Gregory Tassey
The Future of
National Manufacturing Policy
For several decades, those deciding on U.S. economic growth policy have struggled
over the issue of the correct growth strategy. A critical dimension of this debate has
been the role the government should play in achieving desired growth rates.
Nowhere has this struggle been more pronounced than in the debate over ratio-
nales for government support of the domestic manufacturing sector. Philosophies
vary from a broadly activist government role to complete laissez faire.
The optimal government role depends completely on the underlying econom-
ics. In this regard, leading economies have succeeded over time by investing in a
set of assets and learning how to manage those assets effectively. The first industri-
al revolution (1750 A 1850) began as a rudimentary factory system in which small
businesses used emerging crude machines and locally available supplies of power
to manufacture a fairly limited range of products. By the second industrial revolu-
zione (approximately 1860 A 1910), production technologies based on numerous
scientific developments had expanded to a wide range of product categories. IL
critical processing technology characteristics were mass production, interchange-
able parts (cioè., standardization), and the assembly line. In the United States, mas-
sive investments in new types of infrastructure such as a national transportation
rete (particularly railroads), electricity, and an expanded and consolidated
financial market were critical to the so-called Gilded Age of the late 19th century.
The driver of advancement in process technology was the growing mechanization,
not only of individual industries but also of entire supply chains, which created
cheaper ways of making products. The key metric was achieving economies of
scala. Machines were designed, plants were organized, and labor skills were speci-
fied in order to produce large volumes of undifferentiated products. As Henry
Ford famously stated, “Any customer can have a car painted any color that he wants
so long as it is black.”
Economic historians will eventually pass judgment on the characteristics of the
current drivers of manufacturing: information technology, nanoscience, and sys-
tems engineering. Ancora, regardless of when this information age is determined to
Gregory Tassey is the Director of the Economic Analysis Office at the National
Institute of Standards and Technology.
© 2012 Gregory Tassey
innovazioni / volume 7, number 3
155
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
Gregory Tassey
have begun, it is different from the two industrial revolutions. Products will be
designed from the atomic level up, enabling both far greater variety and greater
quality, and will be manufactured using sustainable methods at lower unit costs.
The opportunities to achieve greatly increased economic welfare through such
“mass customization” are huge. Yet, debates rage not only over how to effectively
manage and hence maximize benefits from this emerging era of manufacturing,
but also over whether an economy need even be directly involved in this sector of
economic activity.
THE POLICY ISSUE
The first industrial revolution required a set of growth policies that provided the
necessary categories of infrastructure, given the nature of the important technolo-
gies, the needed skills of laborers, and the amounts and types of suitable financing.
Tuttavia, whereas England was the leader in the first industrial revolution, IL
United States took over that title in the second. Germany was not a player in the
first but was a major one in the second. No Asian nations were important in either
one. Today’s third revolution has many more candidates for leadership, and it is
increasingly likely that no one economy will ever be dominant again.
This fact raises an important question: What are the appropriate economic
growth policies for attaining and maintaining a competitive position in global
markets? In this regard, two questions are key:
1. What are the roles of manufacturing in this new era?
2. How do the nature of advanced manufacturing technology and the globalization
of markets determine the types and extent of supporting infrastructure?
Several things are certain. Primo, the extent and diversity of global demand and
global competition greatly exceed anything previously experienced. As a result,
and in spite of the growing complexity of emerging technologies, technology life
cycles are actually shrinking. Therefore, every industrialized nation is facing a
major test of its economic growth strategy, as was the case at the beginning of both
industrial revolutions.
Compounding the political and social trauma that such events cause is the
coincident impact of sticking with old out-of-date growth strategies. The result of
the latter has been the recent Great Recession and the extremely weak recovery. UN
2012 Federal Reserve Board survey shows that the median net worth of American
families dropped from $126,400 In 2007 A $77,300 in 2010—a decline of 39 per-
cent.1 The drop in home values is the major factor, but the decline in median real
household income is also a contributor. There is no indication of a significant
recovery in the foreseeable future. The bottom line is that the U.S. economy has a
growth problem, and economic growth is the only way to reduce the national debt
and raise real incomes and the standard of living.
156
innovazioni / Making in America
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
The Future of National Manufacturing Policy
THE INADEQUACY OF STABILIZATION POLICIES
The dominant focus of current economic policies for restoring an acceptable rate
of economic growth from the Great Recession is macroeconomic, specifically
monetary and fiscal policies. These “stabilization” policy mechanisms are econo-
my-wide in scope and therefore largely neutral with respect to specific sectors,
including manufacturing. The underlying assumption is that the structure of the
economy is sound; Perciò, the policy objective is to redress imbalances that have
caused the rate of economic growth to fall below the long-term growth track. In
such a situation, conventional monetary and fiscal policies work quite well.
Monetary Policy
This policy tool is used to address a common situation arising in recessions: cred-
it is both inadequate and too expensive. Lowering interest rates induces consumers
to borrow. The Federal Reserve Board traditionally emphasizes lowering short-
term rates. Doing so steepens the so-called yield curve: long-term rates become
higher relative to short-term rates. As banks basically borrow short and lend long,
their average net interest margin increases. This profit incentive results in more
loans being made to businesses and individuals.
Tuttavia, in this last recession, the extremely high level of household debt
inhibited consumer borrowing. Inoltre, banks initially had weak balance
sheets because of their many nonperforming loans. The result was virtually no
response to the Fed’s rate reductions. So, the Fed went to Plan B: it infused huge
amounts of liquidity into the financial system by first buying mortgage-backed
securities (QE1) and then treasury bonds (QE2). The main objective was to lower
long-term interest rates and thereby stimulate the housing market.
Note that this strategy was based on the conventional wisdom that reviving the
housing sector was critical to the economy’s recovery. This traditional view per-
sists, even though a major portion of the excessive household debt is mortgage
debt. For decades, government has provided every conceivable incentive to
American consumers to overspend on housing and they achieved this.
From an economic growth perspective, the increased spending on housing has
redirected household funds away from other categories of investment, including
productive assets that are supported through purchases of corporate stocks and
bonds, including those of manufacturing companies.2 The Fed tried to further sup-
press long-term rates through Operation Twist: it sold short-term treasury securi-
ties and purchased long-term ones. One has to wonder if the Fed considered the
negative effect on banks’ propensity to lend, given the flattening effect this opera-
tion had on the yield curve. Finalmente, quantitative easing puts funds directly into the
hands of bond holders and other conservative investors. Some of these funds find
their way into stocks; Tuttavia, such investors are hardly interested in higher risk,
and bypass potentially higher-payoff investments such as advanced manufactur-
ing.
innovazioni / volume 7, number 3
157
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
Gregory Tassey
The key point here is that the Fed’s efforts have had relatively a weak impact on
economic growth. Banks have significantly improved their capitalization levels and
therefore are more capable of making loans, and consumers continue to restruc-
ture their balance sheets by paying down debt. Tuttavia, household debt relative to
income remains high by historical standards and therefore continues to restrain
consumption. This constraint on spending is magnified by the fact that real house-
hold income has declined over the past decade.
Inoltre, in severe recessions like this last one, the policy response of lower-
ing interest rates to zero (or even negative when adjusted for inflation) creates a
liquidity trap. Questo è, consumers become indifferent between investing and hold-
ing cash. If they hold cash, the velocity of money slows down and so does econom-
ic activity. Finalmente, although American businesses on average have maintained
healthy balance sheets, the lack of attractive investment opportunities is restrain-
ing borrowing.
In general—and most important from the perspective of long-term economic
growth policy—to the extent that monetary policy is effective, its impact is to raise
nominal GDP. But the standard of living rises only when nominal growth exceeds
the rate of inflation; questo è, when real GDP is positive. About the only benefit of
an increase in nominal GDP (cioè., inflation) is that it becomes easier to pay down
the debt.3
To achieve the goal of substantial real growth over time, the structure of the
economy must be sound. Otherwise, the surge in liquidity simply creates inflation.
This is an advantage for highly indebted nations because inflation raises nominal
incomes and hence tax revenues, allowing the debt to be paid back more easily.
Tuttavia, this impact of monetary policy does nothing for real growth.
Fiscal Policy
Keynesian economists argue that the core problem in recessions is inadequate
demand; Perciò, government spending is the key policy response, as its effect is
to raise consumption. Even so, the amount of spending by itself is not large enough
to start and sustain an economic recovery. Piuttosto, this injection of demand creates
a multiplier effect. The industries that benefit from the initial consumption
respond by creating additional demand in the industries that supply them with the
products and services they need to meet the policy-induced demand. If the multi-
plier effect is strong enough, the economy can reach so-called escape velocity by
achieving a sustainable and acceptable rate of growth. Tuttavia, the multiplier
effect appears to have weakened in recent decades in response to the rising share
of imports in domestic consumption. More fundamentally, structural weakness, In
the form of inadequate productivity levels, significantly constrains the potential for
noninflationary stimulus. Ma, only sustained non-inflationary growth will allow
the budget deficit to be eliminated, as was achieved in the late 1990s through mas-
sive investments in productivity-enhancing information technologies.
158
innovazioni / Making in America
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
The Future of National Manufacturing Policy
Unlike monetary policy, fiscal policy has the capacity to reduce structural
weaknesses if it is directed toward productivity-enhancing investments, including
those that would revitalize the domestic manufacturing sector. Unfortunately,
most Keynesian economists focus solely on stimulating aggregate demand, inde-
pendent of its composition. As I argue in the following sections, failure to ade-
quately invest in productivity-enhancing assets is greatly constraining long-term
economic recovery.
The centerpiece of fiscal stimulation in response to the Great Recession was
the American Recovery and Reinvestment Act (ARRA) Di 2009, funded at $787 billion. While ARRA was certainly a major stimulus program, only a modest share of the total funding was directed at investment. Specifically, $105.3 billion was allo-
cated to traditional economic infrastructure projects (highways, bridges, public
transportation, eccetera.). An additional $48.7 billion was directed at energy infrastruc- ture and energy efficiency, including a small amount for energy research and man- ufacturing scale-up. Only $19.2 billion was allocated to support “scientific
research,” including $5.9 billion to universities. Certamente, ARRA was an aggressive short-term fiscal stimulus strategy. Tuttavia, the economy’s weak response to this and other fiscal stimuli has led leading economists to call for yet more spending, again without stating any preference for the content of the spending. Finalmente, ARRA and other stimulus programs are being financed with deficit spending. A tal fine, the treasury is currently paying more than $400 billion per
year in interest on debt held by the public. With tight budgets, this is a significant
drag on the federal government’s ability to invest in the public economic assets that
are required for a competitive economy that seeks to maintain a high standard of
living. Inoltre, this interest burden will increase significantly as interest rates
rebound from their current historic lows.
In summary, available financial resources must be directed into investments
that yield productive assets as the world’s economy is becoming increasingly tech-
nology based, accelerating the rates of productivity growth in many countries. IL
policy message is that only the most efficient existing or newly created economic
assets will be viable in the future. To survive, companies, industries, and entire
economies will have to become more productive by rapidly assimilating existing
technologies and developing new ones.
Short-Term versus Long-Term Growth Strategies
A critical requirement for achieving high rates of economic growth is that very dif-
ferent policy instruments must be used to manage business-cycle fluctuations and
the economy’s productive capacity. Fluctuations in economic activity always occur
along a long-run growth trajectory, as shown in figure 1. The dashed lines repre-
sent these short-run oscillations resulting from business-cycle imbalances. IL
fluctuations around the trend are managed by controlling a combination of factors:
interest rates and the monetary base (monetary policy), and tax rates or govern-
ment spending (fiscal policy).
innovazioni / volume 7, number 3
159
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
Gregory Tassey
Figura 1. Long-Term versus Short-Term Growth Trends
The solid straight lines represent different long-term growth trajectories. Their
slopes (growth rates) are determined by the relative productivities of unique port-
folios of economic assets. Because these assets are accumulated and deployed effi-
ciently only over extended periods of time, well-managed and long-term invest-
ment strategies are essential.
A sound economic structure actually leverages the effectiveness of stabilization
policies by enabling more efficient investment and productivity responses in reces-
sions and reducing the tendency toward inflation during expansion phases. Questo
has been evident during the last decade in Asian economies, where many nations
have seen high sustained rates of growth and relatively subdued fluctuations in
their business cycles, as exemplified by the top growth trajectory in figure 1. When
structural problems are allowed to accumulate and restrain growth rates, debt is
frequently used in an attempt to compensate for inadequate growth potential. IL
destabilizing effect of this approach leads to more pronounced swings in the busi-
ness cycle. So, in summary, the United States and most European nations are
attempting to manage the business cycle within economies with slow growth rates.
THE INADEQUACY OF CONVENTIONAL (NEOCLASSICAL)
GROWTH POLICIES
If we accept the argument that macroeconomic stabilization policies cannot reme-
diate entrenched structural problems, then we see the need for a more microeco-
nomic-driven growth model. The U.S. manufacturing sector was once considered
both a source of economic strength and a symbol of U.S. superiority in the global
160
innovazioni / Making in America
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
The Future of National Manufacturing Policy
economy, but this sector has experienced consecutive annual trade deficits for the
past 35 years. At first these deficits were relatively small; some attributed them to
the fact that American workers’ incomes were much higher than those in the rest
of the world, so they could consume more. In other words, trade deficits were
rationalized as being a sign of prosperity.
By the mid-1980s, globalization and hence trade were becoming primary
growth vehicles for many emerging economies, but also more important for indus-
trialized nations. During this time, Tuttavia, the U.S. trade balance in manufactur-
ing goods began a trend of pronounced deterioration. Enough people recognized
the increasing role of technology in determining relative growth rates across the
world’s economies so that, In 1988, the U.S. Census Bureau began to calculate a
separate trade balance for the subset of products deemed to be technology depend-
ent, which was called advanced technology products (ATP). NOI. leadership in ATP
resulted in trade surpluses that lasted until 2002, when even that segment of man-
ufacturing fell into deficit status. The ATP trade deficit has increased each year
since then, reaching minus $99 billion in 2011. For high-wage economies, automation of existing production processes is the initial response to emerging foreign competition. This has allowed U.S. manufac- turing to continue to increase output, even as employment growth stagnated and then began to decline. Nel frattempo, the growth of services has led mainstream econ- omists to suggest that manufacturing’s shrinking share of GDP, along with its lower labor content, has reduced both its role and its value in the U.S. economy of the future. Following the so-called neoclassical growth theory, traditional economists argue that if all of manufacturing were offshored, it would not be a problem. If rel- ative prices across the world’s economies indicate that manufacturing can be done more efficiently elsewhere, then offshoring is the logical and, Infatti, the desired consequence. This view of economic growth and hence the content of economic growth pol- icy completely ignores the integral role that manufacturing plays in the rapidly emerging global technology-based economy. As I detail later, manufacturing is both an essential part of a modern economy’s R&D infrastructure and the major source of inputs for rapidly growing high-tech services. Così, in addition to its contribution to high-paying jobs, manufacturing performs an integral role in leveraging the productivity of other sectors of the economy. Ma, even to the extent that it accepts the critical role of manufacturing, neo- classical growth theory does not recognize the fact that modern manufacturing technology is a complex system whose development and utilization is retarded by a number of significant “market failures”: multiple areas where the private sector has persistently underinvested. In the traditional approach to explaining economic growth, buyers and sellers interact in a market. Producers (sellers) react to price changes by reallocating resources. Neoclassical theory asserts that responses to price signals move the mar- ket back toward an equilibrium state. But how is the nature and level of this equi- librium determined? This is where the problem arises. While it acknowledges the innovations / volume 7, number 3 161 Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023 Gregory Tassey existence of and need for traditional economic infrastructure (roads, bridges, eccetera.), traditional theory assumes that all other relevant economic assets, including tech- nology, are private goods. If this is the case, industry is completely capable of real- locating resources in response to price signals, including making optimal invest- ments in technology. A second flaw in neoclassical growth theory is the implied assumption that all industries and even entire sectors, such as manufacturing, are independent of each other. This view is compatible with a “black-box” model of technology-based growth in which commercial versions of technologies are plug-and-play entities. Questo è, each element (a specific technology within a technology system) is func- tionally independent of other elements. Questo, in turn, implies that system-level productivity is meaningless or at least is a trivial concept. In the neoclassical growth model, governments can play a number of “environ- mental” roles. Per esempio, governments provide a skilled labor force and ensure plentiful and inexpensive capital. To make sure the return on capital is adequate, governments attempt to minimize both taxes and regulation. In such an environ- ment, industry will reallocate resources appropriately and thereby achieve alloca- tive efficiency. Because of this simplistic view of technology-based economic growth, traditional growth theory argues that if achieving allocative efficiency includes reallocating assets totally away from manufacturing, so be it. Equally important, an accepted government role is to ensure adequate compe- tition exists. Sufficient competition is required to ensure productive efficiency. This condition ensures that when relative prices change, companies will not only real- locate and/or develop new resources as needed for the product/service mix that defines the new equilibrium growth track, but also that they will produce them at minimum cost. Therefore, adequate competition, combined with the other envi- ronmental factors that affect private investment decisions (taxes, regulation, cred- it availability), results in optimal growth rates. In summary, traditional theory argues that there is no such thing as internal conditions for market failure; this implies, in turn, that government roles lie solely outside the marketplace in the areas identified above, plus funding scientific research at universities. Keynesian and neoclassical economists still dominate policy advisory posi- tions and therefore block access by decisionmakers to microeconomic growth the- ories, especially those focused on innovation economics. Per esempio, Christina Romer, former chair of President Obama’s Council of Economic Advisers, criti- cized her former boss for advocating government policies aimed at improving the competitiveness of U.S. domestic manufacturing.4 Romer argues that no market failures exist in manufacturing. Therefore, besides ensuring adequate competition, government’s only role is to support basic science and external (to the industry/market) factors, such as education and “infrastructure.” This is the stan- dard neoclassical theory. Ironically, mainstream economists acknowledge the pub- lic-good content of traditional infrastructure, but they remain oblivious to the fact that modern high-tech industry functions on a range of technical infrastructures without which it cannot be globally competitive. Romer then endorses the singu- 162 innovazioni / Making in America Downloaded from http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023 The Future of National Manufacturing Policy lar Keynesian diagnosis that the economy faces “a profound shortfall in demand” that is “truly a terrible market failure, and it warrants government intervention.” Even the widely read and respected Economist, in an article on the digitization of manufacturing, argues that “as the revolution rages, governments should stick to the basics: better schools for a skilled workforce, clear rules and a level playing field for enterprises of all kinds. Leave the rest to the revolutionaries.”5 The bottom line to the above discussion is that the conservative (neoclassical) approach presumes to simply reduce costs through the adequate availability of cap- ital (and hence lower interest rates), less regulation, and lower taxes. The funda- mental problem with this strategy is that at best it promotes more investment in the existing portfolio of products. Neoclassical economics also says that changes in relative prices will efficiently reallocate resources, including investment in new products. Ma, this principle only works if all products—and their underlying tech- nologies—are purely private goods. In an increasingly technology-based global economy where new technologies are increasingly complex, the private sector is increasingly underinvesting in the public-good elements of these technologies. Così, we see the two most important characteristics of neoclassical econom- ics: (1) government intervention of any type that is internal to the dynamics of the private market is viewed as interfering with allocative efficiency, implying that very few market failures exist; (2) the price mechanism maximizes allocative efficiency relative to a given productive efficiency. Tuttavia, neoclassical economics says lit- tle about key questions: How are the choices for allocating resources determined? How is the existing level of productive efficiency achieved? How does it change over time? The dynamics of long-term growth and competitiveness are therefore left to the innovation economists, who provide the elements of what Atkinson and Audretsch call adaptive efficiency, which in turn drives long-term productive effi- ciency. 6 POLICY DELUSIONS Many analysts have cited the modest gains in production and employment in the postrecession U.S. economy as an indication that a sustainable recovery is emerg- ing. One reason given is some “reshoring” of manufacturing from China and other emerging economies. Tuttavia, the trumpeting of this trend by economists and business analysts, who attribute it to rising wages in developing economies and the rekindled recognition of the need to be near customers, ignores the fact that pro- ductivity is also increasing in these countries. In other words, we are not dealing with perennially low-productivity competitors who compete largely on cost. Over time, the historical process of convergence will continue.7 For example, Foxconn, a major Taiwanese supplier of electronic components with major operations in China, began to experience compression in its profit margin in the current decade as Chinese labor costs escalated. But this trend will provide short respite at best for competing industrialized nations, as Foxconn and other Asian companies are responding by automating quickly. In 2011, Foxconn innovations / volume 7, number 3 163 Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023 Gregory Tassey announced that it planned to use one million robots by 2014, up from about 10,000 robots in 2011 and an expected 300,000 In 2012. Another delusion is the belief that the competitiveness of the U.S. domestic manufacturing sector can be restored by depreciating our currency. Although the dollar index declined 34 percent in the past decade (2002–2011) against a basket of major currencies, the United States incurred ever larger trade deficits. The fact is that no economy has ever prospered by depreciating its currency. The cost of this strategy is inflation in import prices. Its only legitimate use is to buy time by tem- porarily increasing domestic value added while the structural problems that caused the long-term trade deficit are removed. Unfortunately, molti Stati Uniti. competi- tors around the world are also, to varying degrees, attempting to compete by debas- ing their own currencies, which is diluting any short-term positive effect this strat- egy might have had. Part of the delusion of traditional neoclassical economics stems from its origin in the Industrial Revolution. Not only does this still-dominant growth philosophy oversimplify the nature of technology assets; it also ignores evolving differences in the postcommercialization scale-up process. The Industrial Revolution was built on economies of scale. In neoclassical thinking, this was legitimately a totally pri- vate activity. The structure of the production technology was fixed and the labor required to use it was highly homogeneous.8 Bigger was always better, as economies of scale were significant. E, as long as capital markets were efficient (a requirement of the neoclassical model), industry responded to relative prices by investing in huge plants. In other words, the marketplace achieved allocative effi- ciency. For this traditional growth model to work, relative prices had to be fairly stable over extended periods of time. Tuttavia, in today’s emerging highly technology-based global manufacturing economy, companies are better able to change relative prices quickly, due to more rapid and diversified technological change. The pattern of change is no longer just a matter of rapid product development. Process technology is increasingly able to offer on-demand alteration of products’ attributes to meet the needs of growing and diversified global markets. In essence, this phenomenon has shifted the basis of competition from economies of scale to economies of scope. To achieve economies of scope, Tuttavia, production technologies must use complex, flexible IT-driven systems. Both the hardware and software components of such systems have to be capable of rapid and precise adjustment in response to changing demands from customers. The development of such manufacturing sys- tems requires a wide range of component technologies that collectively are beyond the internal R&D capabilities of single companies, even large ones. This last point leads to a delicate subject: the future role of the entrepreneur. American culture, perhaps more than that in any other society, has accentuated the role of the individual. This view has been a positive force in U.S. economic growth because it has facilitated creativity and risk-taking. NOI. economic history is filled with stories of product technologies (per esempio., the Apple computer) being invented in 164 innovazioni / Making in America Downloaded from http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023 The Future of National Manufacturing Policy garages, which have jump-started new industries and hence delivered considerable economic growth. Today, Tuttavia, the complexity of the underlying technologies increasingly prohibits developments in the so-called Pasteur’s quadrant of innovation space, where technologies are developed before the underlying science and generic tech- nology platforms are understood.9 Instead, new manufacturing technology plat- forms must now be systematically developed through public-private partnerships in order to pool risk and complementary R&D assets from diverse sources. Virtually every industrialized nation on earth is in the process of implementing such partnership infrastructures. This fundamental shift in the invention stage of technology-based economic growth does not mean that high-tech startups will decline or that venture capital will become increasingly difficult to find. Infatti, the complexity of advanced pro- cessing technologies offers a broad set of opportunities for small firms at the com- ponent level. But both the startups and their sources of financing will have to be more deeply embedded in elaborate innovation infrastructures, such as research consortia or clusters. UPDATING THE NEOCLASSICAL GROWTH MODEL TO SUPPORT AN ADVANCED MANUFACTURING SECTOR The characterization that I have offered here, of the traditional economic basis for government roles in supporting technology-based economic growth, does not lead to anything approaching the set of policies that U.S. manufacturing will need if it is to be competitive in the future. Specifically, this antiquated view of both indus- try and government roles in a modern economy leads to the position espoused by traditional economists: that no market failures exist beyond basic science. I argue that to overcome these fundamental weaknesses of economic thought, the stages of R&D, scale-up, high-volume manufacturing, and market-share growth exhibit significant market failures and therefore require government inter- vention in various forms. Questo è, the rationale for updated policies derives from the nature of the processes of developing and using manufacturing technologies. Inoltre, the argument made by traditional economists and conservative politicians—that proponents of new and expanded government roles in support of advanced manufacturing are asking for special treatment for this sector—misses the point. Any technology-based industry, whether it be manufacturing or servic- es, is dependent on a complex technology platform and a supporting technical infrastructure.10 The types of market failures are varied,11 and therefore so are the efficient policy responses.12 The overall economic growth policy question is not whether manufacturing is unique, or different from other sectors. Piuttosto, the issue is whether it is a central and essential part of a modern technology-based economy, without which that economy’s growth would be significantly restrained. The answer to this question is the essential first step in managing growth policy. innovazioni / volume 7, number 3 165 Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023 Why is the policy problem important? Gregory Tassey Five economic rationales explain the need for an active government policy to sup- port advanced manufacturing: 1. As an independent economy, the value added produced by the U.S. manu- facturing sector would rank 9th in the world: it contributes $1.7 trillion to GDP and
employs 11 million workers. Replacing that amount of GDP with jobs that pay the
same, or better, in any reasonable period of time is unlikely.
2. Manufacturing contributes to a diversified economic structure, which in a
highly competitive global economy is essential to offset increasingly frequent shifts
in relative competitiveness and global demand across industries. Traditional econ-
omists argue that it would be perfectly acceptable if the U.S. economy became
totally service oriented, as if high-tech services are somehow immune from foreign
competition; in fact, high-tech service jobs are increasingly ‘‘tradeable,’’ and 30
national economies have policies in place to promote exports of services.13
3. Manufacturing accounts for 70 percent of R&D performed by U.S. domestic
industry and a 60 percent share of the scientists and engineers employed in U.S.
domestic industry. Therefore, the loss of domestic high-tech manufacturing would
seriously erode the overall U.S. R&D infrastructure.
4. Fast-growing high-tech service firms are highly dependent on manufactur-
ing companies for technology. Because high-tech services are complex systems,
their design and management require close interaction with the suppliers of tech-
nology inputs. In other words, domestic supply-chain integration is important.
5. The majority of global trade is in manufactured products, yet the United
States has experienced consecutive trade deficits in manufacturing for the last 35
years. Trade deficits are dollar-for-dollar subtractions from GDP, and the increas-
ingly challenged small trade surplus in services does not come close to compensat-
ing.
The motivation to revive U.S. manufacturing has largely been centered on the
basic fact that this domestic economic sector has lost a huge number of jobs, both
to automation and to offshoring. These two factors, Tuttavia, have very different
policy implications. Offshoring is correctly viewed as an issue of competitiveness.
Automation, on the other hand, is assumed to be simply an unfortunate price for
remaining competitive. Così, the relentless decline in unit labor costs is grudging-
ly accepted. In reality, automation is not the detriment to long-term employment
it is made out to be. The increased productivity resulting from automation leads to
larger market shares and hence larger output that, in turn, requires more workers
who are highly paid.14 Germany, with its decades-long emphasis on manufacturing
productivity, gets approximately twice the share of its GDP from this sector as the
stati Uniti, and it does so with manufacturing labor compensation costs that are
approximately 25 percent higher than those in the United States.
In contrasto, economic studies have found that technologically stagnant sectors
experience slow productivity growth and, Perciò, above average increases in
166
innovazioni / Making in America
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
The Future of National Manufacturing Policy
costs and prices. Rising prices increase these sectors’ measured share of nominal
GDP, thereby lowering national productivity growth.15
What are the major types of underinvestment?
As pointed out, modern technologies are highly complex systems; they are defi-
nitely not simple additions of the productivity of individual components. Infatti,
component productivity may not have much meaning outside the manufacturing
system.
This situation becomes manifest in five types of market failure:
1. The process of developing and incorporating new technologies in production
systems results in leaks of technical knowledge (so-called spillovers).
2. High-tech supply chains experience additional (price) spillovers of technical
knowledge as they interact in developing and then selling/purchasing new tech-
nologies in highly competitive markets.
3. As firms, especially small ones, focus on specific applications of new technolo-
gy platforms, they cannot realize economies of scope; that is, they can target
only a few of the potential markets. This situation reduces the risk-adjusted
expected rate of return associated with early-phase (proof-of-concept) R&D
that typically exhibits extensive economies of scope..
4. The long process of developing and then assimilating new technologies into pro-
duction systems results in estimates of investment returns that are strongly dis-
counted, often yielding an insufficient calculation of net present value/internal
rate of return to justify the investment.
5. Compared to other categories of investment, the risk levels are high across the
entire R&D cycle.
These causes of underinvestment in advanced manufacturing technologies
(cioè., market failures) present significant barriers to the optimal level and compo-
sition of investment across technologies, their severity and even their character
change over the life cycle of a technology.
What are the most efficient policy responses?
As I argue above, the level of consternation over sluggish growth has been partic-
ularly high in the United States because, in the decades following World War II, IL
United States benefited from a structurally superior economy characterized by the
accumulation of a set of economic assets that drove high rates of productivity
growth. This fact enabled macrostabilization policies to be used successfully to
maintain an environment sufficient to attain acceptable growth rates. Such policies
(various forms of neoclassical and Keynesian economics) rely on stimulating some
combination of investment and consumption until the economy attains escape
velocity—that is, it reestablishes acceptable and sustainable private-sector rates of
economic growth.
As Atkinson and Audretsch discuss in detail,16 the policy prescription for a
technology-based competitive economy is to achieve three types of efficiency:
innovazioni / volume 7, number 3
167
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
Gregory Tassey
(cid:2)(cid:1)In allocative efficiency (the focus of the neoclassical growth models)
– the government promotes saving
– industry uses savings to invest in capital
– all investment decisions are responses to price signals
Questo è, no market failures exist.
(cid:2)(cid:1)Productive efficiency focuses on the function of internal market dynamics (per-
fect competition).
Again, no market failures exist.
(cid:2)(cid:1)In adaptive efficiency (based on neo-Schumpeterian growth models)
-the dynamics of modern technology-based competition require productivi-
ty-oriented investment
– investment over periods of time well beyond the planning horizons of the
private sector, is adapted to the phase of the technology life cycle
– joint public-private behavior can affect the nature and length of life cycles
Questo è, multiple market failures do exist.
It is this last efficiency category—the adaptation to changing global demand
for and supply of increasing amounts and types of technology—that distinguishes
modern technology-based growth from traditional neoclassical growth models.
THE TECHNOLOGY INVESTMENT OPTION
The ultimate objectives of economic growth policy are to create jobs and to
increase per capita income. With respect to employment, recent analyses show that
with one exception, over rolling 10-year periods, employment and productivity
growth have an almost perfect long-term correlation.17 Moreover, decades of
research have demonstrated beyond a doubt that technology drives long-term pro-
ductivity growth and hence incomes. Data from the Bureau of Labor Statistics
show that in all but one of 71 technology-oriented occupations, the median
income exceeds the median for all occupations. Inoltre, In 57 of these occupa-
zioni, the median income is 50 percent or more above the overall industry medi-
an.18 The bottom line is that the high-income economy must be the high-tech
economy.
The industries with high-skilled labor are also the industries investing in new
technologies to combine with this labor. Così, economic growth policy must place
more emphasis on increasing multifactor productivity, which is the driver of value
added (profits plus wages and salaries). Achieving this goal requires coordinated
advances in science, technology, innovation, and diffusion (STID) assets.
Efficiently achieving these advances depends on investments in multiple drivers
besides technology, specifically education, capital formation, and industry infra-
structure.
Capital formation is a critical investment category because it is largely through
embodiment in capital that technology has its economic impact. Tuttavia, as fig-
ure 2 shows clearly, private-sector investment in hardware and software within the
NOI. economy stagnated during the last decade, which does not bode well for future
168
innovazioni / Making in America
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
The Future of National Manufacturing Policy
Figura 2. Fixed Private Investment in Hardware and Software (growth by decade
In 2005 dollars)
Fonte: Data from Bureau of Economic Analysis, NIPA Table 5.3.5 (includes both equipment and
software) and Table 5.3.4 (price indexes and fixed private investment). Available at
http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1
domestic productivity growth. Note that in the last several years investment in
hardware and software has shown signs of picking up. This trend has been lever-
aged by historically low interest rates and record deficit spending by government.
As this is an unstable and unsustainable situation, growth policy will have to give
much higher priority to this kind of investment.
Clearly, as the driver of long-term growth in the productivity of capital, invest-
ment in technology will have to increase as well. So, a policy imperative is to
increase national R&D spending in order to increase the amount of technology
available to be embodied in new productivity-enhancing capital stock.
Tuttavia, a major policy problem is the fact that R&D is not a homogeneous
investment, as assumed by neoclassical economic growth models and even by
many innovation economists. Therefore, in addition to the amount of R&D, IL
composition of R&D is a critical strategy metric, as is the efficiency with which
each of these variables is managed.
The Amount of R&D Investment
The amount of spending on R&D has historically been the dominant STID policy
metric. Tuttavia, in spite of a relatively long-term debate over the importance of
investment in R&D, the U.S. economy has steadily lost ground with respect to the
rest of the world. Specifically, the R&D intensity of the U.S. economy (total R&D
innovazioni / volume 7, number 3
169
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
Gregory Tassey
Figura 3. Rate of Innovation versus R&D Intensity: Percentage of companies in
an industry reporting product/process innovations, 2003-2007
Note: Index = sum of percent of companies in an industry reporting product innovations and per-
cent reporting process innovations. Sources: Science and Engineering Indicators 2010, Appendix
Tavolo 4-14; Mark Boroush, “NSF Releases Statistics on Business Innovation,” NSF InfoBrief,
ottobre 2010.
spending as a share of GDP) is the same today as it was in the mid-1960s. During
that time, an explosion of R&D investment has occurred in the rest of the world.
Today, global R&D spending is $1.4 trillion, most of it in manufacturing. In the last 15 years for which OECD has cross-country data (1995-2009), the United States has increased its R&D intensity by 15.5 percent—one of the lowest among indus- trialized nations. In contrasto, China increased its R&D intensity by 198.3 percent during this same period. In addition to the pacifist approach of neoclassical economics, another major issue arises here. Although the STID community has argued with increasing force that the United States is underinvesting in innovation and subsequent market development (scale-up), the relatively small size of the “high-tech” portion of the economy (approximately 7 percent of GDP) has left it in a relatively weak position politically with respect to getting the priority status for needed major policy initia- tives. Although intuitively clear, the importance of the amount of investment in R&D can for the first time be demonstrated using product and process innovation data recently compiled by the National Science Foundation for a broad cross-sec- tion of industries. Figura 3 compares an index of industry innovation rates with industry R&D intensities for 17 industries. The index was created by adding the number of product and process innovations for each industry in the National Science Foundation database and plotting this index against the R&D intensity for each industry. A positive correlation is clearly evident, underscoring the impor- 170 innovazioni / Making in America Downloaded from http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023 The Future of National Manufacturing Policy tance of R&D intensity as a major policy variable. The vertical dashed line in figure 3 indicates the minimum ratio of R&D to sales that typically qualifies an industry as R&D intensive. Ten of the 17 industries fall below this minimum.19 Over time, these industries will become increasingly less competitive and provide fewer jobs and lower rates of pay. This positive relationship between R&D intensity and innovation is becoming increasingly important. Not only is the $1.4 trillion spent annually on R&D in the
global economy a huge level of investment by itself; it also creates substantial lever-
age on capital formation for production and subsequent marketing operations. In
fatto, economic studies have estimated the return on R&D to be four times the
return on investment in physical capital, implying that R&D investment should be
increased by approximately a factor of four.20 The problem is that the average R&D
intensity for all U.S. manufacturing is only 3.7 percent—well below the lower end
of what are considered R&D-intensive industries. E, surprisingly, this figure has
remained unchanged since the 1980s.
The Composition of R&D Investment
High R&D intensity is no longer a sufficient condition for maintaining a compet-
itive domestic manufacturing sector. An accurate model of technology-based
growth recognizes the several phases by which scientific knowledge is turned into
successively more applied technical knowledge until the firm reaches the point of
commercialization. The earliest phase of technology research seeks to prove the
concept of how the technology will eventually provide commercially viable prod-
ucts or processes. This proof-of-concept phase typically occurs a long time before
commercialization. Its broad “technology-platform” character provides the poten-
tial for multiple market applications; questo è, the aggregate potential impact on eco-
nomic growth is substantial.
Tuttavia, the private sector has to apply a discount rate to adjust for expected
rates of return that will occur only with a considerable time lag and also to adjust
for both technical and market risk. Di conseguenza, industry significantly underinvests
in this earlyphase technology research. Finalmente, the broad sets of potential applica-
zioni (economies of scope) characteristic of modern generic technology platforms
typically extend beyond the market foci of individual firms, thus further reducing
the expected rate of return.21 For all these reasons, the “valley of death,” as the
proof-of-concept phase of R&D is sometimes referred to, is providing an increas-
ing obstacle to the development of new manufacturing technologies.
Figura 4 shows the resulting trend: industry invests less in the radically new
technologies with long-term and large economic impact potential that exhibit con-
siderable technical and market risk and capturability problems. Using 19 years of
data on annual planned company R&D expenditures from surveys of its members
by the Industrial Research Institute (IRI), the bar chart shows trends in two “sea-
change” indexes of R&D investment.22 The light-shaded bars are the annual index
numbers for “new business projects”: short-term R&D-aimed market applications
innovazioni / volume 7, number 3
171
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
Gregory Tassey
Figura 4. The “Valley of Death” is Getting Wider. Trends in short-term versus
long-term U.S. industry R&D, 1993-2011.
Fonte: From the Industrial Research Institute’s annual surveys of member companies’ R&D
spending plans for the following year. Most members are in manufacturing; sample size is not
constant from year to year.
within current technology life cycles. The dark bars are the annual index numbers
for “directed basic research”: investment in longer-term, higher-risk R&D projects
that will define future technology platforms and hence life cycles.
The trends in the two indexes are starkly different. Over almost two decades,
NOI. industry has regularly increased its investment in short-term R&D to respond
to growing competitive challenges in the global economy, while regularly decreas-
ing its planned investments in the more radical research that provides the technol-
ogy platforms for competing in future technology life cycles.
The federal government has not responded. The 50-year decline in the govern-
ment’s R&D spending relative to GDP shows no sign of abating. Infatti, govern-
ment R&D budgets are under threat of absolute declines from current levels. Even
the recent modest growth in industry’s R&D intensity topped out in the last
decade, as increasing portions of domestic company R&D funding were allocated
to other economies. But these and other indicators of technology-based invest-
ment are rarely mentioned in the interminable discussions in Western economies
of what to do about inadequate rates of economic growth.
In addition to its inadequate size, the federal government’s R&D budget has
historically been focused on specific mandated missions (national defense, health,
space exploration, eccetera.) rather than on economic growth as a first-order objective.
In the past, many of the technologies resulting from mission-oriented research
172
innovazioni / Making in America
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
The Future of National Manufacturing Policy
have eventually spun off into significant additional commercial applications; Quello
È, economies of scope were eventually realized from government-funded platform
technologies. This funding strategy worked well for several decades after World
War II, when the U.S. economy dominated the world.
Tuttavia, the indirect path by which mission-oriented technologies are devel-
oped and then later spun off to varying degrees into commercial applications
draws out the R&D and hence the technology life cycles. The lengthy indirect
process of realizing economies of scope from new technologies is no longer com-
petitive in a world economy that conducts over a trillion dollars of R&D per year
and is using increasingly efficient mechanisms to manage this investment; in par-
ticular, portfolio management techniques that optimize the new technology plat-
forms for commercial market applications. The severity of the composition prob-
lem for the U.S. economy is underscored by the fact that mission R&D spending
comprises approximately 90 percent of the total federal R&D budget.
The government has a lower discount rate, the ability to undertake riskier
research projects, and the resources to support both a broad portfolio of long-term
projects and the interfaces among the results of these projects required for system
productivity. Therefore, it must be a major supporter of the elements of complex
modern technologies with public-good content. Yet, the government’s capacity to
contribute in the early part of the R&D cycle to next-generation technologies has
steadily declined relative to the size of the economy; its R&D intensity has shrunk
from 1.92 percent in 1964 A 0.73 percent in 2008, a decline of 163 per cento. It has
shrunk even more relative to the size and importance of technology assets in
today’s global economy.
A considerable portion of government-funded R&D is performed by industry.
Così, if government R&D budgets had grown in concert with the economy’s
growth, the decline in industry’s own funding of breakthrough research (figure 4)
could have been compensated for. Such research is critical to long-term rates of
innovation because it focuses on the transition phase between basic research
(which has no intrinsic commercial value) and development (which results direct-
ly in market applications, cioè., innovazioni). This transition phase (proof-of-con-
cept research) plays a critical economic role. It reduces technical and market risk
sufficiently to encourage industry to invest the far larger funds required for applied
R&D, and then finally to fund the development phase that creates innovations.23
The trend in government-applied research support is not reassuring in this
regard. Federal funding for this phase of R&D has been unchanged in constant
dollars since 2001, more than a full decade. Other parts of the global economy rec-
ognize the need to help finance breakthrough technology research; Per esempio,
the EU’s Seventh Framework Program for Research and Technological
Development was funded at a record level of $8.3 billion in 2011. These funds are
targeted for universities, research organizations, and private industry (including
small and midsize firms, or SMEs) to leverage the development of new technology
platforms and eventually new industries.
innovazioni / volume 7, number 3
173
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
The Efficiency of R&D Investment
Gregory Tassey
From a public policy perspective, R&D efficiency is a composite of three factors:
(1) the portfolio of technologies pursued relative to the optimum one for maxi-
mum economic growth; (2) the distribution of R&D funding across the phases of
the R&D cycle relative to the distribution that minimizes R&D cycle time (time to
innovation) and maximizes innovation output; E (3) the organization of R&D
relative to the structure that optimizes the return-on-investment impacts from risk
pooling and complementary public and private contributions. The latter (comple-
mentary-asset benefits) includes the mix of participants (università, government,
and industry), the mechanisms by which public and private actors collaborate
(ecosystem attributes), and the effectiveness of R&D infrastructure (research facil-
ities, skills of researchers).
Overall, these attributes of R&D efficiency require a complex organizational
format, which is rapidly evolving among the world’s technology-based economies.
The single most important emerging organizational format, the regional innova-
tion cluster, has become a global phenomenon. The cluster model offers an
approach to increasing the efficiency of technology-based economic growth strate-
gies through the regional colocation of public and private R&D assets. The co-
location synergies among these assets increase the productivity of R&D and
enhance risk pooling at the R&D stage and even during scale-up for the produc-
tion of new technologies. Inoltre, the research consortium element of a cluster
facilitates effective management of intellectual property.
Clusters also provide concentrated labor pools with the relevant skills and pro-
mote technology diffusion, and hence broader commercialization of research
risultati. A fully functioning innovation cluster can facilitate the management by the
entire supply chain of successive technology life cycles through enhanced life-cycle
investment coordination, including planning for and public-private cofunding of
the transitions between life cycles.
The increasingly diffuse distribution of R&D in high-tech supply chains also
requires more cooperation among multiple industries, università, and levels of
government. Some clusters have built upon existing supply-chain synergies in
which suppliers and customers were already colocated and interacting regularly to
cooperate on innovation. Tuttavia, the “natural agglomeration” of related indus-
tries in a supply chain can take a long time to occur. Therefore, a proactive policy
approach is required. Unless such synergies are realized through the application of
public-private asset growth models, individual domestic companies will find
themselves at a disadvantage because they will be competing not only against firms
in other countries but also against those countries’ governments, which are part-
nering with their domestic industries.
SCALE-UP
Scale-up is critical to capturing the high value-added potential of new manufactur-
ing technologies. The U.S. economy has a history of being the innovator, only to
174
innovazioni / Making in America
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
The Future of National Manufacturing Policy
lose significant market share as technologies mature. This a critical problem
because it is during the middle and later phases of a technology’s life cycle that
large global markets are created, with the consequent derived demand for large
numbers of high-paid workers.
A major barrier is the difficulty that R&D-intensive small and midsize firms
experience as they transition from a pure R&D establishment to one with the req-
uisite manufacturing expertise. SMEs provide many innovations and business
approaches that contribute to a new technology’s market diversity and expansion.
This problem of transition is exacerbated by the imperative for advanced manufac-
turing to provide greater product variety to meet the needs of increasingly diverse
customers (“mass customization”), while at the same time maintaining high qual-
ity and low unit cost. The complexity and IT-driven nature of the evolving produc-
tion systems present formidable barriers to scale-up.
As a policy response, a recent report to Congress from the White House rec-
ommends greatly increased use of joint industry-government planning, demon-
stration projects to provide information on the changes in internal company infra-
structure needed to assimilate new manufacturing technologies, and shared pro-
duction facilities that can support SMEs as they acquire advanced production
expertise and thereby enable the transition to large-volume but also differentiated,
high-quality, and low-cost production.24
A NEO-SCHUMPETERIAN GROWTH MODEL
In the previous section I described a growth model that is very different from the
simplistic supply-side growth paradigm of neoclassical economics. A major differ-
ence is the recognition of the disruptive role that technology plays in the
Schumpeterian tradition. Tuttavia, the technology-element model also recognizes
the complexity of modern technologies and the importance of competitive dynam-
ics in determining comparative advantage among nations.
In this context, firms achieve their competitive positions through the relative
efficiency of investment by both government and industry. Unlike in neoclassical
economic growth theory, comparative advantage is determined by the efficiency of
public-private investment strategies. Infatti, the increasingly global scope of pri-
vate industry’s market strategies leaves government as the major differentiator of
domestic competitiveness among nations, as it is public investment policies that
determine the global flows of R&D and physical capital and the relative efficien-
cies of industry structures.
Tuttavia, modern technology-based competition requires two major modifi-
cations to Schumpeterian economics. Primo, the scope of potential market applica-
tions of today’s technologies is much wider than in the 1930s and 1940s, Quando
Schumpeter wrote his extremely insightful works. As a result, the market struc-
tures that develop and commercialize them are more varied. As Audretsch and
Link point out,25 Schumpeter was the first to emphasize the role of the entrepre-
neur and hence to see small firms as the engine of innovation. This focus resulted
innovazioni / volume 7, number 3
175
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
Gregory Tassey
from the need for small firms to find a way to disrupt the established markets dom-
inated by large firms. Tuttavia, Schumpeter eventually reversed his view and
emphasized the superior capabilities and market strength of large firms, which he
argued enabled them to be more efficient and successful innovators.
Today, Tuttavia, both large and small firms coexist in the same technology-
intensive supply chain. Each supplies complementary assets and thus components
of the ultimate technology systems. This complex industry structure is seen in the
emergence of innovation clusters all over the world, where not just a single indus-
try but firms of all sizes agglomerate into supply chains that deliver new technolo-
gies through a pattern of R&D and subsequent innovation that is much more dis-
tributed than the industry structure that Schumpeter described.
Secondo, the complexity of modern technologies requires multiple mechanisms
for their development and deployment. As described above, these mechanisms
include various forms of cooperation not only among competing firms but more
and more between government and industry. Infatti, the role of government in the
technology life cycle has become varied, ranging from supporting the early phases
of R&D where the public-good content is high, to leveraging the transition from
the R&D phase to scale-up for commercialization.
In summary, Schumpeter’s focus on the role of the large firm is understand-
able; in fact, it characterized innovation economics fairly accurately until a few
decades ago. The current growth model that is increasingly evident across the
global economy recognizes not only the complementary roles of large and small
firms, but also the significant public-good content of technology platforms and the
supporting infratechnologies and associated standards.
As previously discussed, individual companies will at most only invest in por-
tions of the needed “common” infrastructure (also called public-good technolo-
gies) for four reasons: (1) the higher time discount rates that industry applies to the
needed long-term investment in such breakthrough technology research reduce
the future expected value; (2) the complexity of this early phase technology
research creates substantial technical risk for any one company; (3) even if innova-
tions are technically successful, the long time to commercialization increases mar-
ket risk; (4) and the broad scope of potential markets that can be penetrated by
commercial applications (innovazioni) derived from new technology platforms is
beyond the strategic scope of virtually all companies, leading to “free rider”
(appropriability) problems for any company making the research commitment.
The fourth barrier is particularly strong for infratechnologies, as they frequently
form the basis for industry standards. Yet, the semiconductor industry, for exam-
ple, has approximately 1600 standards without which it could not function.
Given the increasing importance and complexity of a modern economy’s inno-
vation infrastructure and its pronounced effect on the decisions of global compa-
nies about where to invest in both R&D and manufacturing, coupled with its pub-
lic-good nature, the result is that national governments compete against each other
as much as global companies do. This is a sharp departure from the neoclassical
growth model and, if the United States does not fully grasp this fact and respond
176
innovazioni / Making in America
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
The Future of National Manufacturing Policy
accordingly, the current weak economic recovery will become a permanent slow-
growth track.
Finalmente, with the world’s technology-based economy expanding so rapidly, NOI.
dominance of the rate and direction of innovation is rapidly dissipating. Future
growth in real income and the standard of living will depend on the degree to
which the U.S. economy adapts to the changing competitive imperative, which at
the bottom line centers on making major growth sectors, including manufactur-
ing, much more high-tech.
1. See http://www.federalreserve.gov/Pubs/Bulletin/2012/PDF/scf12.pdf.
2. A good portion of this liquidity found its way into the stock market, raising stock prices. UN
potential benefit is the creation of a “wealth effect,” which can indirectly induce consumption.
3. This last point explains why the most troubled European economies cannot even buy time to
try to fix their underlying structural problems. Since they cannot depreciate their own curren-
cies, they are less able to manage their excessive debt and to increase exports.
4. Christina Romer, “Do Manufacturers Need Special Treatment,” New York Times, Febbraio 4,
2012.
“Manufacturing: The Third Industrial Revolution,” The Economist, April 21, 2012.
5.
6. R. Atkinson and D. Audretsch, Economic Doctrines and Policy Differences: Has the Washington
Policy Debate Been Asking the Wrong Questions? (Washington, DC: Information Technology
and Innovation Foundation, 2008). Available at
http://www.itif.org/files/EconomicDoctrine.pdf.
7. Convergence is a cyclical process by which economies catch up with the leaders. In the last
four decades of the 20th century, convergence accelerated significantly, with several emerging
economies doubling their national income in 10 A 20 years, compared with the 30 A 70 years
required to do so in the 19th century. Robert Lucas, Jr., “Trade and the Diffusion of the
Industrial Revolution,” American Economic Journal: Macroeconomics 1, NO. 1 (Gennaio 2004):
1-25.
8. More than any other factor, the homogeneity of labor led to the need for labor unions to coun-
terbalance the ability of management to easily substitute one worker for another.
9. See Donald Stokes, Pasteur’s Quadrant: Basic Science and Technological Innovation
Washington, DC: Brookings Institution, 1997; and Gregory Tassey, The Technology Imperative
Northhampton, MA: Edward Elgar, 2007.
10. Tassey, The Technology Imperative.
11. Gregory Tassey, “Underinvestment in Public-Good Technologies,” in Essays in Honor of Edwin
Mansfield, eds. F. M. Scherer and A. N. Link, special issue of the Journal of Technology Transfer
30 (2005): 89-113.
12. Gregory Tassey, “Rationales and Mechanisms for Revitalizing U.S. Manufacturing R&D
Strategies,” Journal of Technology Transfer 35 (Giugno 2010): 283-333.
13. R. Kennedy and A. Sharma, The Services Shift Upper Saddle River, NJ: FT Press, 2009.
14. William Nordhaus, “The Sources of the Productivity Rebound and the Manufacturing
Employment Puzzle,” NBER Working Paper 11354. Cambridge, MA: National Bureau of
Economic Research, 2005.
15. William Baumol, “Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis,"
American Economic Review 57 (Giugno 1967): 418-420; William Nordhaus, “Baumol’s Disease: UN
Macroeconomic Perspective,” NBER Working Paper 12218. Cambridge, MA: National Bureau
of Economic Research, 2006. Available at http://www.nber.org/papers/w12218.
16. Atkinson and Audretsch, Economic Doctrines and Policy Differences.
17. J. Manyika, D. Hunt, S. Nyquist, J. Remes, V. Malhotra, l. Mendonca, B. Auguste, and S. Test,
innovazioni / volume 7, number 3
177
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
Gregory Tassey
Growth and Renewal in the United States: Retooling America’s Economic Engine, McKinsey
Global Institute, Febbraio, 2011. See pp. 5-6 and p. 27.
18. Daniel Hecker, “High-Technology Employment: A NAICS-based Update,” Monthly Labor
Review (Luglio 2005): 57-72.
19. The three unshaded markers indicate service industries and the industry in the extreme upper
right corner is software.
20. C. Jones and J. Williams, “Measuring the Social Returns to R&D,” Quarterly Journal of
Economics 113 (novembre 1998): 1119–1135; C. Jones and J. Williams, “Too Much of a Good
Thing?: The Economics of Investment in R&D,” Journal of Economic Growth 5 (Marzo 2000):
65-85.
21. Tassey, The Technology Imperative.
22. The IRI defines a sea change index as the difference between the number of companies indi-
cating a planned increase of more than 2.5 per cento (allowance for inflation) in a particular cat-
egory of R&D in the forthcoming year and the number of companies indicating a planned
decrease in spending in that year.
23. The National Science Foundation classifies R&D into three phases: basic, applied, and develop-
ment. The proof-of-concept technology research discussed here is only the first part of applied
research.
24. “A National Strategic Plan for Advanced Manufacturing,” report prepared in response to a
Congressional directive in the reauthorization of the America Competes Act, Febbraio 2012.
Available at http://www.whitehouse.gov/sites/default/files/microsites/ostp/iam_advancedman-
ufacturing_strategicplan_2012.pdf.
25. David Audretsch and Albert Link, “Entrepreneurship and Innovation: Public Policy
Frameworks,” Journal of Technology Transfer 37, NO. 1 (2012): 1-17.
178
innovazioni / Making in America
Scaricato da http://direct.mit.edu/itgg/article-pdf/7/3/155/704936/inov_a_00144.pdf by guest on 07 settembre 2023
