Trim 1/2 in off the top of all covers Front edge of spine-----------8.875in from the front edge of the paper. Trim small here ----- Trim large here --- *Small covers trim to (14.625 x 9.4) *Large covers trim to (18.875 x 11.4) IS NEW TECHNOLOGY ENOUGH? IS NEW TECHNOLOGY ENOUGH? MAKING AND REMAKING u. S. BAS I C I ND U S T RI ES EDITED BY DONALD A. HICKS American Enterprise Institute COMPETING IN A for Public Policy Research CHANGING WORLD ECONOMY Washington, D.C. PROIECT The publication of this volume was supported by a grant from the U.S. Department of Commerce. Distributed to the Trade by National Book Network, 15200 NBN Way, Blue Ridge Summit, PA 17214. To order call toll free 1-800-462-6420 or 1-717-794-3800. For all other inquiries please contact the AEI Press, 1150 Seventeenth Street, N.W., Washington, D.C. 20036 or call 1-800-862-5801. Library of Congress Cataloging-in-Publication Data Is new technology enough? : making and remaking U.S. basic industries / edited by Donald A. Hicks. p. cm. - (AEI studies; 475) Includes bibliographies and index. ISBN 0-8447-3659-7 (alk. paper). ISBN 0-8447-3660-0 (pbk.: alk. paper) 1. United States-Industries. 2. United States-Economic conditions-1981- 3. Technological innovations-Economic aspects­ -United States. 4. Competition-United States. l. Hicks, Donald A. II. Series. HCI06.8.1781988 338.0973-dc19 88-19742 CIP 1 3 5 7 9 10 8 6 4 2 AEI Studies 475 ©1988 by the American Enterprise Institute for Public Policy Research, Washington, D.C. All rights reserved. No part of this publication may be used or reproduced in any manner whatsoever without permission in writing from the American Enterprise Institute except in the case of brief quotations embodied in news articles, critical articles, or reviews. The views expressed in the publications of the American Enterprise Institute are those of the authors and do not necessarily reflect the views of the staff, advisory panels, officers, or trustees of AEl. "American Enterprise InstituteR and ® are registered service marks of the American Enterprise Institute for Public Policy Research. Printed in the United States of America Contents FOREWORD Christopher C. DeMuth ix CONTRIBUTORS xi 1 INTRODUCTION AND OVERVIEW Donald A. Hicks 1 Organization of This Volume and Overview of Its Major Themes 4 Conclusion 15 2 THE MACHINE TOOL INDUSTRY: THE CRUMBLING FOUNDATION Anderson Ashburn 19 The Large Cyclical Swings in the Machine Tool Industry 20 The Different Needs Filled by Machine Tools 21 Early Machine Tools and the n American System of ManufacturingW 22 The Beginning of the Machine Tool Industry 26 Diffusion of Machine Tool Developments to Other Industries 31 Two New Technologies 35 The Automobile Industry and Its Demands on Machine Tools 37 Carbide's Demands on Machine Tools 40 Automation 42 The Start of Numerical Control 44 The Restructuring of the Machine Tool Industry 49 Japanese Dominance in Small NC Machines 56 Flexible Cells and Systems 58 The Slow Development of Computer-aided Manufacturing 62 Government Policies That Have Influenced the Machine Tool Industry 69 The Present Status of the Industry 77 3 THE U.S. AUTOMOTIVE INDUSTRY: TECHNOLOGY AND COMPETITIVENESS Michael S. Flynn and David E. Cole 86 Historical Background on Automotive Competition 89 Recent Automotive Competition 100 The Current Competitive Task 110 The Role of Technology 118 Just-in-Time Technology 129 Computer-integrated Manufacturing 140 The Future of the Domestic Automotive Industry 153 Summary 158 4 THE U.S. STEEL INDUSTRY: STRATEGIC CHOICES IN A BASIC INDUSTRY Donald F. Barnett 162 Roots: The Era of Scale and Integration 163 Implications and Conclusions 203 Summary 207 5 TEXTILES AND ApPAREL: A BASIC INDUSTRY FOR A BASIC NEED Richard Steele 209 Technology and Change in a Mature Industry 212 Driving Forces for Technological Change 234 Economic Effects of Technological Change 244 What Next? 249 6 ADVANCED CERAMICS: RESTORING U.s. COMPETITIVENESS THROUGH TECHNOLOGY DIFFUSION Candice Stevens 255 Advanced Ceramics Technology 256 Industrial Applications of Advanced Ceramics 262 Advanced Ceramics and Industrial Adjustment 277 Technoeconomic Barriers to Diffusion 284 Promoting Diffusion of Advanced Ceramics: A Comparison of the United States and Japan 288 Conclusion 303 7 FIBER OPTICS: TECHNOLOGY DIFFUSION AND INDUSTRIAL COMPETITIVENESS Harvey Blustain and Paul Polishuk 308 A Fiber-optic System 309 Advantages of Fiber Optics 311 Telecommunications Applications of Fiber Optics 316 Other Applications of Fiber Optics 323 The Role of Government in Technology Diffusion 327 Conclusion 340 INDEX 343 Foreword One of the most widely accepted ideas in discussions of international trade is that successful development and commercialization of new technologies are the key to maintaining the competitiveness of the U.S. economy. In this view our capacity to nurture technological inno­ vation and to take maximum advantage of the employment, output, and export opportunities of the resulting Uhigh-tech" industries is uniquely important to spurring U.S. productivity growth and avoiding the domestic economic disruptions caused by the growth of foreign competition in the 1980s. Is New Technology Enough? challenges this accepted wisdom. While acknowledging the important role of new technology in indus­ trial renewal and economic progress, the studies in this volume indi­ cate that technology cannot be relied on as a usilver bullet" capable of ensuring America's preeminence in world trade. Four case studies of U.S. basic manufacturing industries (machine tools, steel, automo­ biles, and textiles and apparel) and two studies of families of modern technology (advanced ceramics and fiber optics) show that techno­ logical prowess is only one of many factors determining industrial performance, others being general macroeconomic conditions (tax, trust, fiscal, labor skills). The studies also challenge the prevailing view of industrial change in the American economy that sees older basic industries as dying off while new, technology-based industries rise to take their place. In fact, U.S. basic industries are constantly adapting to changing economic circumstances, making use of both new technologies and nontechnical adjustments. The notion of Usunset" and usunrise" indus­ tries is simplistic and false, failing to appreciate the richness and com­ plexity of economic adjustment over time. Advanced technology is certainly important, but our search for a panacea for our competitive difficulties has led us to distort its true significance in economic and in­ dustrial change. This volume is one of a series of publications and conferences sponsored by the American Enterprise Institute's research project Competing in a Changing World Economy, which is examining ix FOREWORD changes in the world economy and exploring economic and political strategies for dealing with them. CHRISTOPHER C. DEMuTH President American Enterprise Institute for Public Policy Research x Contributors ANDERSON ASHBURN is an engineer who has been following manufactur­ ing and the machine tool industry for forty-five years as a writer and edi­ tor. His articles on Japanese manufacturing, starting in 1962, were the first to report in the United States on many major manufacturing ad­ vances in Japan, including efforts to minimize work in process and to minimize costs of rework by doing it right the first time. His travels have taken him to most of the world's major machine tool plants. He has been chairman of the manufacturing activity of the Society of Automotive En­ gineers, a member of the Manufacturing Studies Board of the National Research Council, and a recipient of the Distinguished Contributions Award of the Society of Manufacturing Engineers. He is editor emeritus of the magazine American Machinist & Automated Manufacturing. DONALD F. BARNETT is president of Economic Associates Inc., a McLean, Virginia, firm specializing in strategic planning advice to basic industries. He received his Ph.D. in 1968 from Queen's University in Canada and has since served as university professor, senior industry adviser to the Ca­ nadian government, and chief policy adviser to the Executive Office of the President and the U.s. Treasury, where he was instrumentalin setting up the steel trigger-price mechanism. More recently he was vice­ president and chief economist at the American Iron and Steel Institute, industrial economist at the World Bank, and adviser to numerous govern­ ment agencies and private firms. He has lectured widely and written nu­ merous articles and books, including Steel: Upheaval in a Basic Industry (with Louis Schorsch) and Up from the Ashes: The Rise of the Steel Minimill in the United States (with Robert Crandall). HARVEY BLUSTAIN is vice president for research at IGI Consulting. Previ­ ously he was senior research associate at the Center for International Studies, Cornell University, and on the faculty of the Department of An­ thropology at the University of Kentucky. He has done research in Nepal, Jamaica, Rome, and Ghana and has been a consultant to the Agency for International Development, the UN Food and Agriculture Organization, and the government of Jamaica. He received a B.A. from New York Uni­ versity and an M. Phil. and a Ph.D. from Yale University. His publications xi CONTRIBUTORS include Fiber Optic ISDN Broadband Field Trials, The Impact of Fiber Optics on the Copper Wire and Cable Industry, and Fiber Optic Market Opportuni­ ties in Metropolitan Areas. DAVID E. COLE is director of the Office for the Study of Automotive Trans­ portation at the University of Michigan. His major efforts in automotive engineering are related to both engines and vehicles. Dr. Cole received his B.s.M.E., M.5.E., and Ph.D. degrees in mechanical engineering from the University of Michigan. In addition to his teaching responsibilities in the automotive area, he has worked extensively in the areas of automotive power plants and overall automotive industry trends.