It's Morning in American Industry

President Clinton won reelection in large measure because of the economy. Unemployment is the lowest in decades, inflation is low, GNP growth is steady, and the stock market is at historic levels. The lamentations of the 1970s and 1980s about the competitive decline of U.S. industry have disappeared from the political rhetoric. How to account for this turnaround?

The United States is prospering in the global technological economy because it is effectively employing the world’s diverse resources. Most products are assembled from parts made in many different countries. Boeing aircraft, for example, are assembled in Seattle out of key components fabricated in Japan, Korea, Israel, and elsewhere. General Electric assembles washing machines in a highly automated plant in Louisville, Ky., but the electronics come from Mexico.

Just as corporations tap the financial and manufacturing capabilities of other nations, they also tap their intellectual resources to develop competitive products and services. Today over 15 percent of all company-financed R&D in the United States is performed by American subsidiaries of foreign-owned companies. In turn, U.S. companies perform some $10 billion of R&D abroad.

Although some feel that the creative fruits of American R&D are being exploited by other countries, a recent report from the National Academy of Engineering belies this view. The academy concluded that “any country, including the United States, should welcome R&D activity within its borders, regardless of the nationality of the R&D performer.” Foreign-funded R&D expands the pool of basic knowledge, facilitates the transfer of technology to the United States, and employs American scientists and engineers.

The global interweaving of production and R&D has its downside, of course, such as the migration of jobs overseas. Wages are lower in many countries for everyone from production workers to scientists and engineers; computer programmers in India and Bulgaria earn one-tenth the salary of U.S. programmers. Still, the countervailing tendency of foreign companies to have their U.S. subsidiaries take on production, marketing, and R&D offsets this outflow of jobs.

What’s more, over the past decade, key U.S. industries have maintained and broadened their world-competitive position and others have been newly established. The semiconductor and automobile industries, in particular, are once again competitive. The communications, software, entertainment, pharmaceuticals, chemicals, and energy industries are also thriving-though in many cases the boom has come only after painful corporate restructuring and downsizing.

U.S. prosperity can be attributed in part to enlightened economic and trade policies, a national commitment to investment in science and technology, and a continuing determination to fund graduate-level science and engineering education. But the most fundamental reason for the success of the U.S. economic system is its ability to take advantage of new technology and adapt to competitive challenges.

The car industry is a good example. Japan used lean manufacturing and the development of high-quality, fuel-efficient vehicles to capture a large share of the U.S. automobile market. But U.S. automakers have since responded with their own version of efficient manufacturing processes and also produce high-quality products. And when the U.S. steel industry became uncompetitive in world markets, companies imported new steelmaking technology from abroad and devised some of their own. Minimills in the United States now produce specialty steel at the lowest cost per ton in the world.

And despite all the political bickering about the government’s role in advancing the country’s economic welfare, federal and state entities have proved capable of pragmatic action. When the semiconductor industry was in a competitive slump, new institutions such as Sematech, the consortium of chip manufacturers, were created as joint government/industry ventures, help-ing greatly to restore U.S. competitiveness. Other government/industry projects such as the Program for a New Generation of Vehicles-established to produce radically more fuel-efficient automobiles-are looking not to catch up but to leapfrog ahead. Less ambitious but equally important public-private partnerships abound, encouraging innovation in a host of industries.

The United States is on a competitive high. But other countries race to catch up. Japan is doubling its investments in basic research. China and Southeast Asian countries are moving at warped speed to become global technological competitors. The United States will therefore surely suffer economic ups and downs in the years ahead. But in the words of baseball great Satchel Paige: “Don’t look back, something may be gaining on you.” We need to continue learning-and faster than the competition can emulate us.