National Association of Management and Technical Assistance Centers Conference
February 1997
Good afternoon. I am delighted to be here today, to discuss technology and economic development, and the potential for Federal-State partnerships to stimulate economic growth and job creation across the country.
To put our discussion into perspective, I want to spend a few minutes reviewing the critical role technology plays in economic development. Most economists now agree that three ingredients are essential to economic growth: capital, labor and technology. Of these, technology is the most important. Leading economists estimate that technical progress has accounted for as much as one-half of economic growth in the United States over the past 50 years. Moreover, technology improves the productivity of both labor and capital.
We see the impact of technology on growth at the industry level. Our research-intensive industries—aerospace, chemicals, communications, computers, pharmaceuticals, scientific instruments, semiconductors, and software—have been growing at about twice the rate of the economy as a whole in the past two decades.
We also see the power of technology at the firm level. A recent Commerce Department analysis shows that firms that use advanced technologies are more productive and profitable, pay higher wages, and increase employment more rapidly than firms that do not.
It should be very clear that our economic success in the 21st century is going to depend to a large extent on our ability to manage technological change. This presents a significant challenge because today the sources of economic growth—capital, labor, and technology—are all global in nature.
As we know, huge amounts of money can be transferred across national borders with the push of a button or a click of a mouse. The labor pool is also becoming globalized. Half of the one million people working for the chemical industry in the United States work for foreign companies. U.S. firms use computer programmers in India and Russia.
Our science and technology base has also become global, with profound implications for our nation’s economy. From a historical perspective, in 1964, U.S. defense R&D alone was two-thirds as large as all government and private sector research and development, both civilian and military, performed by the major industrialized nations. When the U.S. government’s civilian R&D is added to that of defense, Federal R&D investments exceeded those of all other developed countries combined. When U.S. private sector R&D is added to that, you get a picture of U.S. global R&D supremacy.
The United States no longer enjoys such an overwhelmingly dominant position. Today, as one might expect, support for research and technology development is strong in the advanced industrial nations such as Japan and countries of the European Union. And these countries are increasing their emphasis on science and technology.
In addition, many new players are entering the high tech arena. The economies of countries such as Argentina, Brazil, Mexico, Indonesia, South Korea, and China are all growing dramatically. Many of these countries have policies designed to acquire technology from the advanced industrial nations by demanding transfers of technology in exchange for market access, by hosting visiting experts, and by establishing investment laws and guidelines that encourage technology inflows.
Also, these countries are emphasizing the development of indigenous technological capabilities—increasing R&D investments, establishing research institutes and key technology programs, forming government-industry partnerships, boosting technical manpower development programs, and planning for manufacturing modernization and information superhighways.
These developments strongly suggest that our policies must recognize a dynamic global technology enterprise in which many nations—and their multinational companies—are increasingly able to participate. Companies can and do perform R&D anywhere in the world— and today’s information technology makes it possible for researchers working thousands of miles apart to collaborate.
The globalization of capital, labor and technology has created a new kind of competition. It is a competition among nations to attract and retain these engines of wealth creation that increasingly skip around the globe looking for the best opportunities. Currently, the U.S. is very well positioned for this competition.
Thanks to a century of foresight and investment, the United States is blessed with rich assets to support technology-based growth. And these assets are managed at both the national and state level. For example, we have built the world’s finest R&D infrastructure—a piece managed by the Federal Government, a piece managed by the private sector and another piece that is closely linked to the states. Our university system is the envy of the world—demonstrated by the foreign nationals that flood our graduate-level research institutions. Many of these universities are state supported, and have produced the technical manpower on which all of our high-tech industries have thrived. The Federal government also provides support for university research. For example, the Department of Defense is a major investor in our nation’s engineering schools.
Federal investments, in partnership with the states, have created an unparalleled national infrastructure—roads and highways, bridges, ports and airports—that has underpinned the U.S. ability to conduct commerce efficiently and effectively.
And, probably more than in any other nation on earth, our culture reveres entrepreneurship, encourages business risk-taking, and revels in competition—all supported by highly efficient capital markets.
We have numerous examples of ways in which the combination of federal state and local assets and public private assets encourage growth and attract businesses. For example, the New York/New Jersey region maintains a substantial capacity in the drug and medical instruments business. This is directly supported by linkages to university teaching and research. In another example, North Carolina rose to number four of the top ten states in biotechnology because of its 25 year commitment to the development of Research Triangle Park and to the improvement of the three principal universities there.
Such business clusters suggest that proximity to technology and university resources, selective national and state government-sponsored initiatives, capital mobility, and an entrepreneurial culture foster innovation, attract investment, and encourage job creation.
Interestingly most of this activity has happened in the absence of an integrated National policy for harnessing these assets. Traditionally, we have not integrated our policies across disciplines—technology, business climate, and education, for example—or integrated across our levels of government. For most of this century, we really haven’t had to. The United States was the strongest global competitor and the dominant R&D performer. American firms were uniquely capable of exploiting scientific and technological advances. Those days are over.
The Administration believes that if we want to sustain our global economic leadership into the 21st century, we must develop and implement an integrated national policy to get the maximum benefit out of all of our assets. This policy must accomplish three goals:
- We must strengthen the assets within the borders of the U.S. that attract global investment and the business activity of the world’s multi-nationals;
- We must strengthen the assets that will help businesses based in the United States grow and create high-wage jobs;
- And, we must strengthen our capacity for innovation.
In working toward these three goals, organizations at every level of our economy bring something to the table. For example, the Federal government brings its ability to address national issues related to technology, the business environment, education and infrastructure. The Federal government remains one of the Nation’s major investors in research and development, and maintains a laboratory system that is unique in the world. And, through its support of university research, it is a major contributor to the development of our scientific and technical personnel.
State and regional efforts also bring much to the table. States and regional institutions have experience in working closely with businesses to foster local economic development. State and local governments are responsible for preparing our young people for higher education or for entry to the work force. States also support many of our research universities—the institutions responsible for creating new knowledge and cultivating the human capital that are the lifeblood of our innovation system. State programs—such as incubators and seed capital funds—help to get technology based businesses off the ground. And states are positioned to build bridges between their local engines of economic growth—entrepreneurs, young companies, and small and medium-sized manufacturers—and national technology assets and initiatives.
The administration’s goal is to more effectively integrate these different strengths into a more seamless innovation system, a system that makes it easier for the private sector to do business and use public science and technology resources. We have the pieces; now we must fit them together into a coherent whole.
There is growing consensus that four broad areas of policy need to be addressed: business climate, infrastructure, investing in people, and technology.
First and foremost, we must work together to improve the business climate to make the United States the most attractive place in the world to do business. Capital and regulatory issues are key here, and the Federal government plays a very large role. For example, this Administration has focused on reducing the deficit and balancing the budget to free capital and keep interest rates low for private sector investment. But it is equally important to focus on state laws and regulations which can, and often do, present a complex landscape for those wishing to do business in the United States.
Second, a modern infrastructure has always attracted business activity. This Administration has sought to deploy new technologies—such as intelligent transportation technologies—in our traditional forms of infrastructure. Clearly, this cannot be done quickly and effectively in the absence of a strong Federal-state partnership.
In addition, we need a new kind of infrastructure: The national information infrastructure. And, increasingly we see states take a role in accelerating the deployment of this system vital to our knowledge-based economy.
Third, a highly skilled work force is a magnet for the kind of business investment that creates national wealth and high-wage jobs, and there is widespread agreement that we need improvements here. State and local governments must play a very large role. But this is also an area of partnership. In recognition of the value placed on intellectual assets in a knowledgebased economy, the President, in his State of the Union address, named education as the number one priority for his Administration. This commitment is backed-up with a portfolio of policies— from Goals 2000 and educational technologies, to tax deductions for higher education and school-to-work programs.
And fourth, we must maintain our world class science and technology infrastructure, with sustained investments in research and development; and with partnership programs that create a rapid, more seamless system of innovation and technology deployment.
In addition, we have been working with the states to improve coordination of state and federal efforts through the U.S. Innovation Partnership. The idea for this partnership came from the States. A State-Federal Technology Partnership Task Force was formed—led by former Governors Celeste and Thornburg—which brought together the Federal government, the National Governors Association, the National Conference of State Legislatures, the Carnegie Commission, and the American Society of Mechanical Engineers. This group made recommendations in the fall of 1995 in areas such as the role of the States in the national innovation system, private sector investments in technology, and building manufacturing excellence. A follow-on meeting convened by the President’s Science Advisor refined this work, and began to lay down the foundation for a stronger partnership, and agenda of specific actions that will produce concrete results in the areas of information technology, manufacturing, access to capital, and regulatory innovation. This partnership enjoys high-level support. To date, 16 governors have committed to the partnership and other governors are expected to join. Collaborative projects are already underway or on the drawing board.
In closing, I want to reiterate that today’s challenges presented by globalization and technology call for a change in the way we think about economic development. While it might work for some states in the short term, our national interests will not be well served if our principal means of economic development at the state level involves tax breaks to lure companies from one state to another. That’s just a competition over who gets bigger slice of the pie that is already in the oven.
Instead, we need to focus on how to bake a bigger pie. And, if we look across the country, and at all levels of government, we have in hand all of the ingredients needed to make that bigger pie. We need to focus on new and innovative ways of partnership to leverage all of our nation’s assets. This is what the U.S. Innovation Partnership is designed to do. I encourage all of you to join us.
Thank you.