America's Industrial Resurgence: How Strong, How Durable?

By Mowery, David C. | Issues in Science and Technology, Spring 1999 | Go to article overview

America's Industrial Resurgence: How Strong, How Durable?


Mowery, David C., Issues in Science and Technology


The U.S. economy responded successfully to the challenges of the 1980s, but this is no time for complacency.

Reports in the late 1980s painted a gloomy picture of U.S. industrial competitiveness. The report of the MIT Commission on Industrial Productivity, perhaps the best known one, opined that "American industry is not producing as well as it ought to produce, or as well as it used to produce, or as well as the industries of some other nations have learned to produce...if the trend cannot be reversed, then sooner or later the American standard of living must pay the penalty." The commission criticized U.S. industry for failing to translate its research prowess into commercial advantage.

Since that report's publication, overall U.S. economic performance has improved markedly. What is the true nature of that improvement? Is it a result of better performance in the industries analyzed by the MIT Commission? Is it a development that holds lessons for public policy?

Economy-wide measurements actually paint a mixed picture of industry performance and structural change since the early 1980s. The trade deficit has grown, hitting a record high of $166 billion in 1997. Although nonfarm business labor productivity growth rates have improved since 1990, they remain below the growth rates achieved between 1945 and 1980. Unemployment and inflation are significantly lower than in the 1970s and 1980s, but not all segments of the population have benefited equally: Households in the lowest quintile of national income have fared poorly during the past two decades, whereas the top quintile has done well.

Other indicators suggest that the structure of the U.S. R&D system changed significantly beginning in the early 1980s and that this structural change has yet to run its course. Industrially financed R&D has grown (in 1992 dollars) by more than 10 percent annually since 1993, but real industrial spending on basic research declined between 1991 and 1995. Recent growth in industrially financed R&D is dominated by spending on development.

Aggregate performance indicators thus are mixed, although broadly good. Moreover, much of the improvement is the result of developments in the economies of other nations. For example, severe problems hobbled the Japanese economy for much of the 1990s, weakening many of the Japanese companies that were among the strongest competitors of U.S. companies during the 1980s. Thus, the relationship between this improved aggregate performance and trends in individual industries, especially those singled out for criticism by the MIT Commission and other studies, remains unclear.

A new study by the National Research Council's Board on Science, Technology and Economic Policy, U.S. Industry in 2000: Studies in Competitive Performance, assesses recent performance in 11 U.S. manufacturing and nonmanufacturing industries: chemicals, pharmaceuticals, semiconductors, computers, computer disk drives, steel, powdered metallurgy, trucking, financial services, food retailing, and apparel. Its first and most striking conclusion is how extraordinarily diverse their performance has been since 1980.

Some, such as the U.S. semiconductor and steel industries, have staged dramatic comebacks from the brink of competitive collapse. Others, including the U.S. computer disk drive and pharmaceutical industries, have successfully weathered ever-stronger foreign competition. For the nonmanufacturing industries included in the study, foreign competition has been less important, but deregulation and changing consumer preferences have increased domestic competition.

This diversity partly reflects the industries' contrasting structures. Some, such as powdered metallurgy and apparel, comprise relatively small companies with modest in-house capabilities in conventionally defined R&D. Others, such as pharmaceuticals and chemicals, are highly concentrated, with a small number of global companies dominating capital investment and R&D spending. …

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