U.S. economic prosperity is being hijacked by 'apostles of denial'

Manufacturing & Technology News, Feb 12, 2008 by Richard McCormack

U.S. policy makers are beholden to "apostles of denial," and are not addressing the realities of a U.S. economy that is in long-term decline due to the loss of leadership in technology, according to the chief economist at the National Institute of Standards and Technology.

"Unfortunately, while trends indicating declining competitive positions have been identified and proclaimed by an increasing number of analysts, they nevertheless continue to be rejected or minimized by an even larger number of other analysts or policy makers," writes NIST senior economist Gregory Tassey in a book entitled, "The Technology Imperative."

The apostles of denial are "befuddling" the debate and are blocking an effective U.S. response to the growing competitive challenge. They successfully argue that the federal government has little or no role in the development of industrial and generic technologies that generate wealth and jobs. They cite economic indicators such as productivity growth rates that are no longer valid. They have not acknowledged basic economic facts pointing to economic decline, such as the growing and massive U.S. trade imbalance in the important advanced technology sector. They propagate a vacuous debate over "corporate welfare" and "picking winners and losers" and have led the country into a painful economic era.

"To the degree that the decline in competitiveness is recognized, refusal to act is rampant," writes Tassey. "Those with a stake in the status quo and their defenders in government argue for old models of competitive strategy and economic growth. Specifically, factions with vested interests in economic assets such as physical and intellectual capital, existing labor skills, or simply a fear of the trauma and the cost of change, resist adaptation. This is the installed-base effect and it is widespread."

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Countries, rather than private companies, "are the growing factor in determining the basis for competitive advantage," writes Tassey. "Because this principle is not yet accepted in the United States, studying, understanding and formulating strategies and policies to address long-term needs of a large, technology-based economy are being short-changed."

The apostles of denial have failed to recognize the negative economic impact caused by the loss of high tech supply chains and chronic under investment in R&D. "History shows that resistance to adapt to changing economic conditions is built into the very factors that led to success," writes Tassey. "Thus, most former economic leaders experience sustained periods of inferior economic performance which persist until economic conditions become bad enough to force a change."

U.S economic performance is struggling with two fundamental problems that portend serious constraints on future economic growth. "First, the U.S economy has lost its perspective on what drives growth," writes Tassey. "Excessive consumption fueled by accumulation of enormous debt precludes sufficient aggregate investment. Second, what investment is occurring suffers from serious compositional inadequacies, in particular, inadequate rates of investment in technology, especially breakthrough technologies--the ones that create new industries and thereby provide a large number of high-paying jobs."

In an interview, Tassey says: "If you care about the U.S. economy and its future, you have to worry about what we are not doing," which is investing in the technological infrastructure of the country. This lack of investment is occurring at a time of a major technology transition, as exemplified by the semiconductor industry where there is a transformational shift to nanotechnology. "Every time you go through a major technology cycle shift, the role of the technology infrastructure changes and it requires new investment strategies," Tassey explains. "The industry is aware of this--they have their roadmaps--but the investment has to be done in the world of global competition--it has to be done consciously and aggressively."

But that is not happening in the United States, which has steadily lost share in the global semiconductor market. "Governments are now more important in determining where investment capital flows," says Tassey. "We are at a critical time for semiconductors as we make this transition to a new technology cycle. If we don't step up during this transition, then we're going to lose the semiconductor industry."

Global competitors have embraced a public-private technology-based growth paradigm. "No single economy has to surpass the leader to cause erosion of that leader's position," writes Tassey. "Rather, the determination of multiple pursuers to catch up to the United States is collectively taking significant chunks of the U.S. share of one technology-based market after another. This piranha effect, in which each competing economy bites off a piece of the leader's domain until collective convergence has occurred, eventually leaves the leader at best as one of several competitors in markets it once dominated."