High Technology Competition: The Role of Higher Education and Research Infrastructure

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INTRODUCTION

The past decade has seen considerable attention focused on competitiveness of U.S. firms in foreign markets. A wide body of literature on causes and consequences of global competitiveness has suggested a number of possible factors contributing to the diminished competitiveness of U.S. firms. Among others, studies by Baumol (1986), Jorgenson (1984), Plant and Welch (1984), Haveman and Wolfe (1984), Bishop (1989), and Kendrick (1980) have linked the U.S. education system to economic measures. As the discussion below shows, most of these studies have focused on secondary school systems. The role of scientists and engineers trained through the higher education system in enhancing the competitiveness of an economy has not been closely examined. These studies have assumed that productivity growth is the critical factor in competitiveness and therefore studied relationships of various factors to productivity growth. This study shows the impact of education on selected measures of competition in the high technology sector of an economy. As the U.S. economy increasingly moves towards a knowledge-based economy, this sector will play an increasingly important role in earning a high standard of living in the future. High technology industries provide the high value-added goods and services needed to ensure high wages which are necessary if the standard of living in the United States is to be maintained at a level competitive with other industrial countries.

REVIEW OF EARLIER STUDIES

In one of the early studies cited above, Baumol (1986) attributes the decline in the relative productivity growth rate in the U.S. to the phenomenon of convergence of productivity levels of various countries, concluding that the U.S. does not have a significant competitive problem. He suggests that though extraordinary investments or innovations in a country may be able to help a country sustain a higher productivity growth rate over a short run, the long run convergence in growth is inevitable due to the ability of other countries to imitate those innovations rather quickly. However, he observed no sign of convergence among the less developed countries and notes that "part of the explanation may well be ielated to product mix and education" (p. 1080). Although he points toward tle role of education when analyzing the phenomenon of declining productivity rates in relation to the third world countries, no formal analysis is included in the study.

Jorgenson (1984) clearly demonstrated that education has had an impact on U.S. productivity growth. In his study on the contribution of education to the economic growth of the U.S. from 1948 to 1973, approximately 11 percent of the economic growth during this period could be attributed to education. Plant and Welch (1984) also undertook a similar study and found a similar relationship. Jorgenson used a growth-accounting model to measure increases in productivity caused by education in terms of added earnings to individuals who received the education. His methodology treated labor with different education as inputs with different marginal productivity. Plant and Welch argued that inputs (labor and capital) used in the production of education could also be used to produce other goods and services. This opportunity cost to the economy in terms of the foregone goods and services is not accounted for in the growth-accounting moded. Therefore they used an alternative approach utilizing education as an intermediate factor in a surplus-accounting model, concluding that the contribution of education to the economic growth is significant, although their estimate of the contribution is smaller than that calculated by Jorgenson.

In a study of the effects of education on health, child care, and other nonmarket activities (which are also important elements of the standard of living), Haveman and Wolfe (1984) concluded that returns to education are not fully reflected in wage differentials. …