High-Technology Manufacturing and U.S. Competitiveness
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High-Technology Manufacturing and U.S. Competitiveness CHARLES KELLEY, MARK WANG, GORDON BITKO, MICHAEL CHASE, AARON KOFNER, JULIA LOWELL, JAMES MULVENON, DAVID ORTIZ, KEVIN POLLPETER TR-136-OSTP March 2004 Prepared for the Office of Science and Technology Policy The research described in this report was conducted by the Science and Technology Policy Institute (operated by RAND from 1992 to November 2003) for the Office of Science and Technology Policy. Library of Congress Cataloging-in-Publication Data High-technology manufacturing and U.S. competitiveness / Charles T. Kelley ... [et al.]. p. cm. “TR-136.” Includes bibliographical references. ISBN 0-8330-3564-9 (pbk.) 1. High technology industries—United States. 2. High technology industries— Government policy—United States. 3. Technology assessment—Economic aspects— United States. 4. Semiconductor industry. 5. Competition, International. I. Kelley, Charles T. HC110.H53H526 2004 338.4'76'0973—dc22 2004001259 The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R® is a registered trademark. © Copyright 2004 RAND Corporation All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from RAND. Published 2004 by the RAND Corporation 1700 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 1200 South Hayes Street, Arlington, VA 22202-5050 201 North Craig Street, Suite 202, Pittsburgh, PA 15213-1516 RAND URL: http://www.rand.org/ To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) 451-7002; Fax: (310) 451-6915; Email: [email protected] Preface The President’s Council of Advisors on Science and Technology (PCAST) recently submit- ted a report to the President of the United States on the relationship between high- technology manufacturing and the nation’s long-term economic security. The impetus for the PCAST report is the concern that a larger share of high-tech manufacturing formerly performed in the United States is increasingly being done overseas, with potentially harmful consequences to the U.S. economy. The Science and Technology Policy Institute (S&TPI) was asked to provide analytic support to the PCAST panel. The project was sponsored by the Office of Science and Technology Policy (OSTP). This report presents the material that S&TPI provided to the PCAST panel. It con- tains six essays on various topics related to high-tech manufacturing. While the essays focus on the overarching issue addressed by the PCAST panel, they can be read independently. About the Office of Science and Technology Policy OSTP was created in 1976 to provide the President with timely policy advice and to coordi- nate the federal investment in science and technology. About the Science and Technology Policy Institute Originally created by Congress in 1991 as the Critical Technologies Institute and renamed in 1998, the Science and Technology Policy Institute is a federally funded research and development center sponsored by the National Science Foundation (NSF) and managed by the RAND Corporation. S&TPI was managed by RAND from 1992 through November 30, 2003. The Institute’s mission is to help improve public policy by conducting objective, independent research and analysis on policy issues that involve science and technology. To this end, the Institute • supports the Office of Science and Technology Policy and other Executive Branch agencies, offices, and councils • helps science and technology decisionmakers understand the likely consequences of their decisions and choose among alternative policies • helps improve understanding in both the public and private sectors of the ways in which science and technology can better serve national objectives. iii iv High-Technology Manufacturing and U.S. Competitiveness In carrying out its mission, the Institute consults broadly with representatives from private industry, institutions of higher education, and other nonprofit institutions. Inquiries regarding the work described in this report may be directed to the address below. Stephen Rattien Director RAND Science and Technology 1200 South Hayes Street Arlington, VA 22202-5050 Tel: 703.413.1100, ext. 5219 Web: www.rand.org/scitech The RAND Corporation Quality Assurance Process Peer review is an integral part of all RAND research projects. Prior to publication, this document, as with all documents in the RAND technical report series, was subject to a qual- ity assurance process to ensure that the research meets several standards, including the fol- lowing: The problem is well formulated; the research approach is well designed and well exe- cuted; the data and assumptions are sound; the findings are useful and advance knowledge; the implications and recommendations follow logically from the findings and are explained thoroughly; the documentation is accurate, understandable, cogent, and temperate in tone; the research demonstrates understanding of related previous studies; and the research is rele- vant, objective, independent, and balanced. 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For additional details regarding the RAND quality assurance process, visit http://www.rand.org/standards/. v Contents Preface.................................................................................................. iii Figures ................................................................................................. xi Tables ..................................................................................................xv Summary............................................................................................. xvii Acknowledgments.................................................................................... xxxi Abbreviations ...................................................................................... xxxiii CHAPTER ONE Introduction ............................................................................................1 How This Document Is Organized.....................................................................2 CHAPTER TWO U.S. Traditional and High-Technology Manufacturing: An Irreversible Decline? Does It Matter? ...................................................................................5 Introduction ............................................................................................5 A Postindustrial Society? ...............................................................................6 The Bell Hypothesis .................................................................................6 Why—and to What Extent—Has U.S. Manufacturing Declined? ................................8 Loss of High-Tech Manufacturing: A Framework for Evaluation.................................... 15 National Security Rationales for Industrial Targeting ............................................. 16 Economic Rationales for Industrial Targeting..................................................... 17 Ownership and Location Possibilities for a Globalized High-Tech Industry ..................... 18 High-Tech Deindustrialization: Four Scenarios ................................................... 20 Conclusion ............................................................................................ 22 CHAPTER THREE Historical and Structural