BBonvillian

THE GLOBAL CHALLENGE TO U.S. INNOVATION : 

THE GLOBAL CHALLENGE TO U.S. INNOVATION National Academies of Sciences Gov’t-Univ-Ind. Research R’dtable William B. Bonvillian – Legislative Director/Chief Counsel to Senator Joseph Lieberman - 11/12/03

THE MACRO CAN DWARF THE MICRO ---: 

THE MACRO CAN DWARF THE MICRO --- Need to view particular policy directions against potential tidal wave of overall economic trends

“Not a Pretty Picture…”: 

“Not a Pretty Picture…” U.S. trade deficit in goods: $482B in ’02 $55m an hour 24/7 leaves the U.S. Of 3.3m jobs lost since 7/00, 2.7m manufacturing 28 straight mos. of mfg. job decline 24,000 manufacturing jobs lost in Oct., despite overall job rise 500,000 U.S. tech sector jobs lost in 2 years Overall productivity (trade def.) high – 3.4%, but Net Domestic Product per Worker only up 0.6% since ’00 – weaker than slow growth 70’s-80’s (G-S) - “good” & “bad” productivity issue Productivity gains not translating into trade/export gains, despite economic theory

Competitiveness Then and Now: The 70’s-80’s vs ’00’s: 

Competitiveness Then and Now: The 70’s-80’s vs ’00’s Japan & Germany: High-value, high wage, advanced tech – “just like us” Rule of Law IP protections Nat’l security: allies China: Low-value, low wage, advanced tech,entrepreneurial – new mix Limited Rule of Law IT theft model - FBI: $250m/year Nat’l security: peer competitor?

Semiconductors: “Our Companies Vs.Their Gov’t”: 

Semiconductors: “Our Companies Vs.Their Gov’t” China pegs its currency to the dollar so declining dollar in recession doesn’t lead to export rise; China gets 40% price advantage China has 17% VAT for imported goods, forgives 14% of that for domestic goods China has no corporate income tax for semiconductor production in China Gov’t Subsidizing Turn Key Plants in dedicated Tax Free Industrial Parks Guaranteeing trained employee base – stock options for returning Chinese trained in U.S. IT’S JUST STRAIGHT INDUSTRIAL POLICY

The Debt Weapon:: 

The Debt Weapon: 1970’s-80’s – Japan: used trade surplus and currency intervention to maintain 20% currency and corresponding price advantage, and bought US debt for leverage Japan now holds $440b in U.S. debt US Treasury: top priority is selling U.S. debt – has never challenged yen valuation Now: U.S. will run unprecedented $150b trade deficit for ’04 with China

The Debt Weapon, Cont’d: 

The Debt Weapon, Cont’d China has begun massive buys of our gov’t debt – now holds $122b, and China also holds $361b dollars in foreign currency reserves (doubled from ‘00 to ’03) U.S. debt exploding – $500b deficit next year, debt will grow to $5.5T by 2014 (G-S), debt will rise to 55% of GDP (not seen since repaying WW2), then we face the Baby Boom - $44T unfunded liability China is our gov’t’s banker = leverage power

Manufacturing Matters: 

Manufacturing Matters Sale of high value goods is the currency of international trade, not services Manufacturing key to 90’s productivity gains – 2X service sector Manufacturing contributed 30% of US 90’s growth Manufacturing jobs pay 23% more Multiplier effect: Average manufacturing job creates 4.2 jobs through the rest of the economy, 3X services

“Don’t Worry, We’ve Still Got Services…”: 

“Don’t Worry, We’ve Still Got Services…” Andy Grove of Intel: “When you look at the software industry, the market share trend of U.S. based companies is heading down and the market share of the leading foreign competitive countries is heading up. This X curve mirrors the development and evolution of so many industries that it would be a miracle if it didn’t happen in the same way with the IT service industry. That miracle may not be there.” 10/9/03 Clayton Christenson, Harvard Bus. Sch., in “Destructive Technologies”: low end entry and capability fuels capacity to encroach into higher end markets. Grove: this exact pattern is happening to US software and service sectors

Services and Software, Con’t: 

Services and Software, Con’t US losing 4000 white collar jobs/month H1-B’s: also now device for facilitating outsourcing - foreign co’s using to bring low paid nationals to set up outsourcing US bases (Tata-11,982,Satyam-8,692) Stimson Center Report – top tier US IT and telecomm locating R&D in China – will be a leading R&D center US company R&D expenditures abroad increased 3X since ’86 – now $17.5B

PCAST Subcomm. on Info Tech Mfg. Competitiveness: : 

PCAST Subcomm. on Info Tech Mfg. Competitiveness: “Two dangers: (1) “Our own [innovation] ecosystems can be damaged via deterioration of anchors – R&D or Manufacturing; (2) “Other countries become more competitive as they strive to replicate our innovation ecosystems. “Maintenance of US technical preeminence [is] not forever assured. “Denegration would…be a slow, evolving process”

“What is there to be done?”: 

“What is there to be done?” Globalization Paper – strong recommendations – we need to implement BUT: also have to watch the Macro Economic Policies – industrial policy efforts can dwarf our micro policy details Must Do Both: Micro and Macro