Most countries in the world acknowledge a symbiotic relationship between national investments in S&T and competitiveness in the marketplace: science and technology support business competitiveness in international trade, and commercial success in the global marketplace provides the resources needed to support new science and technology. Consequently, the health of the nation's economy becomes a performance measure for the national investment in R&D and in science and engineering. (See "Comparing National Efforts at Technology Foresight.") [Skip Text Box]
Technology foresight is a tool used by many nations in the S&T priority-setting process. It can be defined as a systematic process for looking into the future to identify important technologies for the purpose of aiding in policy formation, planning, and decisionmaking. Most of the national technology foresight exercises conducted in recent years have involved the administration of a Delphi survey or the generation of a list of critical technologies. Whatever the methodology used, the findings of most of these exercises have included the identification of important technologies and an assessment of relative national position in those technologies identified as important.
The Delphi survey approach to technology foresight attempts to forecast technological developments over the long-term (20- to 30-year) future. First developed by the RAND Corporation in the 1950s, Delphi survey techniques have been used for technology foresight purposes in Japan since 1971 and in Germany, France, and the United Kingdom over the past decade. In the Delphi process, many experts receive two or more rounds of surveys in which they are asked to respond to a detailed questionnaire covering different technological developments. The technological developments themselves are not considered to be inherently important; they are only the starting points on which the survey is based. Respondents are asked to rate each development on several measures, including degree of importance for factors such as wealth creation or quality of life and expected date of realization. Respondents are also asked to rate the relative position of different countries in each technological development, based on a certain criterion such as level of R&D activity. Between survey rounds, the experts receive a summary of all responses to allow them to reconsider their assessments in light of those provided by their peers.
The critical technologies approach involves the generation of a list of technologies deemed critical for a country's future. Most lists also provide assessments, based on expert opinion, of relative national position in those technologies identified as critical. In recent years, critical technologies lists have been developed in the United States, Germany, and France. The definition of critical, the criteria for determining criticality, and the criteria for making assessments of national position vary by study. Among the factors considered in different studies are the importance for economic competitiveness, effect on the environment, relevance for national security, and contribution to the quality of life. Critical technologies are sometimes defined as those that are generic, or "precompetitive," and that have the potential for application in many industrial sectors. Lists of critical technologies are usually developed using a time frame of about 10 years.
Across these different types of national foresight studies, there is some agreement about which categories are useful for classifying important future technologies. The broad technological categories considered important in most studies include biotechnology and life sciences, energy, environment, transportation, information and communications, manufacturing processes, management and business, and materials.
Nations have designated different subfields within these broad technological categories as important to them; this complicates further attempts at comparing the various national technology assessments. Some technologies, however, have been identified by several studies as important; these include advanced ceramics, nanotechnology, biocompatible materials, nuclear waste storage, broadband communications, optical technology, catalysis, renewable energy, flat display technology, semiconductors, intelligent transportation systems, and signal processing.
Besides identifying important technologies and the categories under which these can be classified, most foresight exercises also address the issue of national position in important S&T fields. Self-assessments of relative position are made at both the category and individual technology levels. However, these assessments are difficult to compare across countries because they use different methodologies, criteria, and measures. (See text table 6-1.)
This section discusses U.S. "competitiveness," broadly defined here as the ability of U.S. firms to sell products in the international marketplace. A great deal of attention is given to science-based industries producing products that embody above-average levels of R&D in their development (hereafter referred to as high-tech industries). The Organisation for Economic Co-operation and Development (OECD) currently identifies four industries as high-tech based on their high R&D intensities: aerospace, computers and office machinery, electronics-communications, and pharmaceuticals.
There are several reasons why high-tech industries are important to nations.
By definition, the concept of manufacturing value added seeks to measure the contribution of manufacturing activity to a nation's economy (as measured by gross domestic product). (See Greenwald and Associates 1984 and Pearce 1983.) At the firm level, the measurement nets out (removes) from the value of the final output the value of purchased inputs to the production process. At the national level, the measurement nets out foreign-supplied inputs from the value of the nation's final output-thereby determining domestic content of production for an industry or set of industries.
New data from OECD permit comparison of domestic content in high-tech industries and all other manufacturing industries for several countries. Examination of these data shows that high-tech industries continue to incorporate more domestic content in their manufacturing operations than do other manufacturing industries; this trend, however, is not consistent for all countries nor necessarily true for each of the four high-tech industries (i.e., aircraft, communications, office and computers, drugs and medicines). (See text table 6-2.) For example, about 43 percent of the final output by U.S. high-tech industry in 1993 is attributed to domestic value added, compared with 35 percent in all other U.S. manufacturing industries. The difference in value added as a proportion of final output between these two sectors was much larger in Germany and much less in Japan.
Within each country, trends for individual high-tech industries varied. The U.S. drugs and medicines industry, at 56 percent, had the highest ratio of value added among the four U.S. high-tech industries in 1993; the computer/office hardware industry showed lower value added in its U.S. manufacturing operations (about 28 percent) than the average for all other manufacturing. The relative value-added profile for Japan's high-tech industries was similar to that of the United States.
The impact of the global economy is also apparent from an examination of these data. In high-wage countries like the United States and Germany, domestic content in manufacturing industries fell between 1973 and 1993, while domestic content rose in lower wage countries such as South Korea and Spain. (See appendix table 6-4.)
The global market for high-tech goods is growing at a faster rate than that for other manufactured goods, and economic activity in high-tech industries is driving national economic growth around the world. Over the 15-year period examined (1980-95), high-tech production grew at an inflation-adjusted average annual rate of nearly 6 percent compared with a rate of 2.4 percent for other manufactured goods. Global economic activity was especially strong at the end of the period (1993-95), when high-tech industry output grew at over 8 percent per year-more than twice the rate of growth for all other manufacturing industries. (See figure 6-2 and appendix table 6-5.) Output by the four high-tech industries-those identified as being the most research intensive-represented 7.6 percent of global production of all manufactured goods in 1980; by 1995, this output represented 12 percent.
During the 1980s, the United States and other high-wage countries increasingly moved resources toward the manufacture of technology-intensive goods. In 1989, U.S. high-tech manufactures represented nearly 13 percent of total U.S. production of manufactured output, up from 10.4 percent in 1980. High-tech manufactures also accounted for growing shares of total production for European nations, but the transition to high tech in Europe during the 1980s was most prominent in the United Kingdom's economy. High-tech manufactures represented just 9 percent of the United Kingdom's total manufacturing output in 1980, but jumped to 13 percent by 1989. The Japanese economy led all other major industrialized countries in its concentration on high-tech industries. In 1980, high-tech manufactures accounted for about 10 percent of total Japanese production, rose to 13 percent in 1984, and then increased to 15.3 percent in 1989.
Data for the 1990s show an increased emphasis on high-tech manufactures among the major industrialized countries. (See figure 6-3.) In 1995, high-tech manufactures are estimated to represent 15 percent of manufacturing output in both the United States and Japan, 14 percent in the United Kingdom, and 10 percent each in France and Germany. Two other Asian countries, China and South Korea, typify how important R&D-intensive industries have become to the newly industrialized economies. In 1980, high-tech manufactures accounted for just 4 percent of China's total manufacturing output; this proportion jumped to 11.4 percent in 1989 and then reached 12.5 percent in 1995-more than for France or Germany. In 1995, high-tech manufacturing in South Korea accounts for about the same percentage of total output as in Japan and the United States (15 percent).
Throughout the 1980s, the United States was the leading producer of high-tech products, responsible for over one-third of total world production from 1980 to 1986, and for about 30 percent of world production for the rest of the decade. While U.S. world market share continued to decline into the early 1990s, the downward trend reversed in 1992. The U.S. share of the world market for high-tech manufactures grew irregularly after 1991. By 1995, U.S. high-tech industries had regained much of the market share lost during the previous decade. (See figure 6-4.) In 1995, production by U.S. high-tech industry accounted for nearly 32 percent of world high-tech production.
While U.S. high-tech industry struggled to maintain market share during the 1980s, the Japanese global market share in high-tech industries followed a path of steady gains. In 1989, Japan accounted for 28 percent of the world's production of high-tech products, moving up 4 percentage points since 1980. Japan continued to gain on the United States until 1991 when, for the first time, it moved past the United States to become the world's leading high-tech producer. Since then, however, Japan's market share has dropped steadily, falling to under 23 percent of world production in 1995 after accounting for more than 30 percent four years earlier.
By comparison, European nations' share of world high-tech production is much lower. Germany produced about 8 percent of world high-tech production in 1980, under 7 percent in 1989, and nearly 8 percent once again by 1995. Shares for both France and the United Kingdom fluctuated between 4 and 5 percent throughout the 15-year period examined.
China has made the most dramatic gains since 1980, although these gains were made in spurts. During the first half of the 1980s, China's market share moved downward, hovering around 2 percent of world high-tech production. By 1989, the country's share had doubled. After a one-year decline down to 2.9 percent in 1990, China's high-tech production increased significantly; by 1995, the country accounted for nearly 6 percent of world high-tech output.
In each of the four industries that make up the high-tech group, the United States maintained strong, if not leading, market positions over the 15-year period examined. Yet competitive pressures from a growing cadre of high-tech-producing nations contributed to a decline in global market share for three U.S. high-tech industries during the 1980s: aircraft, computers, and communications equipment. Since then, two of these industries-computers and, in particular, communications equipment-have reversed their downward trends and gained market share in the 1990s. (See figure 6-5.)
The U.S. aircraft industry, the nation's strongest high-tech industry in terms of world market share, was the one high-tech industry to lose market share in the 1980s and again in the 1990s. For much of the 1980s, the U.S. aircraft industry supplied about two-thirds of world demand. Within the 1980-95 period, the U.S. share of the world aircraft market peaked in 1986, when it supplied over 66 percent of world demand; it then lost market share nearly every year since. By 1995, the U.S. share had fallen to 55 percent of the world market. (See figure 6-6.) While European aircraft industries gained market share during this time, Chinese industries made especially large gains in global market share beginning in 1992. In 1980, China supplied about 3.5 percent of world aircraft shipments; by 1995, its share had increased to nearly 12 percent.
As previously noted, two U.S. high-tech industries lost market share during the 1980s and then reversed that trend during the 1990s. By 1995, the United States was the number one supplier of computer equipment in the world and in a virtual tie with Japan for number one in terms of worldwide shipments of communications equipment.
Of the four high-tech industries, only the U.S. pharmaceutical industry managed to retain its number one ranking throughout the 15-year period. It was also the only U.S. high-tech industry that had a larger share of the global market in 1995 than in 1980.
The United States is considered a large, open market. These characteristics benefit U.S. high-tech producers in two important ways. First, supplying a market with many domestic consumers provides scale effects to U.S. producers in the form of potentially large rewards for the production of new ideas and innovations (Romer 1996). Second, the openness of the U.S. market to foreign-made technologies pressures U.S. producers to be inventive and to move toward more rapid innovation in order to maintain domestic market share.
This discussion of world market shares shows that U.S. producers are leading suppliers of high-tech products to the global market. That evaluation incorporates U.S. sales to domestic as well as foreign customers. In the next sections, these two markets are examined separately.
While U.S. producers reaped many benefits from having the world's largest home market (as measured by gross domestic product-GDP), mounting trade deficits have led to concern about the need to expand U.S. exports. U.S. high-tech industries have traditionally been more successful than other U.S. industries in foreign markets. Consequently, high-tech industries have attracted considerable attention from policymakers as they seek ways to return the United States to a more balanced trade position.
Despite its domestic focus, the United States has been an important supplier of manufactured products in foreign markets throughout the 1980-95 period. In fact, from 1992 to 1995, the United States was the leading nation exporter of manufactured goods, accounting for between 12.1 and 12.8 percent of world exports. U.S. high-tech industries have contributed to this strong export performance of the nation's manufacturing industries.
Over the same 15-year period, U.S. high-tech industries accounted for between 19 and 26 percent of world high-tech exports-at times twice the level achieved by all U.S. manufacturing industries. The peak was reached in 1980, and U.S. market share has fallen fairly consistently since then. In 1995, the latest year for which data are available, exports by U.S. high-tech industries accounted for 19.2 percent of world high-tech exports; Japan was second, accounting for 11.9 percent; followed by the United Kingdom and Germany, with 7.2 percent and 6.9 percent, respectively.
The drop in U.S. share over the 15-year period is in part the result of the emergence of high-tech industries in newly industrialized economies, especially within Asia. South Korea is one example. (See figure 6-7.) In 1980, high-tech industries in South Korea accounted for about 1.4 percent of world high-tech exports. That market share doubled by 1986. The latest data for 1995 show South Korea's share reaching 4.1 percent, nearly twice the market share of high-tech exports held by Italy that same year.
Throughout the 15-year period, individual U.S. high-tech industries either led in exports or were second to the leader in each of the four industries included in the high-tech grouping. The most current data, 1995, show the United States as the export leader in three industries and second in just one-drugs and medicines. (See figure 6-8.) As noted in the previous section on global market shares, the U.S. pharmaceutical industry was the only U.S. high-tech industry that consistently led the world in production and that also had a larger share of the world market in 1995 than in 1980. Since global market shares incorporate all shipments-foreign and domestic-this industry's sales to the U.S. market appear to be responsible for its gain in world market share.
In terms of export performance, U.S. industries producing aircraft, computers, and pharmaceuticals all accounted for smaller export shares in 1995 than in 1980. The communications equipment industry was the sole U.S. high-tech industry to improve its share of world exports over the period. By comparison, the share of world exports held by Japan's communications equipment industry dropped steadily after 1985-eventually falling to 15.2 percent by 1995 from a high of 36.5 percent just 10 years earlier. In addition to gains in world export share by the United States and the United Kingdom, once again the newly industrialized economies of Asia demonstrated an ability to produce high-tech goods to world-class standards and were rewarded with great success in selling to foreign markets. In 1995, South Korea supplied 6.8 percent of world communication product exports, up from just 2.7 percent in 1980. Other Asian newly industrialized economies have demonstrated similar capabilities in communications equipment.
A country's home market is often thought of as the natural destination for the goods and services produced by domestic firms. For obvious reasons-including proximity to the customer and common language, customs, and currency-marketing at home is easier than marketing abroad.
But with trade barriers falling and the number of foreign firms able to produce goods to world standards rising, product origin may only be one factor among many influencing the consumer's choice between competing products. Price, quality, and product performance often become equally important determinants guiding product selection. Thus, in the absence of trade barriers, the intensity of competition faced by domestic producers in their home market can approach-and, in some markets, may even exceed-the level of competition faced in foreign markets. Explanations for U.S. competitiveness in foreign markets may be found in the two dynamics of the U.S. market: the existence of tremendous domestic demand for the latest advanced technology products and the degree of world-class competition that continually pressures U.S. industry toward innovation and discovery.
Demand for high-tech products in the United States far exceeds that in any other single country and is larger than the combined markets of the four largest European nations (Germany, the United Kingdom, France, and Italy). (See figure 6-9.) This was consistently the case for the entire 1980-95 period. Japan, too, has large domestic demand for high-tech products, and was the second largest market for high-tech products in the world-its demand was much closer in size to that of the United States than to the next largest high-tech market, Germany.
Throughout the 1980-95 period, the world's largest market for high-tech products, the United States, was served primarily by domestic producers-yet demand was increasingly met by a growing number of foreign suppliers. (See figure 6-10.) In 1995, U.S. producers supplied about 73 percent of the home market for high-tech products (i.e., aerospace, computers, communications equipment, and pharmaceuticals); however, in 1980, U.S. producers' share was much higher, nearly 92 percent.
Other countries have experienced similar increased foreign competition in their domestic markets. This is especially true in Europe. A more economically unified European market has had the effect of making Europe an even more attractive market to the rest of the world. Rapidly rising import penetration ratios in the four large European nations during the latter part of the 1980s and throughout the first half of the 1990s reflect these changing circumstances. These data also highlight greater trade activity in European high-tech markets when compared with product markets for less technology-intensive manufactures.
The Japanese home market, the second largest national market for high-tech products and historically the most self-reliant of the major industrialized countries, also increased its purchases of foreign technologies over the 15-year period, albeit slowly. In 1980, imports of high-tech manufactures supplied less than 4 percent of Japanese domestic consumption, rising to 5.6 percent in 1989, and then to 11 percent by 1995.
The U.S. Bureau of the Census has developed a classification system for exports and imports of products that embody new or leading-edge technologies. This classification system allows trade to be examined in 10 major technology areas that have led to many leading-edge products. These 10 advanced technology areas are:
To be included in a category, a product must contain a significant amount of one of the leading-edge technologies, and the technology must account for a significant portion of the product's value. Because the characteristics of products exported by the United States are likely to differ from the products it imports, experts evaluated exports and imports separately.
U.S. trade in advanced technology products accounted for 17 to 20 percent of all U.S. trade (exports plus imports) in merchandise between 1990 and 1996. (See text table 6-3.) Total U.S. trade exceeded $1.4 trillion in 1996; $285 billion involved trade in advanced technology products. Trade in advanced technology products accounts for a much larger share of U.S. exports than of imports (25 percent versus nearly 16 percent in 1996) and makes a positive contribution to the overall balance of trade. After several years in which the surplus generated by trade in advanced technology products declined, preliminary data for 1996 show a larger surplus than in 1995. (See figure 6-11 and text table 6-3.)
Between 1990 and 1995, the U.S. trade surplus in software technology doubled, and trade in computer-integrated manufacturing technologies-those used to automate the manufacturing process-generated a sizable surplus. During this same period, trade in aerospace technologies consistently produced large, albeit declining, trade surpluses for the United States. Aerospace technologies generated a net inflow of $26 billion in 1990, and almost $30 billion in 1991 and 1992; the U.S. trade surplus in aerospace technologies then declined 14 percent in 1993, 9 percent in 1994, and 14 percent in 1995. While U.S. aerospace companies continue to lead the world in aircraft production and global shipments, Europe's aerospace industry now challenges U.S. companies' preeminence both at home and in foreign markets. The impact of Europe's Airbus is evident in the trade data. In 1990, U.S. trade in aerospace technologies with Germany, the United Kingdom, France, and Italy produced a $5.5 billion trade surplus. In 1995, the U.S. trade surplus with Europe was less than half that amount ($2 billion).
In 1990, opto-electronics and electronics products were the only advanced technology areas that produced net trade deficits for the United States. However, since 1992, the United States has had trade deficits in three areas: opto-electronics, electronics, and computers and telecommunications. Trade deficits with several Asian economies in these three advanced technology areas now exceed the trade surpluses generated from trade with other countries.
The United States has traditionally maintained a large surplus in international trade of intellectual property. Firms trade intellectual property when they license or franchise proprietary technologies, trademarks, and entertainment products to entities in other countries. These transactions generate net revenues in the form of royalties and licensing fees.
U.S. receipts from all trade in intellectual property reached $26.9 billion in 1995, a 21 percent increase over 1994. The 1995 surplus continued a steady upward trend, which has resulted in a doubling of U.S. receipts in just six years. (See appendix table 6-7.) During the 1987-95 period, U.S. receipts were generally four to five times as large as U.S. payments to foreign firms for intellectual property. Most (about 75 percent) of the transactions involved exchanges of intellectual property between U.S. firms and their foreign affiliates. (See figure 6-12.)
Exchanges of intellectual property among affiliates continue to grow faster than those among unaffiliated firms. This trend suggests a growing internationalization of U.S. business and a desire to retain a high level of control on any intellectual property leased overseas.
Data on royalties and fees generated by trade in intellectual property can be further disaggregated to reveal U.S. trade in technical know-how. These data describe transactions between unaffiliated firms where prices are set through a market-based negotiation. Therefore, they better reflect the exchange of technical know-how and its market value at a given point in time than do data on exchanges among affiliated firms. When receipts (sales of technical know-how) consistently exceed payments (purchases), these data may indicate a comparative advantage in the creation of industrial technology. The record of resulting receipts and payments also provides an indicator of the production and diffusion of technical knowledge.
The United States is a net exporter of technology sold as intellectual property. Royalties and fees received from foreign firms have been, on average, three times those paid out by U.S. firms to foreigners for access to their technology. U.S. receipts from such technology sales exceeded $3.3 billion in 1995, up from $3.0 billion in 1994, and nearly double that reported for 1987. (See figure 6-13 and appendix table 6-8.)
Japan is the largest consumer of U.S. technology sold as intellectual property. In 1995, Japan accounted for over 45 percent of all such receipts, while the European Union (EU) countries together represented about 20 percent. Another Asian country, South Korea, is the second largest consumer of U.S. technology sold as intellectual property; it has maintained that position since 1988, when it accounted for 5.5 percent of U.S. receipts. South Korea's share rose to 10.7 percent in 1990, and to 17.6 percent in 1995.
To a large extent, the U.S. surplus in the exchange of intellectual property is driven by trade with Asia. In 1995, U.S. receipts (exports) from technology licensing transactions were eight times U.S. firm payments (imports) to Asia. As previously noted, Japan and South Korea were the biggest customers for U.S. technology sold as intellectual property-together, these countries accounted for over 50 percent of total receipts in 1995.
The U.S. experience with Europe has been very different from that with Asia. Over the years, U.S. trade with Europe in intellectual property has bounced back and forth, showing either a small surplus or deficit each year. In 1995, U.S.-Europe trade produced the largest surplus in the nine years examined, the result of a sharp decline in U.S. purchases of technical know-how from the smaller European countries.
Foreign sources for U.S. firm purchases of technical know-how have changed somewhat over the years, with increasing amounts coming from Japan. Europe still accounts for nearly 60 percent of the foreign technical know-how purchased by U.S. firms, with France, Germany, and the United Kingdom being the principal European suppliers. But, since 1990, Japan has been the single largest foreign supplier of technical know-how to U.S. firms.