In high-wage countries like the United States, industries stay competitive in a global marketplace through innovation. Innovation can lead to better production processes and better performing products (i.e., those that are more durable, more energy efficient, etc.); it can thereby provide the competitive advantage high-wage countries require when competing with low-wage countries.
R&D activities serve as an incubator for the new ideas that can lead to new products, processes, and industries. While they are not the only source of new innovations, R&D activities conducted in industry-run laboratories and facilities are associated with many of the important new ideas that have helped shape modern technology.
U.S. industries that traditionally conduct large amounts of R&D have met with greater success in foreign markets than less R&D-intensive industries and have been more supportive of higher wages for their employees. Moreover, trends in industrial R&D performance serve as leading indicators of future technological performance. This section examines these R&D trends, focusing particularly on growth in industrial R&D activity in the top R&D-performing industries of the United States and of its two major competitors in the global marketplace, Japan and the European Union.
The United States has long led the industrialized world in the performance of industrial R&D. Over the past two decades, however, the U.S. edge has diminished. Specifically, the U.S. share of total industrial R&D performed by all OECD member countries was 55 percent in 1973 and 46 percent in 1994. (See figure 6-14.) Despite this decline, the United States remains the leading performer of industrial R&D by a wide margin, even surpassing the combined R&D of the 15-nation European Union. For its part, Japan-in keeping with its belief in the economic benefits of investments in R&D-rapidly increased R&D spending in the 1970s and 1980s, which led to a near doubling of its share of total OECD R&D by 1990. Preliminary data for 1995 indicate a 1 percentage point rise in the U.S. share, a 1 percentage point decline for Japan, and no change for the European Union.
The United States, the European Union, and Japan represent the three largest economies in the industrialized world and compete head to head in the international marketplace. An analysis of R&D data provides some explanation for past successes in certain product markets, provides insights into future product development, and signals shifts in national technology priorities.
R&D performance by U.S. industry followed a pattern of rapid growth during the 1970s, which accelerated during the early 1980s. That growth pattern stalled during the latter part of the decade and into the 1990s. When adjusted for inflation, growth in U.S. industrial R&D performance over the last decade has steadily dropped from only meager growth to actual decline in 1993 and 1994 (by 2.7 and 0.2 percent, respectively, in 1987 constant dollars).
The downturn in growth would be far more dramatic were it not for the growth in R&D performed by U.S. service sector industries. While the growth in R&D performance by U.S. manufacturers has slowed since the mid-1980s, R&D performance by U.S. service sector industries has grown rapidly. (See figure 6-15.) The latest internationally comparable data on overall U.S. industrial R&D performance show the service sector's share rising from 4 percent in 1982 to 24 percent by 1992. The specific industries driving this increase in R&D performance within the U.S. service sector include those developing computer software and providing communication services.
Overall, the U.S. aerospace and communications equipment industries have consistently been the largest performers of R&D in this country. Comparing performance in 1984 and 1994, however, shows a shift in the nation's R&D emphasis. More R&D is being performed in the automotive industry, in the industry producing scientific instruments, and in the service sector industries. Service sector industries as a group accounted for a larger share of U.S. industrial R&D performance than either the aerospace industry or the automobile industry-the top two R&D-performing industries in the U.S. manufacturing sector in 1994.
During the 1970s, R&D performance in Japanese industries grew at a higher rate than in the United States. Japanese industry continued to expand its R&D spending rapidly through 1985, more than doubling the annualized growth of the previous decade. Japanese industrial R&D spending slowed somewhat during the second half of the 1980s, but the country still led all other industrialized nations in terms of average annual growth in industrial R&D. Unlike the declining trend observed for manufacturing industries in the United States, Japanese manufacturing industries consistently accounted for over 95 percent of all R&D performed by Japanese industry. R&D in Japanese service sector industries appears to have accelerated during the 1990s, but the country's industrial R&D continues to be dominated by the manufacturing sector. (See figure 6-15.)
An examination of growth trends for the top five R&D-performing industries in Japan reflects that country's long-standing emphasis on electronics (including consumer electronics and all types of audiovisual equipment). This industry was the leading performer of R&D throughout the period reviewed. Japan's motor vehicle industry was the third leading R&D performer in 1973, but rose to number two in 1980 and remained at that level through 1992. Japanese automakers earned a reputation for high quality and value during these years, which earned them increasingly larger shares of the global car market.
Electrical machinery producers are also among the largest R&D performers in Japan and have maintained high R&D growth throughout the period examined. By 1994, in fact, this industry had moved up to become Japan's second leading R&D-performing industry. In comparison, the U.S. electrical machinery industry's ranking among the top R&D performers in the United States has dropped since 1973.
Like Japan and the United States, manufacturing industries perform the bulk of industrial R&D in the 15-nation European Union. The European Union's industrial R&D appears to be somewhat less concentrated than in the United States, but more so than in Japan. Manufacturers of electronics equipment, industrial chemicals, and motor vehicles have consistently been among the top five performers of industrial R&D in the European Union. (See figure 6-15.) In 1994, Germany led the European Union in the performance of motor vehicle and industrial chemical R&D, while France led in industrial R&D performed by communications equipment manufacturers.
R&D performed by the European Union's service sector has doubled since the mid-1980s, accounting for nearly 12 percent of total industrial R&D performed by 1994. Large increases in service sector R&D are apparent in many EU countries, but especially in the United Kingdom (23.6 percent of its industrial R&D in 1994), Italy (13.8 percent), and France (9.5 percent).