.
High-technology industries are R&D intensive; R&D leads to innovation, and firms that innovate tend to gain market share, create new product markets, and use resources more productively (NRC, Hamburg Institute for Economic Research, and Kiel Institute for World Economics 1996; Tassey 2000) These industries tend to develop high value-added products, tend to export more, and, on average, pay higher salaries than other manufacturing industries. Moreover, industrial R&D performed by high-technology industries benefits other commercial sectors by developing new products, machinery, and processes that increase productivity and expand business activity.
Increasingly, manufacturers in countries with high standards of living and labor costs have moved manufacturing operations to locations with lower labor costs. High-technology industries and their factories are coveted by local, state, and national governments because these industries consistently show greater levels of domestic production (value added) in the final product than that typically performed by other manufacturing industries. (Gross value-added equals gross output minus the cost of purchased intermediate inputs and supplies.) In the United States, high-technology industries reported about 30% more value added than other manufacturing industries (figure
Data on manufacturing value added that follows are presented for the United States and other advanced countries in order to better examine domestic production by manufacturing industries. Value-added data also can be important indicators of economic and technological progress in developing countries. When foreign investments and foreign corporations control major portions of a developing country's manufacturing base, data on domestic value added and its contribution to final output can indicate the extent to which those foreign corporations are transferring technological and manufacturing know-how to the host country.
During the 1980s, manufacturing output in the United States and other high-wage countries shifted resources to produce higher value-added, technology-intensive goods, often referred to as high-technology manufactures . In 1980, high-technology manufactures accounted for about 11% of total U.S. domestic production. By 1990, this figure had increased to 13.5% and, led by demand for communication and computer equipment, exceeded 27% by 2000. By contrast, high-technology manufactures represented about 17% of total Japanese domestic production in 2000, double that in 1980 but only up about 1 percentage point from 1990. European nations also saw high-technology manufactures account for a growing share of their total domestic production, although to a lesser degree. High-technology manufactures accounted for 9.5% of total EU manufacturing domestic output in 1980 and rose to 11% in 1990 and 13.2% by 2000 (figure
South Korea and Taiwan typify how R&D-intensive industries have grown in the newly industrialized economies. In 1980, high-technology manufactures accounted for 9.6% of South Korea's total domestic manufacturing output; this proportion jumped to 14.8% in 1990 and reached an estimated 21.5% in 2003. The transformation of Taiwan's manufacturing base is even more striking. High- technology manufacturing in Taiwan accounted for 9.7% of total domestic output in 1980, 15.9% in 1990, and jumped to an estimated 28.5% in 2003.
Other fast-moving economies also are converting to a focus on high technology. Directed national policies that combine government measures and corporate investments, including R&D facilities, have spurred growth in high-technology industries in Ireland, as well as in China and other Asian countries. Perhaps the clearest example, Ireland's high-technology manufacturing industries accounted for 12.4% of total domestic output in 1980, 26.4% in 1990, and for more than half its total domestic production since 1999.
China's economy is also changing and, given its size, its transformation will have a large impact on the global marketplace. China's high-technology manufacturing accounted for just 4.8% of total domestic output in 1980, 6.2% in 1990, and an estimated 19.0% in 2003. However, the value of China's domestic high-technology production in 2003 is estimated to be twice that of Germany, nearly identical to production in Japan, and nearly five times that of Ireland.
Over the 24-year period examined (1980–2003), the United States has consistently been one of the world's leading manufacturers of high-technology products. The same can be said of Japan. Although no single European country has a high-technology industry the size of the United States or Japan, the EU consistently ranks among the world's leading manufacturers of high-technology products. In fact, the EU contained the world's largest high-technology manufacturing sector from 1980 through 1995, but beginning in 1996 and for each year thereafter, U.S. high-technology manufacturers have accounted for more domestic output than the EU, Japan, or any other country.
U.S. high-technology industry value added (domestic production) accounted for about one-quarter of global production from 1980 to 1995 (figure
In Asia, high-technology manufacturing has grown dramatically over the past two decades, led first by Japan in the 1980s, then by South Korea, Taiwan, and China in the 1990s. The most recent data show that China's high-technology industries have surpassed those in South Korea and Taiwan. If these trends continue, China may soon rival Japan in size if not sophistication. Compared with Japan, however, China does not have the long record of large investments in R&D, has not produced the number of scientific articles across a broad range of technology areas, and has not been as successful patenting new inventions around the world. That may change in the near future, because China's investments in R&D are growing rapidly. (See chapter 4 for data on trends in U.S. and foreign R&D performance, chapter 5 for data on scientific article publishing trends, and the subsequent section on patenting in this chapter.) In 2003, domestic production (value added) by China's high-technology industry accounted for an estimated 9.3% of global production, whereas just 23 years earlier (in 1980), domestic production in China's high-technology industry accounted for less than 1% of world output.
In each of the five industries that make up the high-technology group, the United States maintained strong, if not leading, positions in the global marketplace (figure
Communication Equipment and Computers and Office Machinery
The global market for communication equipment is the largest of the high-technology markets, accounting for nearly half of global sales by all five high-technology industries (figure
From 1980 through 1997, Japan was the world's leading supplier of communication equipment, exceeding output in the United States and the EU. In 1998, however, U.S. manufacturers once again became the leading producers of communication equipment in the world and have since retained that position. In 2003, the latest year for which data are available, the United States accounted for approximately 50.8% of world production of communication equipment, compared with Japan at 16.0% and the EU at 9.4%.
Since 1997, the United States has been the leading manufacturer of office and computer machinery, overtaking long-time leader Japan. EU countries, led by Germany and the United Kingdom, were also major producers.
In 2001, China replaced Japan as Asia's largest producer of office and computer machinery. This gap has been widening. In 2003, domestic production by U.S. high-technology manufacturers accounted for an estimated 39.9% of global production; China's industry is estimated to account for 26.4% of global production, and the EU's industry is estimated to account for 9.0%.
The U.S. aerospace industry has long maintained a leading if not dominant position in the global marketplace. The U.S. government is a major customer for the U.S. aerospace industry, contracting for military aircraft and missiles and for spacecraft. Since 1989, production for the U.S. government has accounted for approximately 40%–60% of total annual sales (AIA 2005). The U.S. aerospace industry position in the global marketplace is enhanced by this longstanding, customer-supplier relationship.
In recent years however, the aerospace industry's manufacturing share has fallen more than any other U.S. industry. Since peaking at 57% of global production in 1985, U.S. aerospace domestic production fell to 43% of global production by 1995. The U.S. share increased slightly during the late 1990s, then proceeded to fall each year thereafter. In 2003, the U.S. share of global aerospace production is estimated to have fallen to about 35%. European aerospace manufacturers, particularly within France and Germany, made gains during this time. By 2003, the EU accounted for 29% of world aerospace production, up from 25% in 1985 and 26% in 1995.
China's aerospace industry began to grow very rapidly in the early 1990s, quickly overtaking Japan by the mid-1990s to become the largest producer of aerospace products in Asia. In 1980, China's aerospace industry output accounted for less than 1% of world output; by 1995, its market share had risen to 3%. A succession of year-to-year gains from 1995 through 2000 followed, eventually lifting China's market share to nearly 7%. Production in China's aerospace industry is estimated at about 10% of world production in 2003. In Latin America, Brazil exhibited a very different trend, falling from about 18% of world aerospace production in 1980 to about 15% in 1995 and an estimated 10% in 2003.
The EU and the United States were the leading producers of drugs and medicines in the world market for the entire 24-year period examined, together accounting for about two-thirds of global production in 2002 and 2003. As a result of differing national laws governing the distribution of foreign pharmaceuticals, domestic population dynamics play a more important role than global market forces and affect the overall demand for a country's pharmaceutical products. In Asia, Japan and China are the largest producers of drugs and medicines. Although Japan has the larger domestic industry, China's share has grown steadily while Japan's has generally declined. In 1990, domestic production by Japan's industry accounted for nearly 19% of global production, but this proportion gradually fell to 11% by 2003. In 2003, China's pharmaceutical industry is estimated to account for 6% of global production, up from about 1% in 1990.
In 2001, the industry that produces scientific instruments (medical, precision, and optical instruments) was added to the group of high-technology industries, reflecting that industry's high level of R&D in advanced nations (table
In Asia, Japan and China are the largest producers, and once again, Japan's share of global production is declining while China's is increasing. In 1990, Japan's industry producing scientific instruments accounted for about 15% of world production; however, this declined to about 10% in 2000 and is estimated to have fallen to about 8% in 2003. China's industry, which accounted for less than 1% of global production in 1990, rose to 2% in 2000 and is estimated to account for slightly more than 3% in 2003.
Although U.S. producers benefit from having the world's largest home market as measured by gross domestic product (GDP), mounting U.S. trade deficits highlight the need to serve foreign markets as well. (See figure
In addition to serving its large domestic market, the United States was an important supplier of manufactured products to foreign markets from 1980 to 2003. Throughout the 1990s and continuing through 2003, U.S. industry supplied 12%–14% of the world's general manufacturing exports (appendix table
Exports by U.S. high-technology industries grew rapidly during the mid-1990s, contributing to the nation's strong export performance (figure
The gradual drop in the U.S. share during 1990–2003 was partly due to competition from emerging high-technology industries in newly industrialized and industrializing economies, especially in Asia. China stands out, with its share of global high-technology industry exports reaching 7% in 2003, up from just 1% in 1990. High-technology industries in South Korea and Taiwan each accounted for about 2.5% of world high-technology exports in 1990; 2003 data show that each economy's share nearly doubled. Singapore's share, which was 3.6% in 1990 and 5.7% in 2003, is also noteworthy, especially in light of its relatively small economy.
Over the past two decades, U.S. high-technology industries were large and active exporters in each of the five industries that make up the high-technology group. The United States was the export leader in four of the five high-technology industries in 2003 (figure
Communication equipment and computers and office machinery. The export market for communication equipment is the largest of the high-technology industry group, accounting for more than 42% of total exports by all five high- technology industries in 2002 and 2003 (figure
On the other hand, EU industries are the leading exporters, accounting for about 25% of world communication equipment exports and 28%–34% of world computers and office machinery exports from 1990 through 2003 (table
In Asia, exports from industries located in Japan, China, South Korea, Singapore, Taiwan, and Malaysia together account for a larger share of exports than the EU. China (including Hong Kong) is the leading Asian exporter in these two industries.
Aerospace. U.S. exports of aerospace technologies accounted for 54% of world aerospace exports in 1980, 46% in 1990, and 36% in 2003 (table
By comparison, aerospace industries within Asia apparently are building mostly for their domestic markets and have supplanted U.S. aerospace exports to the region. In 2003, aerospace industry exports from Japan accounted for 1.4% of global exports, and exports from industries in China, South Korea, and Singapore accounted for about 0.5%. Aerospace industries in Canada and Brazil supplied larger shares of global exports than those in Asia during the 24-year period examined.
Pharmaceuticals. As noted previously, national laws governing the distribution of pharmaceuticals produced in other countries differ widely among countries, consequently affecting comparisons among countries and comparisons with other high-technology industries. Generally, each country's share of industry exports fluctuated within a fairly narrow range during the past 24 years.
The U.S. pharmaceutical industry's share of world industry exports fluctuated 10%–14% during the 1990s and held steady at about 13% from 2000 to 2003 (table
Scientific instruments. In 2001, the industry that produces scientific instruments (medical, precision, and optical instruments) was added to the group of high-technology industries, reflecting the industry's high level of R&D in advanced nations (table
In Asia, Japan and China are the largest producers, and once again, Japan's share of world industry exports is declining while China's is increasing. In 1990, Japan's industry producing scientific instruments accounted for about 20% of world industry exports, but its share fell to less than 16% in 2000 and is estimated to be about 14% in 2003. China's industry accounted for less than 8% of world industry exports in 1990 but rose to 10% in 2000 and is estimated to account for slightly more than 11% in 2003.
For several decades, revenues generated by U.S. service-sector industries grew faster than those generated by the nation's manufacturing industries. Data collected by the U.S. Department of Commerce show that the service sector's share of U.S. GDP grew from 49% in 1959 to 64% in 1997 (National Science Board 2002). This growth has been fueled largely by knowledge-intensive industries, i.e., those that incorporate science, engineering, and technology in either their services or the delivery of their services. Five knowledge-intensive industries, as classified by the OECD, are communication services, financial services, business services (including computer software development), education services, and health services. This section presents data tracking the overall revenues earned by these industries in 70 countries  (see sidebar, "Comparison of Data Classification Systems Used" in the introduction to this chapter).
Combined global sales in knowledge-intensive service industries exceeded $14.1 trillion in 2003 and have risen every year during the 24-year period examined. The United States is the leading provider of high-technology services, responsible for slightly more than one-third of total world service revenues during the period 1980–2003 (figure
Business services, which include computer and data processing and research and engineering services, is the largest of the five service-sector industries and accounted for 34% of global high-technology service revenues in 2003. Business- service industries in the United States and the EU are the most prominent in the global marketplace and are close in size. Business services in these two economies account for more than 70% of business services provided worldwide; the U.S. share was 38% in 2003 and the EU share was 34%. Japan ranks a distant third at about 12%. Data on country activity in individual business services are not available.
Financial Services and Communication Services
Financial services and communication services each accounted for about 25% of global revenues generated by high-technology service industries in 2003. Forty-three percent of world revenues for financial services in 2003 went to the U.S. financial services industry, the world's largest. The EU was second, earning approximately 25%, followed by Japan at nearly 11%. Communication services, which include telecommunication and broadcast services, could be considered the most technology-driven of the service industries. In this industry, U.S. firms again hold a lead position. In 2003, U.S. firms generated revenues equal to 32% of world revenues. The EU accounted for 26%, and Japan accounted for nearly 12%.
Health Services and Education Services
Many nations' governments serve as the primary provider of the remaining two knowledge-intensive service industries, health services and education services. The size and distribution of each country's population profoundly affect delivery of these services. For these reasons, global comparisons based on market-generated revenues are less meaningful for health services and education services than for other service industries.
The United States, with arguably the least government involvement, has the largest health-service industry in the world, although the EU's health- service industry comes quite close. In 2003, the U.S. health-service industry accounted for 38% of world revenues, while the EU share was 37%. Again, Japan's industry is a distant third.
Education services, the smallest of the five knowledge-intensive service industries in terms of revenue generated, includes governmental and private educational institutions of all types that offer primary, secondary, and university education, as well as technical, vocational, and commercial schools. In 2003, fees (tuition) and income from education service-related operations accounted for about 9% of revenues generated by all five knowledge-intensive service industries and about one-fourth of the revenues generated by the business- service industry worldwide. Europe's education service industry generated the most revenues by far (39% of worldwide industry revenues), with Japan second (14%), and the United States third (10%).
 In designating these high-technology manufacturing industries, OECD took into account both the R&D done directly by firms and R&D embedded in purchased inputs (indirect R&D) for 13 countries: the United States, Japan, Germany, France, the United Kingdom, Canada, Italy, Spain, Sweden, Denmark, Finland, Norway, and Ireland. Direct intensities were calculated as the ratio of R&D expenditure to output (production) in 22 industrial sectors. Each sector was weighted according to its share of the total output among the 13 countries, using purchasing power parities as exchange rates. Indirect intensities were calculated by using the technical coefficients of industries on the basis of input-output matrices. OECD then assumed that, for a given type of input and for all groups of products, the proportions of R&D expenditure embodied in value added remained constant. The input-output coefficients were then multiplied by the direct R&D intensities. For further details concerning the methodology used, see OECD (2001). It should be noted that several nonmanufacturing industries have equal or greater R&D intensities. See Godin (2004a) for additional perspectives on OECD's methodology.
 One of the earliest quantitative analyses of R&D was done in 1955 by R.H. Ewell and the National Science Foundation. This study showed a definite correlation between research and productivity. Also see Godin (2004b).
 This conclusion is derived from an examination of weighted U.S. data on average annual pay for 1997–2001 (BLS/OES).
 Europe's success in growing its aerospace industry and China's efforts to develop a semiconductor industry are two examples.
 Reported here are EU aggregate data from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.
 In 1999, the U.S. State Department's responsibilities under the International Traffic in Arms Regulation were expanded to include research activity formerly covered under the U.S. Commerce Department's export regulations. The transfer placed scientific satellites, related data, and certain computer components and software on the U.S. Munitions List. Related research activities and the country of origin of researchers working on related research activities also became subject to many of the same regulations controlling exports of sensitive products.
 In February 1996, the Telecommunications Act became U.S. law. This Act was the first major telecommunications reform in more than 60 years. It facilitated competition between cable companies and telephone companies and may have contributed to increased U.S. manufacturing activity in both the communications and computer hardware industries.
 The U.S. trade balance is affected by many other factors as well, including differing monetary policies and export subsidies between the United States and its trading partners.
 To the extent that national markets are not open to foreign producers (i.e., if public procurement is reserved for domestic producers), these data will understate the export competitiveness of foreign producers.
 Unlike the previous section that examined data on industry manufacturing value added (domestic content), the value of exports reported in this section reflects the final value of industry shipments exported, not just that resulting from domestic production. Exported shipments will, therefore, often include the value of purchased foreign inputs.
 Like the United States, national governments usually have strong ties to the aerospace industry in their country, often supporting its development, funding R&D, and serving as a major customer for its products.
 Compared to the extensive data available for the manufacturing industries, national data that track activity in many rapidly growing service sectors are limited in the level of industry disaggregation and types of data collected.