#  NIST Special Publication 897 

###  A Working Conference on 

## Global Growth of Technology: Is America Prepared?

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**December 7, 1995National Institute of Standards and Technology, Gaithersburg, MDTable of Contents*Editors:George Mulholland, NISTJohn Fassett, NISTCharles Ehrlich, NIST
*Conference Coordinators:Howard  B. Samuel, Council on CompetitivenessChris E.Kuyatt, NIST
*Sponsored by:Council on Competitiveness*and*National Institute of Standards and Technology
Issued June 1996
**U.S. Department of CommerceMichael Kantor, Secretary
Technology AdministrationMary L. Good, Under Secretary for Technology
National Institute of Standards and TechnologyArati Prabhakar, DirectorNational Institute of Standards and Technology, Special Publication 897, Natl. Inst.Stand.Technol., Spec. Publ. 897, 103 pages (June1996), CODEN: NSPUE2
U.S. Government Printing Office, Washington: 1996
For Sale by the Superintendent of Documents, U.S. Government Printing Office,Washington, DC 20402-9325Table of Contents
**Council on Competitiveness(Description)****CoC Publications****Introduction****Executive Summary****Summaries**Session 1 - The Impact of Technology on the U.S. Ability toCompete
Session 2 - The Implications of Technology Growth for Industry
Session 3 - The Implications of Technology Growth for the Workers
Session 4 - Implications of Technology Growth on the Quality of Life
Session 5 - Technology and Government Policy: What Level IsAppropriate**Appendices**Appendix A - Agenda for MeetingAppendix B - Edited TranscriptsOpening Remarks
Session 1 - The Impact of Technology on the U.S. Ability toCompete
Session 2 - The Implications of Technology Growth forIndustry
Session 3 - The Implications of Technology Growth for Workers

Opening Afternoon Session
Session 4 - Implications of Technology Growth on the Quality ofLife
Session 5 - Technology and Government Policy: What Level IsAppropriate?

Concluding DiscussionAppendix C - Biographies of SpeakersAppendix D - List of AttendeesCouncil on Competitiveness
The Council on Competitiveness is a nonpartisan, nonprofit forum of chief executives frombusiness,university, and labor working together to set a national action agenda to strengthen U.S.competitiveness.The Council believes that competitiveness is a compelling priority for the country as a wholebecause itunderpins the standard of living of every American as well as U.S. leadership in the internationalcommunity.

The Council actively engages its 140 members in a work program that spans technologicalinnovation,human resource development, trade, fiscal policy, and the benchmarking of U.S.competitiveness. TheCouncil normally focuses on two major initiatives a year. Council members select issues toexamine,then form advisory committees to gather data and develop consensus-based recommendations.Thisapproach allows the Council to combine exhaustive research with the practical insights of leadersfromindustry, academia, and organized labor. In addition, chief executives from more than 40 of thecountry'smost prominent nonprofit research organizations, professional societies, and trade associationscontributetheir expertise as national affiliates of the Council.

The Council views its reports and recommendations as starting points to help set the nationalagenda oncompetitiveness issues. Once a report has been released, Council members follow up with pressbriefings, Congressional testimony, discussions at the highest levels of the executive branch, andmeetings across the country. The work of the Council is guided by a 25-member ExecutiveCommittee.A full-time staff of 16 provides research support and operational outreach.
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CoC Publications***Endless Frontier, Limited Resources: U.S. R&D Policy forCompetitiveness*
     The report examines research and development trends in the six key industry sectors,providespolicy guidelines to meet the challenges confronting the stakeholders in America's R&Denterprise, and sets the agenda for a national discussion on the future of R&D by focusingonindustry/ government/university partnerships.  April 1996 ($25.00; $3.50 s/h domestic &$6.50 s/hforeign).

***1995 Competitiveness Index*
     U.S. performance is compared with that of other Summit 7 countries in this annualassessment ofAmerica's competitive position.  The Index addresses four key areas: investment, productivity,trade and standard of living.  August 1995 ($15.00).

***Building on Baldrige: American Quality for the 21st Century*
     This report reviews the effectiveness of and gives recommendations for the continuationandexpansion of the Malcolm Baldrige Quality Award program in promoting quality principles andpractices.  August 1995 ($15.00).

***Human Resources Competitiveness Profile*
     This report looks at a lifecycle approach to competitiveness and human resource issues infourareas: family and early childhood, primary and secondary school education, university education,and training.  U.S. performance in these areas is compared with other countries.  April 1995($15.00).

***Breaking the Barriers to the National Information Infrastructure*
     The third in a series of policy documents, this report highlights the Council's September1994 NIIapplications conference.  It lists and examines the barriers users are facing in manufacturing,education, electronic commerce, healthcare and entertainment.  December 1994. ($25.00; $3.00s/h domestic & $6.50 foreign).

***Critical Technologies Update 1994*
     An update from the Council's Gaining New Ground report, this document reevaluatesAmerica'sperformance in 94 critical technologies.  September 1994. ($10.00).

***Economic Security: The Dollar$ and Sense of U.S.******ForeignPolicy*
     This report analyzes eight case studies involving recent foreign policy decisions, withemphasis onexport controls and export sanctions, and tallies their cost to the United States in terms of lostexports and jobs.  February 1994 ($25.00).

***Vision for the 21st Information Infrastructure*
     The first in a series of NII policy reports, this statement defines informationinfrastructure,assesses the U.S. position relative to its foreign competitors and addresses the roles ofgovernmentand the private sector.  May 1993 ($15.00).

***Highway to Health: Transforming U.S. Health Care in the InformationAge*
     A follow-on to the council's NII applications conference, this report illustrates how theNII can
     be harnessed in conjunction with market forces to address the need to control costs at atime whenthe demand for healthcare services is rising.  It identifies the principle barriers preventing thedevelopment of four robust healthcare market segments--"Remote Care," "Individual HealthInformation and Management," "Integration of Health Information Systems," and "HealthcareResearch and Education"--and recommends steps to overcoming those barriers.  March 1996($25.00; $3.50 s/h domestic & $6.50 s/h foreign).

Shipping/handling for publications is $2.50 in the U.S.; foreign is $5.00 except where indicated. Pre-payment only; make check or money order **(cash accepted in person only)**payableto the Council onCompetitiveness, 1401 H Street, NW, Suite 650, Washington, DC 20005.

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Introduction
The purpose of this conference "Global Growth of Technology: Is America Prepared?" was toarticulate the issues behind the question and to address these issues from the broadest range ofperspectives.  The impetus for the conference was provided by the National Institute of StandardsandTechnology's (NIST) Visiting Committee for Advanced Technology.  The Committee enlistedthesupport of the Council on Competitiveness (CoC) for organizing this meeting. NIST and the CoCareappropriate partners to host this conference: NIST's programs are defined by its core mission ofpromoting U.S. economic growth by working with industry to develop technology,measurements, andstandards; the CoC focuses on the key issues related to competitiveness such as trade,productivity,investment, and the U.S. standard of living.

A select group of American leaders from industry, academia, and government attended theconference,representing business, economics, labor, education, and Federal policy perspectives. The meetingwascochaired by John Yochelson, President of the Council on Competitiveness, and Arati Prabhakar,Director of NIST. It was divided into five sessions, each consisting of a presentation followed bydiscussion.  The first three sessions concerned the societal impact of technology including itseffect onindustry, workers, and the quality of life.  The fourth session focused on the impact oftechnology onAmerican competitiveness. The final session addressed the appropriate role of government insupport oftechnology.

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EXECUTIVE SUMMARY
**GLOBAL GROWTH OF TECHNOLOGY: IS AMERICAPREPARED?**

Dr. Robert J. Hermann discussed American technological strengths, highlighting systems andsystemsintegration as a crucial American strength.  A major point of his discussion was thattechnologicalstrength was only one of several strengths needed to compete in a global economy.  Other keyAmerican strengths enumerated by Dr. Hermann include military strength, entrepreneurialfreedom,and moral authority. 

Dr. Thomas Everhart made a second defining point for the workshop by asserting that we areshiftingfrom an economy based on natural resources to an economy based on information andknowledge. There was an extensive discussion on how to prepare workers with appropriate skills for the neweconomy and how to do this in a way that benefits are evenly distributed.  Economists pointedout thatintellectual skills are not properly included in the return-on-investment equation even thoughsuch skillsdrive "information technology."  In previous resource driven economy, manufacturing equipmentandmaterial processing were major cost factors.  Dr. Gary Burtless presented data to demonstratethat overthe past two decades, the time period during which the economy changed to one dominated byinformation, a widening gap has developed between the highest and lowest incomes.  Theproblemposed by a skewed income distribution along with a stagnating standard of living was viewed asamongthe greatest problems facing our society. A number of suggestions for addressing this problemwerepresented including improved education of workers, saving and investment by the public, moreinvolvement in the process by the information gurus such as Bill Gates and Michael Eisner, andcompany sponsored worker training programs such as those being developed by Motorola andHewlettPackard.

The role of international companies in relation to the global economy was another key theme oftheconference.  The leaders of international companies at the meeting expressed the followingfar-reachingideas: that a reduction in market share would be viewed as success, assuming a sufficiently largeincrease in the total market; that the companies would focus on improving all aspects of itsworkers'lives as well as the United States; that low employee wages were not the prime interest for acompanylocating a facility in a foreign country; and that a company cannot succeed unless its competitorssucceed.  The international companies based in the United States recognize that they must domore onbehalf of their foreign workers' standard of living and rights.  Companies are finding ways toresolvethe apparent conflict between international business strategies and national interest. 

Dr. Rita Colwell gave a vivid picture of the promise of biotechnology for improving our qualityof life. However, she and Mrs. Diana MacArthur identified constraints for full realization of theevolvingtechnology. These barriers include lack of support for biotechnology enabling research, failure oftheHealth Maintenance Organizations to support the health care infrastructure including academichealthcenters, and troubling ethical questions related to manipulating the genome and paying for healthcare.

Mr. Robert W. Galvin acknowledged the Constitutional mandate for partnerships betweengovernmentand industry, but wasn't afraid to stir the pot by questioning whether the current governmentlaboratories were worthy of partnerships.  He proposed that Congress fund multi-year researchprojectsin general fields defined by the private sector through depoliticized institutions with minimumgovernment interference.  Mr. Galvin predicted increasing industrial revenue will lead to ashrinkingrole of government in the area of semiconductor technology.  He stated  that mission orientedagenciesappropriately should continue to sponsor mission related research and development, usingnationaldefense and standards missions as examples.

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SUMMARIES
**GLOBAL GROWTH OF TECHNOLOGY: IS AMERICAPREPARED?

Session 1: The Impact of Technology on the U.S. Ability toCompete
Speaker:  Robert J. Hermann, United Technologies Corporation

Dr. Hermann began with the tough questions: What do we mean by competing and winning? How willwe measure success?  He identified improved quality of life as an indicator of success and thisshouldextend to our "competitors," that is, to our trading partners and allies.  He stated that it is unlikelythatwe can reap the benefits of a high quality of life without our "competitors" also succeeding.  Hewenton to give an example, saying that his company makes jet engines, some of which are installed inBoeing aircraft.  Neither Boeing nor United Technologies will do well in the future if theChinesecannot afford to buy plane tickets.

Dr. Hermann presented a strategy for American participation in a world economy.  He said wemustrecognize our strengths and build upon them.  First, the fact that the United States is the onlysuperpower colors every relationship.  We are expected to lead in all aspects of life, but areresentedwhen we do.  Our political system is a key strength.  It provides stability, personal freedom, andentrepreneurial freedom.  Our diversity and individual freedom are enabling features of oursocietywhich will not be easily emulated elsewhere.  He did point out one weakness in our economy: thelarge gap between the highest and lowest paid.  This gap puts at risk our moral authority,politicalstability, and any national feeling of a superior society.  This aspect of our society must becorrected.

Dr. Hermann noted that statistically we are the strongest producer in the world, world class inscienceand technology, have a strong manufacturing sector, and a powerful service sector.  He identifiedsystems integration as a unique advantage.  The ability to integrate technical, financial, and allaspectsof business will be critical.  The ability to organize and coordinate multi-cultural efforts willbecomecrucial.  We have a unique, almost uncatchable position in systems.

Dr. Hermann stated that a new paradigm will be needed compared to the approach used duringthe coldwar.  Competition is taking different forms.  It will depend on more than science and technologyandmust be coupled to our other comparative advantages.   Dr. Hermann believes we can thrive inthefuture and participate in the advance of other societies while we do so.

Discussion:

*Standard of Living: Recent History*

One major focus of the discussion was the quality of life/standard of living.  Hermann expandedon hispresentation with specifics of a quality of life including individual freedom in the entrepreneurialsenseand security from physical harm.  The ensuing discussion focussed on the more easilycharacterizedstandard of living.  There was general consensus that while the economy was continuing to grow,thestandard of living had stagnated over the past 20 years.  It was pointed out that there was amarkeddecrease in productivity growth about 20 years ago from about 2.5 percent per year to about 1percentper year and it has stayed flat since then.  The cause is not known.  Concern was expressed abouttheincome distribution problem, discussed earlier by Hermann, including the belief that thiscondition hasbeen aggravated by corporate downsizing and the loss in power of the unions.  

*Ideas about Improving the Standard of Living*

There was extensive discussion about how to improve standard of living and income distribution. Interms of the economy in general, there is a need for increased investment.  This point wasmentionedby several people; however, it was also pointed out that this is difficult if the salaries are low. Consumption and savings need to grow together.  One approach for improving income distributionwas to focus on training for the less skilled.  Another was to look toward corporations to addresstheissue of income distribution.  The negative impacts of corporate downsizing, corporate buyouts,andreduced wages for lower skilled workers were categorized by one participant as "corporatemisbehaving."  Another felt that the  challenge was to keep the positive aspects of currentcorporateactivity while providing improvements for workers.  Hermann indicated that the new wave oftechnologists, like Gates, need to participate more in the political process.  This will help usdevelop abetter intellectual basis for what determines our success. 

*International Trade*

A third topic concerned the impact of international trade on the American standard of living.  Itwasstated that selling low technology products to China will not solve our standard of livingproblem,especially if it leads to companies producing products in China based on paying low wages to theChinese workers.  It was pointed out that some of the Chinese sales were high technology such astelephone equipment.  This helps the economy.  Another approach to improving internationaltrade is torisk more money with small high technology companies to take back the low technology productmarket at home from foreign competitors.

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Session 2: The Implications of Technology Growth for Industry
Speaker: Thomas Everhart, California Institute of Technology

The United States is in a technology-based economy.  The United States has moved in the lastcenturyfrom a resource-based economy built on natural resources, minerals, oil, and agriculture, to anintelligence-based economy.  In the future  it is those processes that have value added by humanmindsthat will grow. In a large measure, we haven't figured out the consequences of this change.  Andsomeother countries (such as Singapore) understand it better than we do.  The issues ofcompetitiveness gobeyond just the bottom line for a company--which is short-sighted--and must include the entirefabricof our nation, including policy.

There are many types of change:    
-revolutionary: radios to TV, piston engine to jet engine;
-evolutionary: automobile;
-labor-saving: washing machine and breadmaker;
-time-saving: e-mail and fax, TV.

Technological change leads to reengineering the processes in our institutions; which leads toempowering of workers.  The movement is away from rule-based control to workers'  judgment. Forthis reason, we need to invest in our workforce--to promote education and training for workers. Thisinvestment is especially hard for small companies.  

The computer industry provides a telling example of revolutionary change: in the movementfromvacuum tubes to transistors to integrated circuits.  The leaders at the beginning are not the leadersnow. The early firms could not adapt fast enough.  They could not envision what the world was goingto belike and how they would fit into it.  Technological change requires imagination and creativevision -new systems to handle the change.

The role of education in America is critical.  The universities must supply the intelligent peopleneededto support the information-based economy.  The universities must teach people how to think. The K-12system in America is archaic and needs to be fixed.  Secondary schools need to teach studentsaboutscience--how you do science, not just the content of science.  As emphasized by Michael Eisner,thehead of Disney, in describing the movie "Toy Story": the technology is good, but the mostimportantthing is getting the story right.  Both the story and the technology require intellectual input.  Thatis thenatural resource we need to use. 

Discussion:  

*Investment in Education*

How do economists include intellectual skills in the return-on-investment equation? Normallythey arenot included.  Traditionally, education and skills are treated by the same models as physicalcapital,where future income is estimated from the investments made today.  However, measures ofeducationare crude--years in workforce, years of education.  These measures may not reflect vitalinformationfor today's skills.  It is a mistake to concentrate only on physical capital simply because it iseasier tomeasure.  We need a wiser dialogue. The errors we make in estimation of physical andeducationalcapital are the same. We do know what we are spending on education and training.  What wedon'tknow is what we are getting for our education dollars and who is spending what on education(individuals vs. government vs. companies).  We do know that the investment is going down.Taxpolicy does not wisely support education.  For instance, training for new jobs is nottax-deductible,only for current jobs.  And, no one is willing to pay taxes to support education.  

*Paradigm Shifts in College Education/Where Education Fails*

The U.S. college and university system is working well and is the envy of the world.  One of therevolutionary changes is the percentage of the population that now attends college.  It is the K-12system that is education's weak point in the U.S. educational system.  However, the collegesystem  inthe United States is in need of change.  Continuing education is crucial to continuing growth, andaparadigm shift is needed to bring the university to the student instead of the student to theuniversity. Although there are nontraditional universities ("university of TV") already in place, there istremendous value in attending college; the time spent in the college milieu and the socialinteractionsthat occur are as valuable to the student as the information learned.  It is also true that presenttechnological systems, videotapes and interactive computers, can and will bring education to thehome,and that the Internet will be a vast resource for education in the future.

What is happening in the Nation's K-12 system reflects the Nation's failure to invest in ournon-college-bound students.  We have a system that does not support 16- to 25-year-olds infinding jobswith potential. Apprenticeship programs are vital.  Employers in general say training is criticalbut then 
dedicate their efforts to improve training in schools.  How do you get employers to buy into andtovalue worker education.  Businesses are not rewarded for the development of and investment inhumancapital.  And yet, investment in people underpins growth in our knowledge-based economy. Increasedautomation of complex processes in our society, from manufacturing to government and healthcare,has not happened in education.  The question remains, how and when to use technology ineducationand how to enable the lower strata of society to deal with this knowledge-based economy. PacTel maybe wiring every school in America for the Internet, but how do you use it?  It is threatening to theteachers and really does require a paradigm shift in education.  We have a lot to do to reengineerourprocesses in government, education, and industry. 

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Session 3: The Implication of Technology Growth for theWorkers
Speaker: Gary Burtless, Brookings Institute

Dr. Burtless focussed his talk on two issues: 
     What has happened to our relative wages over the past 20 years?  
     What has happened to the relative intensity of use of the skill classes of Americanworkers?

Dr. Burtless used a series of graphs to summarize the information on these issues (see transcriptlater inthis report).  Between 1973 and 1993 the relative wages at the upper and lower ends of thedistributionhave widened greatly, especially for men, with the lowest 5 percentile earning about 30 percentless in1993 compared to 1973.  He showed there has been a precipitous change in salaries as a functionofeducational attainment since 1979.  For example, in 1979 the salary of a person without a highschooldiploma was 60 percent of that of a college graduate, while in 1993 it was about 40 percent. 

Some try to blame this trend of widening relative wages on international trade.  Dr. Burtlessshowedthat the earnings ratio for trade-affected industries and least-affected industries had the sametrend overthe past 25 years, suggesting that international trade was not a major factor.  He did allow thatinternational trade could have a second order effect by displacing workers from trade-affectedindustries to lower paying nonaffected industries.

Dr. Burtless then examined the classic economic factors, supply and demand, for an explanationof theincreasing disparity in wages.  Contrary to some people's suggestions, the supply of skilledworkers asmeasured by education has continued to increase, though less rapidly than in the 1960's.  Sosupplydoes not appear to be the issue.

The analysis of the demand side of the equation is more complex. There has been a shift indemand thatfavors the highest level of education.  This is not a technology driven trend but rather a result ofchanges in how firms are managed and organized.  These changes arose from the corporatebuyoutculture, international trade, and the emergence of the personal computer as a routine tool.  Thethreatof corporate buyouts and the resulting focus on the bottom line has led to both a reduction inmiddlemanagers and in reduced salaries for some workers. 

Dr. Burtless then addressed the central question:  What factors might cause the American workerto beshortchanged?  He pointed out that U.S. secondary school graduates are poorly prepared,especiallyrelative to the Japanese and European students.  There is a much greater public investment ineducationfor the college graduate than for a student not finishing high school (approximately 4 to 1).  Thissametrend also persists for investment in  training provided by employers.  In other countries thedifferenceis smaller.

For the top one third of Americans, we are doing very well, perhaps the best in the world.  On theother hand, for the remaining two thirds the system is doing poorly and we need to do better. Anincreased investment of both public and private funds is needed.

Discussion:

*Training for American Workers*

Several panelists gave examples of companies, including Hewlett Packard and Motorola, thatseem toinvest more on training the lower skill level employees than on the higher levels.  One panelistindicated that there was tremendous resistance to changing the curricula of secondary students toprovide higher skilled workers; however, community colleges were receptive to plans forimprovingworkers skills.  Dr. Burtless admitted that there were companies providing exceptional support totheless skilled employee, but he reiterated that surveys indicated the opposite on the average; thatemployers invest the most per capita in continued training in their most highly skilledemployees.

*Mobility of American Workforce*

A need was identified for institutional support for the increasingly mobile American workforce -suchthings as portable pensions and health care.  As a result of corporate takeovers, the likelihood ofanemployee's staying 40 years at one company was now small. Dr. Burtless replied that, on theaverage,an employee's tenure with a company was as long or longer now than previously, except for theleastskilled worker.  However, he  pointed out that the penalty for losing a job is greater than in thepast.

*Reducing Wage Disparity*

There was interest in the possibility of a supply side solution to the problem of wage disparity viaimproved training and education.  Dr. Burtless indicated that an improvement in the skill levelwouldincrease the wages to some extent, but there is more to the problem than the supply of skilledworkers. He stated that there were other institutions within the society which ensure the persistence ofwide wagedisparities.

Dr. Burtless referred to his book entitled "Growth with Equity" in responding to how thedisparity inwages might be changed.  

Two specific recommendations are an investment in lower skilled
workers and the establishment of a worker's tax, which could be avoided if companies trainedtheirown employees.  Earlier it was mentioned by one of the panelists that the training tax had failedtoexcite serious political interest.

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Session 4: Implications of Technology Growth on the Qualityof Life
Speaker: Diana MacArthur, Dynamac Corporation

One of the most important quality-of-life issues is the maintenance of the primacy of the U.S.healthcare system in the face of transformations caused by changes in legislation, regulation, and themarketplace.  Cost considerations are causing changes that create market barriers--barriers thatnotonly will inhibit the growth of biotechnology and other health care industries but also impede thedelivery of quality health care.  These changes are manifested by the growth of mega managedcareorganizations and the restructuring of the medical insurance industry.

These changes threaten a critical component of the U.S. health care delivery infrastructure--theacademic health centers (AHCs) that train physicians, develop biomedical knowledge andclinicaltechniques, provide unique patient-care resources, and treat many of the indigent and theuninsured. The preservation of AHCs and their research and education roles in the evolving health careindustry isa major issue in the broader weave of national security and requires policy development at thehighestechelons of Federal and state governments.  Development of improved systems and procedurestoachieve cost reductions and increased efficacy of treatment is needed to moderate the overall costofhealth care services and to allow more resources to be directed to medical research andeducation.  Thequality of health care should not be sacrificed in the name of cost containment.

Speaker: Rita Colwell, University of Maryland Biotechnology Institute

Are we prepared for what DNA sequencing will bring us?  We are in the midst of arevolution--biotechnology, genome sequencing, and DNA technologies promise to revolutionizemedicine.  There are 108,000 employees in the biotechnology industry today.  It is predicted thattherewill be more than a million biotech employees in 2005 or 2010.  The ability to sequence theDNA ofpathogens--there are now several examples of where this has been done--will result in different,moreeffective ways to target pathogens.  The goal of sequencing the entire human genome is in sightandgene therapies have been proposed which will drastically change the nature of medical treatment.Medicine will become proactive and prophylactic rather than reactive and therapeutic.  Thisvision maynot be immediate;  in the near future the greatest advances will be in diagnostics.

The biotechnology revolution will create tough social issues that must be faced.  Theidentification ofgenes that predispose an individual to a specific disease state, such as cystic fibrosis or lungcancer, isinformation that can both be used and abused.  Medical care can be provided to treatsusceptibilitiesand behavior can be modified to minimize the potential onset of these predisposed disease states. Butwhat is society's responsibility? What is the appropriate response of health insurance and healthcareproviders?  There are also complex ethical and economic issues to be faced.  To what extentshould thegenome be manipulated?  How are medical care resources to be allocated, and who should pay? Thereare no easy answers.

Biological terrorism is also a real threat and the role that biotechnology could play in weakeningournational security must be considered.

The biotechnology revolution will impact more than medicine.  The potential impact onagriculture isjust as great.  The reengineered tomato is available today and the potential for modifying futureagricultural products to improve productivity and quality of these products is tremendous. Bioremediation or environmental biotechnology may also be significant.  The day may comewhenwaste streams are considered resources--to be mined by biotechnology processes--rather than thecostly nuisance they are today.  Environmental biotechnology is moving to the billion dollarrange andis critical to addressing environmental problems while at the same time creating new industries. Toachieve this vision will require the education of the public about the advantages of thistechnology--andits safety and efficacy.  

International competitiveness in biotechnology is a serious problem.  U.S. investment is notequivalentto other countries or appropriate for the United States  For instance, in marine biotechnology, theJapanese have invested at least a billion dollars in the last 5 years with active involvement fromindustry.  The United States has only invested $100 million in marine biotechnology, only 
$40 to $50 million by the U.S. Government.   There is a major danger that we will losemomentum andthe lead in this critical new technology area. 

Discussion:

*Education*

We must deal with public attitudes.  We must have a population educated to the point where theywillaccept advanced technologies.  If people are entertainable, they are educable.  Government mustbethere to help educate.  It is up to universities and business organizations, those organizations thatbasetheir decisions on evidence, to lead the discussion.  It is up to the leaders in this room to takecharge. 

*Ethics*

What are the appropriate mechanisms to deal with ethics?  Public discussion, community-based,amongthe medical, religious, and scientific community leaders is essential.  Universities havedevelopedcross-cutting resources for studying the issues. Government and corporations should avoidtalkingabout so-called ethical concerns since they are essentially unqualified. Such discussion invitesdomination by ideologues.  

*Competitiveness of Biotechnology*

The competitiveness of the biotechnology industry was argued.  Many people view thebiotechnologyindustry as one of our great success stories.  The United States invests a lot of money in R& D andskews its investment toward biomedical research.  However, competition is fierce and we mustbe waryof complacency.  The role of venture capital was also argued.  Venture capital is not at allventuresomeand may not have a long enough view. It is a problem if firms are formed with the expectationthat theywill be taken over rather than grown.  However, it is the role of venture capital firms to avoidrisk.  Itmust be recognized that the firms receiving venture capital have higher success rates than firmsgenerally.  The U.S. venture capital market is the envy of the world and our risk capital is wayaheadof our competitors. 

*Barriers*

Public policy institutions that deal with biotechnology products need to be reengineered.  Bothregulations and tests are out-of-date.  New mechanisms are needed to help the United Statescompete. This is not a problem of just biotechnology, but other technologies as well.  Barriers tocommercialization exist because of negative practices by the U.S. Government that delaytime-to-market.  Government can institute tax and accounting policies that will reduce risk andspur investment. The United States never seems to get any further than recommendations for change in publicpolicy.

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Session 5: Technology and Government Policy: What Level isAppropriate?
Speaker:  Robert Galvin, Motorola, Inc.

Robert W. Galvin focussed his presentation on the question: Is there a role (in technologydevelopment)for a partnership between the federal and private sectors?  He answered this questionimmediately as:mostly yes, citing the United States Constitution, in which our founding fathers in effect said thatCongress shall have the power to promote progress in science and the useful arts.  He expressedhisdesire for the Federal Government and Private Sector to cooperate with each other and formalliances,working together as effectively and harmoniously as possible to define "results-intendedactivities ofmutual benefit."

Galvin stated that he sees some very significant things happening with regard to what the PrivateSectorprofile is going to be in the next 20 years, and to demonstrate this and provoke interest heprofiled hisown company, which he views as not so different than others.  Motorola intends that within thelifetimeof its current head of the corporation (Galvin's son), 95 percent of its business will be outside oftheUnited States. This is despite expecting a very robust American economy and anticipatingMotorola'ssuccess in it. Hence, the United States cannot be viewed as the center of the (consumer) world,butrather will soon be only a 5 percent factor.  Galvin also pointed out that companies like Motorolawillsoon be doing a lot of technology development on their own.  He went through a projectedgrowthscenario for Motorola, which would lead to around $100 billion in technological research byMotorolaboth in the United States and abroad by 2025.  He stated that with similar growth by other firmsthePrivate Sector's investment in technology would dwarf that made by the FederalGovernment.

In addition, Galvin pointed out that a factor currently hindering partnerships between the PrivateSectorand the Federal Government is that U.S. companies find great difficulty doing business with U.S.Government laboratories, certainly more difficulty than a U.S. company doing business in aforeigncountry.  He asserted that if the Federal Government considered itself an entity that had tocompete,there is a question as to whether in the next 5 to 15 years it would be worthy to be a so-calledpartnerto the Private Sector.

Galvin concluded his prepared comments by reviewing a single-page handout (see transcript laterinthis report) giving his view of how Congress could promote science and technology.  Congressshouldfund multi-year research and development in general fields that are defined by qualified,predominantlythe Private Sector, experts, and that the projects should be roadmapped to the extent possible. Furthermore, the money should be given to depoliticized institutions established for governinganddispersing such funds, and the funds should ultimately go to the people who can most effectivelyspendthe money.  Government for the most part should then get out of the way.  Congress should havethepower to promote progress in science and technology applied worldwide commercially and thereshouldnot be a restriction that any (federal technology development) money spent in the United Statescanonly be used in the United States.  Finally, Galvin proposes that in this new scenario, thedepoliticizedgoverning bodies will annually account to Congress according to a new standard, using privatesectorfinancial reviews performed by public accounting firms.  All other methods of auditing andreviewwould be eliminated, in which case, Galvin asserted, the productivity of the Federal Governmentscience and technology would go up at least double, and then maybe the Federal Governmentand thePrivate Sector could afford to be partners!

Discussion

*Challenges for International Companies*

Chief Executive Officer's of international companies based in the United States are put in adifficultposition from time to time, because they are inevitably doing things that are good for theircompanywhich may be viewed by many people as not being in the in the best interest of the country. Still, itwas pointed out that we have to become "internationalists" because it is the best thing for ourcountry. While it may seem counterintuitive, the more invested overseas in building industries andmarkets, thegreater the exports that are created.  A related point was that a key ingredient to becoming asuccessfulalliance partner is to make your partner a success.   One participant felt that it was possible todeal withthe issue of loyalty to company and country as two issues.  Companies' citizenshipresponsibilities aredifferent than monetary responsibilities of the country.  He pointed out that there should be astrongself interest in being in a strong country with a solid economy, since this will enhance thesuccess ofthe company in dealing with international commerce. 

*Effect of International Companies on the Standard of Living*

There was concern expressed that the increasing trend to forming international companies andtheincreased presence of American companies in foreign countries would adversely affect the labormarketin the United States. Ultimately, the standard of living would decrease in the United States. Onepersonstated that international trade agreements should include international labor standards,internationalstandards of human rights, the banning of child labor, and international environmental standardsso thatthe economic prosperity of the developing country would be shared by the workers and thepeoplegenerally.  He stated that the international business community needs to support the labormovement'spursuit of a decent living standard as the economies in these developing countries grow. Galvinagreedwith this  perspective and said that companies must serve as role models in how they treat peoplein theUnited States and abroad, though he expects that it will take some time.  Just as the level ofthinkingabout quality-related issues has improved markedly over the past decade, the United States couldhave avery positive impact on elevating standards of labor relations and compensation worldwide. 

*R & D by Mission Oriented Agencies*

Galvin's suggestion for funding industrial research bypassed normal funding institutions.  Therewas aquestion about separating the mission agencies from their R&D needs.  Galvin replied thatthere wouldbe exceptions to the rule and that there would be, for example, a need for a warfare center for theNavy and there should be a separate budget for standards setting.

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Appendices
The following pages contain the Agenda of the meeting, editorial transcripts, biographies of thespeakers, and a list of attendees. 

Appendix A. Agenda for Meeting

Appendix B. Transcript

Appendix C.  Biographies of Speakers

Appendix D.  List of Attendees

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Appendix A:**A Working Conference on Global Growth of Technology: Is AmericaPrepared?
 December 7, 1995 
 AGENDA

Co-Chairs:     Arati Prabhakar, Director, National Institute of Standards andTechnology 
John Yochelson, President, Council on Competitiveness

     9:00 a.m. **The Impact of Technology on the U.S. Ability to Compete**
                              The growth of technology industries in the UnitesStates and abroad
                              Technology industry trends in internationaltrade
                              Is America keeping up with its competitors?
**Speaker:**     Robert J. Hermann -Senior Vice President, Science andTechnology, United Technologies; Chairman, Visiting Committee,NIST

     10:15     a.m. **The Implications of Technology Growth for Industry**
                              Fostering technology-based risk
                              Investing in, and protecting, information-basedinfrastructure
                              Committing to short-term and long-termR&D
**Speaker:**     Thomas Everhart -President, California Institute of Technology

     11:15     a.m. **Break**

     11:30     a.m. **The Implications of Technology Growth for Workers**
                              Meeting the need for new and more advancedskills
                                        Will the decline of mass productionand the assembly line, and the growth of "craft-oriented" production, create more or differentjobs?
                              Empowering workers to accommodate totechnology changes
**Speaker:**     Gary Burtless - SeniorFellow, Brookings Institution

     12:30     p.m. **Break and working lunch**
     1:00 p.m. **Implications of Technology Growth on the Quality of Life**
                              The impact of technology changes on health and onthe environment
                              Adjusting to changing life styles
                              Gaining - or losing - the sense of community
**Speaker**:     Diana MacArthur -Chair, CEO, and Co-founder, DynamacCorporation; member, President's Committee of Advisors forScience and Technology
**Speaker**:     Dr. Rita Colwell -President, University of Maryland BiotechnologyInstitute; President, American Association for the Advancement ofScience

     2:15 p.m. **Technology and Government Policy: What Level IsAppropriate?**
                                        Should government develop apartnership with the private sector to promote andaccommodate to technology change - or leave it to the free market?
**Speaker:**     Robert Galvin -Chairman, Executive Committee, Motorola, Inc.

     3:45 p.m. **Adjourn**

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Appendix B:
**Edited Transcripts of the Meeting

Introductory Remarks by Dr. Arati Prabhakar and Mr. John Yochelson

Opening Remarks 

DR. PRABHAKAR:  We are very delighted to be hosting this meeting today with the Council onCompetitiveness.  John Yochelson, who is the president of that organization, is here with me.

Let me start by telling you just a moment's worth of how we got to this meeting and what wehope willcome out of the discussions today.  The conversation that led to this meeting really began withDr.Hermann, who is sitting to my left.

Dr. Hermann is chairman of our Visiting Committee here at NIST, a group of outside people whocomein four times a year and talk with us about our programs.  Most of our attention in those reviewshasbeen focussed on the operations of our programs and how do we prepare for the future.

Our job is a component in a much larger technology system, but a component that's focussedultimatelyon economic objectives--we're part of the Department of Commerce and we work on technologyissuesthat relate to our industries and are focussed on creating opportunities downstream in aneconomicsense.  It became very clear as we struggled to do our job that it would be extremely useful for ustotake a moment, zoom our lenses back, and think about the broader context in which we areoperating. We also need to think about the environment in which we're trying to do our work.

The question began with one of the imponderables, the question of how does technology relate tothestandard of living in our country.  That was the beginning of our discussion.

As we talked about it in our Visiting Committee, Howard Samuels, who is an active member ofthiscommittee, got engaged, proposed that we do this meeting, and has worked over the last severalweeksand months with some of our folks and people at the Council on Competitiveness to draw all ofyoutogether to engage in a dialogue about the environment in which we think about technology, itsrole in aglobal marketplace, and what that means for us as a nation.

These are very broad topics.  We think that there is tremendous value in exploring thesequestions frommany different perspectives.  We're delighted to have such a terrific group of 
people around the table and particularly, I think, a lot of very stimulating speakers lined up fortheconversations today.

Howard, very unfortunately, has an illness in his family and isn't here today.  But we willproceed withthe meeting in his name.  And that's my brief welcome.  Now I'm going to turn it over to JohnYochelson.

MR. YOCHELSON:  I am truly the new kid on the block.  I have been at the Council onCompetitiveness for four days.  And I am honored, and we at the Council are honored, to join Dr.Prabhakar and NIST in this effort.

I am awfully sorry that Howard Samuel can't be here.  It was indeed his brain child.  Hecontributed somuch.  I was on the phone with him.  He would very much liked to have been here.  He's doingthebest he can in a difficult situation.

I will spare you an advertisement about the Council on Competitiveness only to say that we areon thethreshold of our tenth year, bringing together leaders from industry, the  university community,andlabor.

It is, we hope, not an accident that during those 10 years, one colleague mentioned before westartedthat the word "competitiveness" is the most used word now by industry as it talks about itself inthe restof the world.  So we are absolutely delighted.

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Session 1: The Impact of Technology on the U.S.Ability to Compete
DR. HERMANN:  We are gathered today to discuss the readiness of our society to compete withtherest of the world.  While global growth of technology is a central focus of our assessment, Ibelieve itmakes the most sense to do so as a part of evaluating our broader, competitive position.

We need to understand how we are doing in specific areas of science, technology and technologyrelated industries.  But this is a difficult assessment to make.  That is, how are we doing? Agreeing onwhat measures to use is not easy, and deciding what technology industries are, is also not quiteso easy.

We need to spend some time understanding what we mean by competing and winning: Whatwould be asuccessful outcome? What would it look like?  It is clear that more is involved than science andtechnology superiority, manufacturing superiority, or even economic superiority.  Success shouldinvolve some concept of quality of life for our citizenry and requires the balance of manyattributes.

We will need to assess the legitimate interests of our competitors who are also our tradingpartners. Many are our allies in a broader sense of the word.  It is unlikely that we will reap the benefits ofahigh quality of life, unless they also succeed.  To guide our policies and our behavior, we need tohavea concept for our success which includes success for our trading partners.

Let me run over, in this brief time, some of the salient features of the current situation that I see,although it is by no means comprehensive.

I'll begin by noting that we are the world's only superpower.  This is a unique attribute of oursocietyand of our time.  It will color every relationship we have with other societies.  It demandsleadershipbehavior on our part in all aspects of international behavior.  I will return to that theme.

To be the world's community leader, we will have to sustain a leadership position in majorelements ofnational life, which includes moral authority, political stability, economic power, military power,industrial competence, science, technology, and the productivity of our residents.  Notice, I useresidents, rather than citizens.

We will be expected to lead and we will be resented when we do.  Our economic success will beexpected and resented and fought against unless we can translate some of our success into thesuccess ofour partners in a non-destructive way.  In my view, there will not be a global environment for ourwell-being unless we lead the world community toward this objective and provide the politicalinfrastructureneeded to achieve it for us and for others.  Only our society is in a position to do that.

We are the largest integrated market.  We have a world class position in science and technology. Wehave a strong manufacturing sector, a superior systems position and a powerful service sector. Statistically, we are the most productive society in the world.  These are not bad attributes and itis avery strong position from which to consider the future.

On the other hand, we need to consider that North America constitutes roughly 5 percent of theworld'spopulation and will be smaller in the future.  We are a minority in essentially all of the socialmeasuresof culture, race, and religion.  We now participate in approximately 20 percent of the world'seconomicactivity and that will reduce to something closer to 10 percent in the next couple of decades.

North America, Japan, and Europe constitute only about 800 million people, but participate inmorethan three-quarters of the world's economic activity by any measure.  There are more than 4billionpeople in other societies who want to participate.  The information revolution has permitted themto seewhat is possible as a result of the efficient access to science, technology, and industrialtechniques. Many of them are making great progress.  And as they do, they are performing many of the jobswhichwere historically performed here.  As competitors, they are working hard to compete with us andtherest of the industrialized world.

Our morality demands that this large segment of mankind have the opportunity, even our help, inmaking economic progress, because we cannot succeed in the long run unless they do.  I make jetengines.  We put them on Boeing airplanes from time to time, and neither Boeing nor UnitedTechnologies will do well unless the citizens in China have the price to buy a ticket on an airline. 

But we have some strong advantages which I believe are strategic and unique in making itpossible forboth us and our partners to gain.  Our economy, industrial base, technology base, science baseandmilitary power are second to none.  Those are the bases for global leadership for our societywhichshould be exploited.

Our political system, even with all of democracy's turbulence, provides stability, individualfreedom,and an entrepreneurial economic system.  While we do not have the advantage of tribalcoherence,which some other societies enjoy, we have the crucial attribute of individual freedom in a diversepopulation.

I have noticed that it is difficult to persuade the determined foreign skeptic of the value ofindividualfreedom and diversity.  But I am persuaded; and I believe a large number of the rest of the worldarepersuaded.  I believe there are enabling virtues of our society which will not easily be emulatedelsewhere and ones which we need to feature as a comparative advantage.

Conversely, a weakness is the economic, education and skills gap between the highest paid andlowestpaid of our society.  This gap, which is widening, puts at risk our political stability, our moralauthority, our ability to provide a competitive work force and any national feeling of a superiorsociety. In my judgment, we will not fulfill our promise if this aspect of our society is not corrected.

Finally, I would like to make a special case for our systems and integration advantages.  Assystemsbecome more complex, with more information systems content and more international character,twopremier attributes needed for economic advance will arise.  The first is the capability to organizeandintegrate multicultural efforts.  The second is the ability to integrate the system, technical,industrial,and financial aspects of all kinds of activities.

We have a unique and almost uncatchable capability for this segment of economic activity.  Weexcel atinformation systems, which is the primary ingredient of a systems capability.  We have anindustrialbase and a superior market position in all aspects of systems and integration.

The value of the diversity of our population cannot be overstated in my judgment.  Our citizensareexperienced at dealing across cultural lines as individuals every day.  And it is a critical attributeformulticultural contribution.

Success in this systems and integration segment will be the unique ingredient needed for a highqualityof life for our society.  It is an appropriate role for the work force of the world leader.  In fact, ourleadership role makes this almost exclusively ours unless we fritter it away by not recognizingthis as adimension of advantage.

How do I feel about our approach for the future as a nation?  First, we need to recognize thechallenge,which is different from challenges during past decades and different from challenges faced byany otherset of societies in the past.  We should make it our objective to maintain a world leadershipposition. That is a distinguishing feature of our society at this time in history.

I reiterate that this means a broad connotation of leadership, including moral, economic, political,industrial, technological, scientific, and social.  Excellence in such things as health, agriculture,andnational security continue to be a necessary part of our national objectives.  I believe we need toretaina strong manufacturing base.  The ability to produce things of unique value is one of theattributes of aleader. It is a driver for converting science and technology to societal wealth.  It provides for highvalue employment and is an important aspect to excellence in systems and integration.

But we also need to recognize the importance of a strong and productive so-called service sectorincluding: entertainment, leisure, and information management.  These are also areas wheretechnology, systems, integration, and innovation are important. We already have a strongposition inthe service sector and we have a comparative advantage for continuing to excel.

We should emphasize systems/integration as a North American attribute and stress theintegrating skillsof technologies and information systems with their supporting activities.  We must maintain afavorableenvironment for capital formation, training, education, and quality of life that will be necessarytoattract and retain high value added employees for these activities.

We need to sustain a superior infrastructure for these areas of activities:  infrastructure elementssuch ascommunications, transportation, information systems, and access to health.  The training andeducationof our citizens are essential to our progress. Our superior infrastructure in these areas is tangibleevidence of our status as an advanced civil society.  These infrastructure objectives and nationalmissions of health, agriculture, security, and leadership should be important drivers forgovernmentsupport to translate science and technology into industrial practice.

Let me conclude by saying that we in this room have had the great fortune to live in the last halfof theAmerican century.  It should be the prologue for a great future for our society.  However, we'vebenefitted from the exit situation of World War II and in my view, we benefitted from thesubsequentcold war, however risky it might have been.

I believe the paradigms for our success in times ahead are different.  The competition is showingup indifferent forms.  While success will depend on science and technology leadership as an essential,thatwill not be sufficient.  They will need to be coupled to others of our comparative advantages.

I see no reason why we cannot thrive ourselves and participate in the advance of other societieswhilewe do it.  Thank you.

DR. PRABHAKAR:  Super.  Thank you, Bob.  I'm going to start off by asking a question. 

You touched on quality of life and I guess I'd really like to double-click on that and ask:  Whatdo youmean when you use that term?  How does it relate to the concept that you advocated at thebeginning ofyour remark about how important the success of our trading partners is in order that they havemoneyto buy the things that we wish to create?

Would you like to comment on those relationships a little bit?

DR. HERMANN:  I had thought about trying to  pontificate a bit about the quality of life issue,but Ididn't think there was time to do it.  I do not pretend to be an expert on the quality of life andcertainlywould not like to speak for all of you on what the quality of life is.  I always try to remind folksthat Iwas an Iowa farm boy.  So we understood what the quality of life was back in those days.

In response to your question, I have identified some exemplars of what I mean by quality of life. Iwould say first that individual freedom in an entrepreneurial environment is a quality of life. And Inote that it's a quality of life, because I appreciate it.  And I also note that large numbers ofpeoplearound the globe look at us and wish to come here and participate for that idea almost by itself. Wewould not like to do anything in the name of economics that caused us to dent that.

The next thing is that our citizens be secure from physical harm.  So security is a big deal.  Ibelieveit's an enabler of economic success.  You really can't have economic success if you don't havesecurityor even if it's in doubt.  I am speaking here of security for the nation, for your community, foryourfamily and for yourself.  So this is not just a national security issue in the external sense.  It's alsoaninternal security issue.  It has to do with being safe where one works, lives, and plays.

I think the third entry I have is the opportunity to add value to society and to obtain material andpsychological awards through work freely chosen.  It's okay to have jobs, but to some extentprisonershave jobs.  The kinds of jobs that one has and what that offers is very important.

An important issue is access to quality health care.  The availability of means to make one's lifebothextend and be reasonably high quality while one is alive is probably going to be a long soughtaftercommodity.

Access to ideas, cultures and other places on the planet is important to quality of life.  That is, Iwouldlike to retain access, not lose it, in the actions taken to preserve our national economicwell-being.  Iwould not like to get into a position where we did not have free access to other ideas, othercultures andother spots of the globe. 

DR. PRABHAKAR: I think there is plenty there to chew on, so let me throw it open and ask whowould like to dive into this conversation.  

MR. HOWARD ROSEN: I think we tend to emphasize the competitive part too much.  I'm notasconcerned about competing.  What I'm really concerned about is living standards and people'sability tolive comfortably.  And I'm concerned about that not just in absolute terms, but in relative terms. Notrelative to Japan, but relative to the way we were.

I don't believe in the comparisons about the way we're living versus the way the Japanese areliving. That doesn't mean anything to me, because I'm not Japanese.  And I'm not going to be in Japan. So Idon't really care how much money they make.  And if they make more than I, I don't know ifthat'sreally going to be an incentive for me to make more money or to want more.

The question is, why is it that the economy for 20 years was growing and incomes were growing,andthen in the last 20 years the economy has been growing and incomes haven't been growing? Now, thatmay have to do with competition, but I'm not sure. 

I think we constantly have to keep our eye on the ball.  And the ball is living standards andwages.  Thewage problem may be a distribution of income problem, which I believe has a lot to do withtechnology.  It has to do with the kinds of investments we make.  I don't think it's the traditionaldistribution of income of the rich getting richer at the expense of the poor.  I think it has to dowith alot of choices that we've made and now we're paying a price for it. It has to do with how wecreateincome and how people win that income through work.

I'm just coming back from a conference in Japan where  I had the benefit of being the onlynon-Asian. I was on a panel with four businessmen from the Konsai region who were asked: What was thestrategyfor their companies under Asian Pacific Economic Corporation?

Each one of them independently--they had prepared their remarks before--had calculated howmuchtheir companies would benefit if the billion people of China would buy their products.  It waskind ofhilarious.  Someone said, you know, I produce beer.  And if we could sell an additional billionbottlesof beer a year, I would triple my revenues.  They said this. 

I sat next to the moderator and in answer to the question, What's the strategy? I wrote in bigwords,China.  And that makes me think that there's a change in the way we've looked at opportunity. Now,we're looking at the opportunity that there are a lot of people over there regardless of the fact thattheydon't have money, but potentially may be able to buy our goods.  Forty years ago we were notthinkingabout the size of the market, but we were thinking about the quality of that market, i.e., I'mtalkingabout Europe.  By going into that quality market, the quality of our producers went up.

I know this can sound like bidding down wages.  There is an element of what I'm saying in that,butthat's not my point. My point is that we're advocating going to where the markets are big.  We'regoing for the scale economies.  Because if we could only sell a billion of X, just think how richwe'regoing to be.  I think it's a very short-sighted position.

Now, this is all heresy.  We should be working towards opening markets in China.  But China isnotgoing to solve our problems.  It's not an issue of lack of markets.  We criticize the businesscommunitysometimes for having a short-term perspective, and yet this is a very short-term perspective, interms ofhow do we raise incomes in the long run.  It's not the policies that we were following 50 yearsago. And I don't know why.  I think it's changing now out of desperation.

I shall end by saying that there isn't any question empirically or in anyone's mind ideologicallythattechnology contributes to raising living standards. The question is, What's the appropriate way ofdoingit?  And that's where we've been having the debate.  There is a need for more empirical work toprovewhat I believe to be the case, that some kinds of investments stimulate other kinds of investmentsandthings like that.

DR. PRABHAKAR:  That was a lot to chew on, too.  You drew an example in which youimplied thatthere was a link between large scale markets, such as in China, and lower quality of 
jobs in contrast to high value added markets, potentially high value added jobs, and thereforehigherliving standard.

MR. ROSEN:  I think that there is a clear risk of that happening. But I can also argue that it canbedone in a way that we don't bid down our wages.  I believe both ways can happen.  If we leave itunbridled, we could end up with your model, which is bidding down wages.

DR. PRABHAKAR: Bob presented another view of the future in his example of jet engines onBoeingairplanes and Chinese workers who are able to pay.  I'm not sure that that's what the future lookslike,but once trading partners get on an economic cycle of growth, I think those dynamics startchanging. And, therefore, maybe it's not a bad first round strategy to focus on where the volume is.  Pleasedivein.

MR. YOCHELSON: It is unusual and striking that the societies that are most dense intechnology andare most innovative in technology, the United States, Europe and Japan, are all projected to berelatively low growth societies.  It is not at all strange that industry is looking to the economiesthat areprojected to grow at 6 percent to 8 percent in Asia and perhaps in our hemisphere, all of whomare lesstechnologically dense or sophisticated than we are.

The question that is more striking to my mind is why is it that the most technologically advancedsocieties are growing at 2 percent to 2.5 percent?  Furthermore, nobody has yet figured out howdo webreak out of that slow growth rate.

MR. ROSEN:  First of all, yes, we can sell our existing products or existing industrial structuretoChina and we'll push up our growth rates.  But that's a short term stimulation of our growth rates. That's not what I'm looking for.  If I want long-term growth rates, I want to continue moving upthatcurve.  Selling my regular technology or low technology goods to the Chinese, is not going to domuchfor my long-term growth.

I guess I disagree, John.  There are some people who have suggested the cause of the slowgrowth inthe industrialized countries.  In the United States, I think a large part of the problem has to dowith  ourinvestment decisions.  We have not increased our net stock in plant and equipment as apercentage ofGEP in 15 years.

MR. ROBERT J. SALDICH: As a company that's active in the Asian market and in China, I'msort ofpuzzled by your assertion that what's being developed for sale there are low technology products. It'sthe opposite.  When China builds a telephone system and we sell telecommunications equipmentintothat system or airplane engines or almost anything else that America is successfully selling, it'sthe bestwe've got.  We're not selling brooms to them.  The low technology stuff they're going to makethemselves.  The high technology stuff is what we're selling into those marketplaces.

As our businesses succeed, by capitalizing on that growth opportunity, that adds to the growth ofourcountry.  So I'm just puzzled by the assertion that seems to underlie what you said.

MR. ROSEN:  Yes, you are correct, although I don't know how many telephone systems you cansellthe Chinese.  If you set up the telephone system there, I don't know how many more you do afterthat.

MR. SALDICH:  Let me just tell you how many.  They're building 8 million lines a year, 8millionlines a year.

MR. ROSEN:  I'm not suggesting you shouldn't be doing that.  I'm not suggesting that at all.  Butifthat's our total strategy and we're not investing in the next level of that telephone system that theEuropeans may buy, then we are still short sighted.

MR. SALDICH:  But we are.  We are.

MR. ROSEN:  Okay.  That's the question.  That's the point.

MR. LYNN WILLIAMS: I wanted to proceed in a little different direction and maybe it's anold-fashioned direction.  I'm more and more persuaded that a major part of our problem is theincomedistribution side of it, both here and abroad.  I know that coming from a trade unionist, that'skind of aself-serving proposition, since our business is trying to do something about that.

I've been trying to sell a house for some months since I retired and there is no market out there tobuy ahouse.  Why isn't there any market?  I think in my particular case, a middle class area inPittsburgh,what's happened in that particular community is that the middle income people have just beendestroyedin all of these downsizings.  And the middle income corporate people who used to move in andout ofour community and buy these houses and support a fancy educational system and all the rest ofit, thosejobs just aren't there.  The income isn't there.

And yet we're in a society that's increasing wealth at an enormous pace.  That's the heart of thistechnology.  I have to agree with Howard, I guess, that it's self-evident that technology is a goodthing. Clearly it is.  Clearly that's how we've achieved the living standards we have now.

But it seems to me it's desperately out of whack at the moment.  The benefits of all of thistechnologicalimprovement are going to a very narrow band in our society.  And we don't have the mechanismstoput the purchasing power back in the hands of the American people.  You don't inspire the kindofinvestment that Howard is worried about if people don't see an opportunity to sell something. Peoplearen't going to invest in steel plants if they don't see an opportunity to sell that steel. They're notgoingto have an opportunity to sell that steel if there aren't people making things out of steel. You'renotgoing to make things out of steel and sell them unless there are customers out there.

The trade union movement is a big piece of that, but not the only piece.  The major piece of it inAmerica is the enormous hostility to the labor movement.  The resistance and pressure that's putonworkers, who want to organize and improve their circumstances and insist that their employersshare alittle bit, doesn't really exist in any other advanced country in the world.  It doesn't exist even insomeless advanced countries.  But I think that's an element in it.

Other elements are this terrible budget cutting, refusal to pay taxes, and refusal to support adecent kindof civilized society.  That has a lot to do with quality of life.  I don't know if access to culture,traveland the other things Bob suggested is important, if we're not prepared to do anything to pay sometaxes, provide cultural facilities in our society, and share the wealth that this technology isproducing.

So I think there are some very fundamental distribution problems similar to those before WorldWar II,that we resolved after World War II, that are emerging again and we have to find a way todistributethe wealth that this technology is capable of producing.

DR. PRABHAKAR:  Thank you, Mr. Williams.  Other comments?  I wanted to pry a little bitmore onterms that have been used here.  Mr. Rosen, you talked about living standards.  And Mr.Williams andDr. Hermann both have talked about quality of life.  Are we talking about the same thing whenwe usethose terms?  Mr. Rosen used living standards to mean wages, I believe.

MR. ROSEN:  Incomes and wages.

DR. PRABHAKAR: Are salaries all that matter?  Are there more issues on the table?

MR. ROSEN:  Although it's important to have a high quality of life, I've been reluctant to getinto thatdiscussion because I'm not sure who has the vocabulary to even discuss those things.  Just as anaside, Ithink one of most interesting things that I do is to sit with a group of theologians to talk aboutethics ineconomics. Those guys have a view on quality of life that's very different from the view of thosearound this table, I'm sure. 

So I'm not sure who has the vocabulary to talk about that, although we should.  It's an importantdebate.

What we have been looking at has been restricted to incomes, not so much wages, although wedo talkabout wages. Now we get into some of the details of what's going on here in this economy, notall of ithaving to do with technology.  We tend to make a correlation between technology developmentsandthe shift in the distribution of income.  In fact, there are some other things that are also takingplace.

We're finding at the end of this 20 year to 25 year experiment that we have absorbed 80 millionpeopleinto the work force, many of them women.  And we applaud that.

Socially that's a wonderful thing.  Women now have the opportunity to work.  Coming fromJapan, letme just say there wasn't one woman in this whole conference I was at. 

On the other hand, we're finding that the only reason why incomes have been stable in the UnitedStates is because of the woman, because of the second earner in the family.  So it's no longer justa niceopportunity for women to work.  Women have to work now in order for families to keep theirincomesthe same or even improve them just a little bit.

This financial necessity for women to work goes right back to the quality of life issue.  So theyare veryinterrelated, but we tend to look at the wage-income side.

DR. HERMANN:  I just wanted to intervene and reiterate that incomes and salaries are available,butthey have to be paid to folks who are of value.  If we wish to have open markets, which I think isagood idea, then we must use the word compete, because we will be competing with other folkswho canadd value at some transaction rate.

So my thesis has been that we must enhance our ability to do what we can uniquely do best. We'repositioned well to do it.  In order to change the balance of the distribution of income, we musteducateourselves.  We must become good at those things which will be valuable in the comparativeadvantageareas that we have.  That is not very original, but I do not see any escape from that equation ifone is infact going to compete.  And I say it with some strength so I can listen to better answers.

MR. YOCHELSON:  May I move us in a slightly different direction?  Your opening presentationfocussed on U.S. leadership in the world.  What about leadership in the United States and theimplications of technology for the kinds of people who are our leaders?

Is it an accident that Bill Gates is perceived as one of the two or three most influential people intheUnited States and that Michael Eisner is another one and Rupert Murdock.  All of them rankabovePresident Clinton in terms of the perception of power and influence that they have within oursocietyand in the world as a whole.  Leadership in the 20th century would be perceived as comingperhapsfrom politics, from the military.  Are we going in a direction in which people from thetechnologyworld in the United States will have more expected of them by way of our society and by way ofourleadership?

And, to return to Mr. Williams' people, do people who are at the cutting edge of this world oftechnology really understand what's going on in the middle class neighborhood in Pittsburgh? Do theyhave the links to the less trained in our society to the technological have-nots to provide the kindofleadership that we may need?

DR. HERMANN: Since I don't know any of those folks, I don't know.  But I certainly believethatleaders such as Bill Gates and Michael Eisner and other folks who have power, are going to findituseful to have a really good, coherent, competent nation from which to operate.  And, therefore,theywill have to participate more aggressively in the collective act of governance of our nation thanhashistorically been true in the past.

But I would say that will take time and I don't think we have the collective basis for action put inplaceyet in our idea structure.  So I would say that ideas are a precedence to getting this straight.  ButI'mactually fairly hopeful.

The dimensions of the problems of the world are transnational in character.  And institutions likebigbusinesses and small businesses that go across sovereign territory are important institutions inglobalgovernments.

DR. PRABHAKAR:  Bill.

DR. WILMER R. BOTTOMS:  I'd like to go back to the issue that Lynn raised concerningincomedistribution, and I guess Howard raised it, as well.  It's clearly a problem.  But I believe thecommentsso far were focussed on the income distribution problem on the high end of the scale.  There aresomeabuses in my view.  But I think our income distribution problem in the country is really morefocussedon the fact that there are a lot of people on the low end who are really outside the net.  It's not thepeople who are receiving union wages.  It's not the people who are in manufacturing jobs.  It'sthepeople who aren't in those positions, the people who don't have the wherewithal because oftraining orother reasons.

And the only way that we can really benefit from  technology is to make sure that technologydrivesproductivity, which allows us to be competitive.  We have a segment of society that doesn't havethatopportunity to participate in this increased productivity.  In order for them to do that, they haveto haveappropriate training.  It goes back to the primary school level, not just graduate school level. They alsohave to have adequate capital investment.

If we have training and capital investment, the wages problem on average will respondremarkably,because we'll take the people at the lower segment, who are dominantly in no jobs or servicerelatedjobs, and give them the ability to participate in jobs which have much higher value added.

And then the average wage issue can be dealt with, not by dragging down the top but by bringingupthe bottom.

MR. JOSEPH F. COATES:  I think the conference has to either engage or as a minimumacknowledgean unpleasant situation.  And that has to do with the fact that the corporation is the primaryorganizational instrument by which competitiveness is implemented.  And if one looks atcorporatebehavior in the last 15 years, I think that one can fairly say the following.

That it's become single focussed.  It focuses exclusively on the shareholder.  It's moved awayfrom anyconcern for the community, for the managers, for the workers, for a set of other factors that havetraditionally engaged it.

Secondly, in contrast to Japanese or German or French multinationals, the American corporationhaslost all sense of patriotism, duty to country.  If you're a Japanese business, you're a "Japanese"business.  If you're American, you're American "business."  Now, I think that's sociallydestructive,because what we're seeing is as the corporation caters to the stock market, as it caters to thepensionfunds and to the mutual funds, the executive leadership is constantly driven to improving thebottomline.  And the consequence of that is out-sourcing, downsizing and constant implementation ofthe toolsof competitiveness to in fact heave the social burdens onto places where in a broader sense of theconstituency it wouldn't fit.

Now, add to that the present work force is 139 million people.  By 2005, it will be 153 millionpeople. Our analyses suggest that by 2005, 70 percent to 75 percent of the work force will be able tosatisfy allof the internal and external demands of the U.S. economy.  In other words, flip it around, 25percent to30 percent structural unemployment.

So I think you have to engage the question or at least recognize and defer to another time the roleandbehavior of the corporation as the primary instrumentality in enjoying the kinds of things thatBob sobeautifully told us about.  I don't find anything objectionable in what Bob has talked about.  Butwhat Ifind is he has failed to talk about the primary instrument for getting where we would like to go. Corporate misbehavior has become a core fundamental social issue.

DR. PRABHAKAR:  I actually would like to challenge part of that, Mr. Coates. 

MR. COATES:  Don't challenge the best part.

DR. PRABHAKAR:  Tell me which one that was.  What was that part?  I think there areelements oftruth.  I think the trends that you've described in terms of corporate behavior are accurate.  But Ithinkit's probably an overstatement to say that no corporation thinks about the national interest, that nocorporation thinks about workers and management and issues, other than those forshareholders.

But I think fundamentally you've put your finger on a key point, which is that there is a nationalinterest.  It has overlap with the interest of companies based in this country.  But it's not 100percentoverlap by any means.

You described the downside of that.  The upside perhaps could be characterized as a vibrantmarketeconomy driven by focussing on shareholders' interest.

How do you do that trade-off?  What do we stand to lose in the corporation?

MR. COATES:  I think that you're wrong in your last conclusion, because if you look at theincomedistribution, we in fact have upset the pattern from 1920 to 1970.  There was a very, very stabledistribution of GNP across the five quintiles.  Now, what we have witnessed in the last 20 yearsis ashift toward the top quintile, then the top decile, then the top centile, each acquiring a totallyhistorically disproportionate share of the productivity gains.

Now that in itself is not so bad, except for two consequences.  If you make $30,000 a year and Igiveyou a thousand bucks, you're going to spend it.  If you make $300,000 a year and I give you athousand bucks, you're going to sit on it.  You're going to put it in investment.

So as the top decile, quintile and centile increase their share of the productivity gains, they arenotfeeding it back into the economy.  It's not in fact stimulating the very thing that you would hopeitwould stimulate.  It's not providing the money to buy refrigerators and stereos and automobilesandfurnishings and homes.

So fundamentally we have to look at the question of how to keep the market economy healthy. How dowe put the productivity gains in the pockets and purses of individuals?  And that's the core publicpolicy issue.  If we grow 2 percent per year, which is realistic, we will double national income inageneration.  But do we want half of that to accumulate in the top decile?  I certainly don't.  I wanttokeep the economy vital by putting those gains in the purses and pockets of ordinary people.  Andcorporate misbehavior is effectively thwarting that national objective.

Let me illustrate with one recent anecdote. Boeing, a company that Bob is not unfamiliar with,justearned $800 million.  And what's it doing?  It's in labor strife to chisel some health benefits fromitshighly paid workers.  That kind of dissonance characterizes the American multinational.  Everypennythey chisel from the worker is another penny to give to the shareholder and in turn to the mutualfunds.

If you want to look at the economics of it, the core social issue is that the stock market has goneberserk.  It obscenely rewards CEOs for their misbehavior, because they're all from Kansas. They allthink that the only way the world acknowledges that they love them is double dipping them inmoney. And what we have to do is change that social structure.  We have to Francophile orGermanophile thecorporate mentality in America.

It's an unpleasant subject, but I don't think you can deal with this issue until you at leastacknowledgeit.

DR. PRABHAKAR:  All right.  Let's dive into this unpleasant subject.  I think over herefirst.

DR. VAN DOORN OOMS:  I'd like to do just a little basic economics.  Number one, theEuropeansocieties that Mr. Coates so admires in the organization of their work place have alreadyachieved 10percent to 15 percent structural unemployment rates and are likely to continue those for theforeseeablefuture until they begin to move, as they're very quickly learning, toward a more flexible labormarket.

Number two, without wanting to defend the current distribution of income, I go back to what Mr.Rosen spoke about earlier with respect to the failure to save and invest in the United States.  Ijust wantto underline strongly my agreement.

We now have a net national saving rate of about 2 percent of national income in this country. We'renot investing any of it, any of our national income, except a very small amount.  We're investingbarelyenough, and perhaps not enough, to keep productivity growing at the approximately one percentrate atwhich it's been growing for the last 20 years.

The process that Mr. Coates deplores, people not spending all of their income on refrigerators,butactually saving a little bit of it, which indeed does go back into the economy through thefinancialsystem in the saving and investment, is exactly what we need.

It is no mystery why many of these Asian economies are growing at two and three times the rateof theUnited States.  Krugman has documented it very well.  It is not because they're brilliant, thatthey'resmarter.  They are saving 30 percent to 40 percent of their income and they're putting it back into
investment.  And they have labor forces that are also growing a lot faster than ours.

We're making the problem too hard in a way.  The fundamentals of growth are pretty wellunderstood. But the puzzle is, to go back to Mr. Rosen's earlier remarks, why productivity growth slowedapproximately 20 years ago from a rate of about 2.5 percent a year, which was sustaining incomegrowths at that rate in the first quarter century after World War II, to less than 1 percent a year,whichis where we are now.  And it is no surprise that incomes are growing much more slowly.

We don't really understand why productivity growth collapsed.  We can account for a little bit ofit interms of lower investment.  We can account for a little bit of it in terms of technological factors. Butby and large, it remains a puzzle.

So what do we do?  The only thing we have left to do is to go back and try and address some ofthethings that we think are likely to raise productivity growth.  And when we go through all of that,youcome basically back to two.  One is productive capital, which means saving and investment. And theother, and perhaps much more important, is human capital, very broadly defined, which takes usbackto the skill issue.  And I just again wanted to subscribe extremely strongly to what Bob Hermannwassaying earlier about the importance ultimately of getting  the skills to the people that need themin orderto raise their incomes.  I mean, that's really the bottom line and that's where it's at.

I think the great danger we face, which I hope this conference will address, is that there is a realdangerof an inequitable dynamics.  There is a real danger that as technology becomes more and moreimportant, that those that have will get more of it.  That they will get the benefits of technologyin thesense that they will disproportionately get the additional skills.  And the people at the bottomwho don'thave the skills, rather than catching up, will find it harder and harder to get a fair share of thehumancapital that we create in the society through technical change.  That is the real issue and it'scertainlymy concern about income distribution.

Thank you.

DR. MacARTHUR:  I'm rather interested in what the World Bank is undertaking.  I supposeeconomists are involved in this.  They are trying to work up a new way of counting a nation'swealth. It would be based on what you referred to as the productive industrial activity and humanproductivity. It would include certain quality of life issues such as a good environmental quality, notdestroying ournatural resources, our bio-diversity base and so on.

So I think that one of the problems about productivity in this country in the last 15 years to 20years isthat we have had too many examples of barbarians at the gate.  You can't just count transactionsasnational wealth.  The junk bonds, leveraged buy-outs and difficulties with our banking systemhavebeen very detrimental.

The early giants of capital formation in this country made their money doing things like buildingroadsacross the United States, the Suez Canal, or China.  We could do that.  Real work.  The notionthatSmith-Barney says, we make money the old fashioned way, we earn it, is maybe a good idea.
DR. LAWRENCE CHIMERINE:  I'd like to pick up for a moment on the savings and investmenttheme.  All of us would agree that in the long term, if we had a higher saving rate in the UnitedStatesand a higher investment rate, long term economic growth and productivity growth wouldaccelerate andeventually this would show up in higher living standards.  But I think it's important how you getthere.

The objective should be to channel more of the growth of the economy into saving andinvestment, butnot at the expense of consumption in the short term.  So the notion that it's okay that we're savingandinvesting more, but that families are being squeezed and spending is being adversely affected,that isnot a healthy environment for long term economic growth and long term investment.  We needbalance.

The challenge is, how do we do that.  How do we get the economy growing?  And as we grow,how dowe grow both consumption and saving and investment, but skew the share increasingly towardssavingand investment in the future?

I want to pick up the point that Joe is making about corporate behavior.  And while I think heprobablyoverstates it in many ways and perhaps significantly overstates it, there is some element of truththat'sbeen mentioned by others in what he says.  And it seems to me the key point is that the system isincreasingly skewed toward the short term.

The pressure to meet earnings expectations and a whole range of tax factors is increasinglypushing ustoward the short term focus, unlike many of our foreign competitors.  If we want to overcomethisproblem, then we need to find policy changes that would push us more toward the long term.

I'm old enough to remember when we used to measure success in this country by how much weup-sized.  Twenty years ago you were rewarded if you hired more workers, if you increased theirwagesand benefits, if you increased your R&D spending.  Now, if you do that, you take a big hiton WallStreet.  And the way to pick your stock up is to do exactly the opposite.

It all reflects the short term focus that is now far more pervasive in this system than it ever was. Froma policy perspective, I think that's the number one challenge we have.  How do we shift the focusmoretoward the long term?

MR. ROSEN:  Larry, I think you're saying something important and I don't quite understand it. Yousaid, in the long run, saving and investment is good.  In the short term, we shouldn't save at theexpense of consumption.  I don't know what else you do with income.

DR. CHIMERINE: Mr. Rosen, what I'm saying is you can't expect families earning $25,000 or$30,000 a year, whose real earnings have been falling, to increase their saving.

MR. ROSEN:  How do you raise saving in the long term?

DR. CHIMERINE:  You raise saving in the long term, hopefully by getting incomes to grow andthenyou allocate a larger share of the growth to saving?

MR. ROSEN:  How do we get the incomes to grow?

DR. CHIMERINE:  Right now, I think the number one thing we ought to be doing is loweringinterestrates and have a more accommodating monetary policy, which I think would give us the biggestbangfor the buck over the next two or three years.

DR. PRABHAKAR:  Let me dive in and ask to table that for a moment.  Let Dr. Good finish upthissession.

DR. MARY L. GOOD:  I just want to add one thing to this.  We're focusing a lot on the bigcompaniesand the big issues.  Everybody around the table is doing that.  I'd like to bring us back to the factthatthe biggest portion of our economy in the United States is in the small and medium sizedbusinesses. And that's true of manufacturing firms as well as it is of service businesses.

The Commerce Department has two kinds of high technology industry issues that it follows. One ofthem is the high technology products.  The other is high technology industries.  My view is wespenttoo much of our time over the last 10 years focussing on high technology products and notenough onhigh tech industries.

I would argue that today, the value of the technology which we've developed over the last 15years is inthe small and medium sized companies.  Not only that, what we really need to do is to take backpart ofthe American market.

The whole issue of deciding that we cannot compete in the United States on products in theAmericanmarket at the lower end of the technology scale, is insane.  Today, the processes are technologydriven,but the products themselves are not.

Let me give you a couple of examples.  Rubbermaid makes a very common commodity product. It isone of the outstanding high technology businesses in the United States.  They can sell a rubberbucketin the United States against a Chinese import for lots of reasons, which I don't have to gointo.

This economy is not going to get grown in the big corporations.  They need to succeed and theyneed togo forward.  And they need to do whatever they have to do.  But you're going to have to grow itwithnew companies starting up.  The average productivity will go up by starting small manufacturersacrossthis country.  And now we need some investment money to do that.

I would like to see people who have all of their money in these groups and so forth have a little morefaith in being able to risk some of that.  There's capital.  It's not that it's not available.  Starting upsmall, high technology processes gives you mundane products, but they can compete in theAmericanmarket.  So I hope we don't get bogged down talking only about what is happening in theFortune 500.

(Return to Table of Contents)

Session 2: The Implications of Technology Growthfor Industry
DR. EVERHART:  Thank you very much.  Let me reassure you in view of what's been saidaboutKansas, that I went to high school there.  So I do come from a humble background.  And you willhaveto determine in the next 15 minutes or 20 minutes whether I've overcome it or not.

I just totally changed what I was going to say in view of the discussion over the last hour, so itmayappear a little more disjointed than it would have.  I won't totally change it.  I have somecomments tomake about technology -- the implications of technology growth for industry in a globaleconomy.  ButI was going to give you a historical example and spend a lot of time on that.  And I will cut thathistorical example down on the grounds that probably some of you know it already, some of youdon'tknow it and don't care about it, and why should I get into that.

I haven't spent a lot of time in industry, so it was a surprise to me that I was asked to speak aboutthissubject.  And I thought I'd approach it by making a couple of comments.  Perhaps the onecommentthat I think might be most interesting to you right now is the idea that we're not in a technologyeconomy.   We've moved in this country in the last 100 years from what I would call a resourcebasedeconomy, based on our natural resources.  These natural resources may be minerals we take outof theground or oil.  We hit our maximum oil production rate in this country, I think, in about 1967. Andsince then, it's been going downhill and we've been importing more and more.

We have certainly been self-sufficient in agriculture for a very long time.  We've been exportingagricultural products and we still are exporting agricultural products.  But we've taught the rest oftheworld how to become more self-sufficient in agriculture.  Fifty years ago I remember reading inthepaper about the great famines in Asia.  We don't read about those any more.  China and Indiahavebecome more self-sufficient in food, and that's because the technology that we applied in thegenetics ofseed hybrids and so on has helped them.

We based our wealth on productivity from factories.  And we still get some wealth fromproductivityfrom factories.  But I think we are moving--perhaps have moved--from a resource basedeconomy toan intelligence based economy.  And we haven't really figured out what that means yet.  And itseemsto me that's in some sense what this conference is about.  And it seems to me some people,perhapssome of the countries in Southeast Asia--Singapore, for example--may have figured it outconsiderablybetter than we have and they may be doing the right things.

So if you wish to talk about competitiveness, it seems to me if we focus only on the bottom lineof acorporation and is it competitive, that is very short-sighted.  We have to focus on the entire fabricofthe Nation, its policy and so on.  It's appropriate that NIST and the Council on Competitivenessshouldsponsor this conference.

I think it's appropriate to ask if you're in an intelligence based economy: what is going to growandwhat are the things based on intelligence?  Whose names have been mentioned?  Bill Gates. Now, howmuch natural resource goes into the products of Microsoft?  You know, a few hundred thousandtrees,because they print a lot of stuff on paper.  A little bit of plastic for the disks they send out.  Butmost ofit is value added from human minds.  And they're ahead, because they are ahead and they want tostayahead.  If they don't stay ahead, they won't be a profitable company.  And that's also true in jetengines.  Think of the changes from the piston engine to the jet engine.  That was a basicchange.

I think there are several types of change one can focus on.  Revolutionary change, I would say,was thechange when we went from a piston engine to a jet engine-and most of us got here in jet poweredairplanes if we came by air.  The switch from radio to television was a pretty revolutionarychange. You could see people.  You could see what was happening in a foreign land.  You could see whatwasgoing on in Vietnam, whether you were on leave in Germany as I was for a year, or you were inanAmerican living room.  That made a difference in the way that society reacted.

Now, there are some things that weren't revolutionary.  Take automobile design.  That's anevolutionary change.  The cars I get into today--and I'm on the board of General Motors--stillhave areciprocating engine in them, just as they did when I learned to drive in the 1940's and 1950's. Therehasn't been a fantastic change in those cars.  They look different and so on and the styling haschanged,but that's what I call evolutionary change.

There are some labor saving changes.  There have been two that impressed me a lot.  Havinghelpedmy mother wash clothes with an old wringer washer with several tubs--the automatic washer wasaterrific labor saving device.  There may be a couple of other people in this room old enough toremember wringer washer technology.  The most recent one, which I think is a terrific laborsavingdevice, is the automatic breadmaker, which the Japanese had long before we did.  I think it is oneofthe wonderful exports they've made to our country.  If you've ever had to make bread by hand,compared with making it in a bread maker, you know what a labor saving device it is.

We have some timesaving changes that are going on.  They really pick up the speed of things. Forexample, E-mail and fax have speeded up the interaction back and forth across the country. WhenChuck Vest and I want to talk to each other, we do it by E-mail, because it's sure a lot faster. He'salways someplace else when I call.  I'm always someplace else when he calls.  But by E-mail wecanget back to each other in a few hours.  And that's one way two college presidents can stay intouchacross the country.

And think of the societal change that these things have brought, not just to travel to this meeting,butvia t.v., the poor see how the rich live.  The Asians see how Americans live.  Aspirations areraised,motivation--things that this group hasn't talked a lot about--are extremely important.

My biggest problem in the university is to get people to change their attitudes, to get the studentstofocus on what the society thinks is most important, not particularly what the research professorthinks ismost important.  And we all have these problems in our businesses with attitudinal change.

          One of the things that's happening is this technology growth causes us toreengineer, to use apopular word, the processes we use in our institutions--whether it be a corporation or auniversity. Now, a lot of that re-engineering has been accompanied with downsizing and so in some people'sminds, it's coupled with, well, that's just the way you get rid of people.  I think that's unfortunate. Weneed to change the processes.  And we can do it--and in some companies, even add people if thecompany is growing.

But the difference between a Hewlett-Packard, for example, that's growing over 20 percent peryear,even though it's a $25 plus billion company, $30 billion plus company today, is that it's in a fieldwhere there is an increasing demand for product.  So, Dr. Good, when you say small companieswillbe the ones where growth will occur, I think that's true.  But they have to have products orservicesthat the customer needs.  And figuring that out in a global economy, it seems to me, is a $64,000,$64,000,000, maybe even a bigger question-a billions of dollars question.

So it seems to me these are some of the issues that we have to focus on.  And when we do thisre-engineering, what we're really doing is empowering workers.  For a long time--and I think theFederalGovernment is to blame for a good bit of this--we have essentially been rule based.  You know,whatcan I do?  Well, look it up in the rule book.  The rule book is so big, no one can look it up in therulebook any more.

And what we used to do is say, use your best judgment and we are going back, it seems to me, toacountry which could get back to, use your best judgment.  Tell the worker, use your bestjudgment andwe're not going to fire you if you make a mistake.  Use your best judgment and you won't have tolookit up in the rule book.  You can get it done very much more rapidly.

We're trying to do that in our institution.  And I think many of you are probably trying to do that. Inorder to do that, we have to reinvest in people.  We have not spent much money in training pastthefinal degree that people get in this country.  The better companies have.  That's incidentally hardforsmall companies.  And that's where universities, community colleges and others can play a role. Idon't think we've done a terrific job in investing in what I call the mid-level, technical, highschool plustechnical training, either.  And that's an issue, as well.

We have to look at this whole system and say:  where are we weak and where can we improve? Let'sdo it, so we as a system, as a nation of people, will be very strong.

Perhaps that gives you a sense of what I think we should be talking about.  Let me spend a littletime ona historical example.  It just covers my lifetime and it covers a lot of my experience in collegeandgraduate school and research.  It's a historical example of revolutionary change--going fromvacuumtubes to transistors, which happened in about 1945 to 1960; then transistors to integrated circuits;andthen, integrated circuits up through the whole scale of integration to the ones that we have today. These have been revolutionary changes, essentially decade by decade.  And the thing that is sointeresting about this change is that after about the first decade it was predictable.  It waspredictablebecause Gordon Moore coined the law which said that the number of active devices on anintegratedcircuit chip was doubling every year.  It's dropped off a little bit, but it's still going up that fast --oralmost that fast.  The tremendous increase of power and information processing was madepredictable.

Once he had that law, Gordon spent most of his time at conferences trying to say to people, howareyou going to use all of this?  We know it's coming.  How are you going to use it?  Gordon Moorewastrying to create a market.  He spent his time trying to create a market for a product he knew hewasgoing to have at Intel.

I think we have to have more of that sort of vision, looking ahead and saying, what's the worldgoing tobe like and how do we get ourselves ready to be in it?

I won't go through a huge amount of discussion I had on this transition in electronics.  It made abigdifference in industry, because in the beginning, no one knew even how to go from tubes totransistors. You had to learn whole new skills and none of the workers out there had it then.  But the hightechnology corporations and here the small corporation did it.  If you look at who were theleaders intubes, they were GE, RCA--go look in an old surplus radio if you have one sticking around in theattic. Ask who are the leaders in integrated circuits today--not GE, not RCA.  They couldn't changefastenough.  Not Westinghouse.  Even the leaders in transistors had a hard time moving in theintegratedcircuit field.  Intel was not a company when the transistor was invented or when the integratedcircuitwas invented.

So that's revolutionary change.  And these companies have adapted.  Have they always adaptedcorrectly?  No.  There was a time when Intel was not using its own information processingdevices atall.  I talked with Bob Noyce and Gordon  who said:  "You know, it's funny.  We don't usecomputersvery much in our business."  They didn't use them partly because the software wasn't there andtheymoved too fast and they had a very good system of talking with each other.

But as you go through this revolutionary change, each company has to do what is necessary tomake theprocess go rapidly.  I've lots of examples.

One of the things I thought I might do is just say what is the role of the university in this, becauseuniversities have to supply people.  If you're going to be in an intelligence based economy, youbetterhave some people coming out of universities that have some of the intelligence you want.  Andthe mostimportant thing it seems we can do in the university is to teach people to think, teach them howto solvenew problems and give them a background that's broad enough, so when the new problem comesalongthat doesn't fit their background, they at least know how to learn the new material.

How many of you are working in fields that college really prepared you for?  If you're a scientistor anengineer, I can virtually say almost no one.  If you're an economist, I guess you've learned anawful lotsince college, as well.  And so on and so on and so on.

One of the things that universities are having to do -- and the whole nation has to do -- is fix ourK-12educational system, because it's not doing very well.  If you compare the results of our K-12systemwith the results of the other industrialized nations of the world and some of thenon-industrializednations, we don't compare very well at all.  That is the human potential on which in the year2010,2015, the future of this country depends.  And we're not keeping our eye on the ball.

Universities are just as culpable in this as anyone else.  We have very large grants at Cal Technow. This is not part of our mission, but we have faculty that say we have to become involved.  Wehave avery large grant in which all of the Pasadena schools are involved.  We're teaching kids and theirteachers K through 6 about science, not details of science, but how you do science, why it's funto doscience.

This statistic bothered me the most when I heard it:  a few years ago I learned that in a stateuniversity,in a different state, thank goodness, there were something like 30 students declaring they weregoing tomajor in chemistry and over 2000 declaring they were going to be undergraduate majors inbusiness. Now, that isn't probably going to satisfy the nation in the best way if in the long term we have nochemists and all businessmen--because the businessmen won't have anything to sell. We have tomakesure that we have a balance and that the rewards are correct.

I gave an example about Bill Gates to start with.  Let me wind this up and open it for discussionbygiving an example from Michael Eisner.  I heard him speak about three weeks ago and he gavesomeclips from Toy Story.  So I got a preview of it and I must say I found it highly amusing.

What he pointed out in Toy Story--and if you go and see it, I want you to remember this --wasthat thetechnology is pretty amusing and it's really good.  Despite the technology, he said, the mostimportantthing is getting the story right.  He said, we went through six endings for Toy Story before wethoughtwe had it right.  Now, you'll have to go and pay your money and see if you think he got it right. Whenyou see that movie, remember, to Michael Eisner, it was not the technology, it was the story. Both thetechnology and the story require an intellectual input.  That is a natural resource that we have touse.

Thank you.

MR. YOCHELSON:  Well, our horizons have been much widened and extended.  Who wouldlike tokick off?

DR. HERMANN: I would like to ask the economists how we should count investment in humancapital.  In other words, when you have a conversation about savings and capital and investment,howdo you count the capability to produce value intellectually in that equation?  I just don'tunderstand. Perhaps an economist could give us a little tutorial on how it counts in the investment rate ornot.

DR. OOMS:  I really ought to defer to Gary Burtless who has joined us, who is something moreof anexpert than I am in this field.  In our normal accounting, we don't include it.  I mean, our normalnational income accounting, we include only physical capital.

But there is a tradition in economics now that goes back 30 or 40 years and, in fact, further.  Butin aformal sense, 30 years or 40 years.  There is a tradition that recognizes the fact that in manyrespectsyou can treat the accumulation of education, of skill, of all of these abstractions that we talkabout inmodels, in the same way that one can treat the accumulation of physical capital.  Simply, thatpeopleacquire abilities to do things--and these have long-term payoffs over a period of time--so that youhavean income stream in the future generated by an accumulation of these skills over some shortertimehorizon.

Measuring it is extremely difficult and this is one of the problems.  I mean, the measures that weuseare extremely crude.  They're accretions of years of schooling with some types of qualityadjustmentsor amount of years in the work force with certain types of adjustments made on the basis ofincome as arough proxy for quality or productivity adjustments of some kind.  But that's conceptually whatonetries to do.

DR. HERMANN:  As a non-economist, shouldn't it bother me that we have this dialogue aroundonlycounting physical capital in an economy which is fundamentally dependent on intellectual capitalforour future?  I understand that it's easier to measure.  It is not obvious that that's an excuse forbeing theonly thing we measure.  I'm not in the business, but it does seem to me that we shouldn't standfor it. Being precise may not be such a requirement because we arbitrarily decide the depreciation ratesand abunch of other things that are absolutely random, but on the other hand are folded into theprocess.

I'm looking for some way to imagine that we would have a wiser dialogue, a better understandingofwhat investment means and what its payoff would look like if we had a better way to deal withthe factthat the creation of human capital has a downstream, future revenue stream which is similar to aninvestment in tangible capital.

MR. ROSEN:  If I could, I just want to dissect your question a little bit.  Are we asking, how dowemeasure how much we invest in education?  Or, what's the return on our investment in humancapital?

And what's odd is that you're correct.  It's very easy to measure how much we invest in capital,physical capital.  And we use those measurements of investment in capital to implicitly tell ussomething about the return on that investment.  But we  know very little, if anything, about thatreturnon investment. When it comes to education training, we say, oh, we can't measure that.  Well, I'llsaythat the errors in measurement are probably the same.  It's just that we're willing to make thoseerrorson the physical capital side.  We're not willing to make it on the human capital side.

We do know how much we invest, how much we spend on education and training.  We know. And wealso know that it's going down in this country in relative terms.  Now, what we don't know iswhatwe're getting for that dollar.  And we need to do more work on that.  You're correct, we do needto domore work in that area especially as we move into this technology and intelligence based society. Andjust because we haven't done it doesn't mean it can't be done.  But we do already know the firstpart ofthat equation. 

There is only one way I know to spend on education.  Somebody has got to put up the money. I'mtalking about education broadly.  So it's either going to be individuals who are going to pay forit--theyhave to have incomes--or, it's going to be a communal thing.  But we have to pay taxes.  Or it'sgoingto be companies that are going to take some responsibility.  And I don't see any of thathappening. Maybe we all need to do it together, but someone has got to bring it together so that we all startdoingit.  But when we go to the firms, they say: if we invest in these people, these people just pick upand goto another firm.  Or, we don't get anything back for it.  You know, that kind of thing.  I'm makingageneralization and there are a lot of stars around this table.  So, please don't take thispersonally.

One of the great ironies is when you fill out your taxes--your 1040 every year--you cannot deducttraining for a new job.  Here we're talking about encouraging this flexible labor market and youcanonly deduct--if people even do this--training to keep your current job.  It's the opposite of whatweshould be doing.

We should change that rule immediately and we should be encouraging everyone to continueeducationand to deduct its cost.  Of course, you've got the problem with how to handle a  basic collegeeducation, but we can handle that.  We've done it on the physical capital side.

And to pick up on Mr. William's point, we all said we need to have education but no one iswilling topay taxes to have it.  It's more than just saying it's a good thing.

DR. EVERHART:  Let me make a couple of comments.  It may be a little self-serving, but Ithink thecountry is in pretty good shape when it comes to college and graduate education.  It's the K-12part thatis not working well.  I'm not trying to point my finger, because I'm a citizen.  We have a publicschoolsystem and everyone around this table is culpable if the K-12 system is not working well.  It's ourresponsibility.  We can't lay the blame someplace else.  So it's not a matter of pointing fingers. We'repointing the fingers and the finger is pointing at us.

When people come from foreign countries and try to break down our doors to get into ourcolleges andour graduate schools, we know a market is working and it's working in our favor.  And, if youthink alittle bit about revolutionary change, one of the revolutions in change has been the number ofpeoplewho go to college and the number of people who go to graduate school as a percentage of ourpopulation.  I was the first member of my family to go to college.  I got interested in it and I wentrightthrough to a Ph.D.  That's a little unusual.  But nonetheless there are many of the students in myinstitution today that are the first members of their family who have ever gone to college.  Weareutilizing human potential because of an education that other nations aren't utilizing.  So we'redoingsome things right.

How to use our human potential is always a subjective judgment.  When you hire people in yourfirm,you may use data, but in general, it's a subjective judgment.  When we admit students to CalTech--and most of the other universities do the same thing--it's a subjective judgment.  We havemoreapplicants, thank goodness, than we can admit and we try to choose the best ones.  So it seems tomethat we have to really figure out how to use our human potential.  

One of the problems of having computers is you can do spreadsheets.  And anything you canquantify,you can put into a spreadsheet.  Generally it will come with as many significant figures as youwant. Most of the assumptions aren't worth one figure or certainly no more than two.  So it's really veryfunny to see some of these projections of what your budget is going to be next year, to fivesignificantfigures, when you have no idea what it's going to be to more than two.  But that's anotherissue.

I would say one other thing while I have the floor, and that is I don't think we canover-emphasizemotivation.  One of the reasons corporations pay their CEOs and high level employees a fairamountand then try to tie them up with stock options,  and so on, is to keep them from moving--becausein oursystem they're very mobile.  The way our system works they have to suffer an economic loss iftheymove.  If you do it right, they stick with the corporation for a very long time.

Hewlett-Packard is a company that gives every person in the company the same bonus.  It's apercentage of their salary on the profit made.  And, of course, there's a difference in dollars 
for different people.  But everyone is motivated by that.  And if the corporation grows, it's abiggerpercentage.  

MR. COATES:  Is that Cal Tech arithmetic?  Everyone gets the same bonus?

DR. EVERHART:  Everyone gets the same percentage bonus.

MR. COATES:  But that's not what you said the first time.

DR. EVERHART:  I defined it quite carefully, sir, and I'm glad you were listening.  Okay.

MR. YOCHELSON:  On the list, I have Al Westwood, Diana MacArthur and Curt Plott.

MR. ALBERT R. C. WESTWOOD:  On the subject of technology and competitiveness, I have aquestion for Dr. Everhart.  It seems to me--I suppose to most of us--the concept of continuouseducation is crucial to continuing competitiveness.  So we all are also aware of the fact thateducationas we practice it today is getting simply too expensive.  A hundred thousand dollars for abachelor'sdegree is getting to be par for a course at a major university.

I'm wondering whether the time has come for a paradigm shift in the way we even think abouteducation.  At first, it would have to be continuous, as I've mentioned.  But that implies, I think,inreality that we can't any longer consider the notion that the student goes to the university.  Wehave toconsider that possibly that the university goes to the student.  And, of course, that opportunitynowexists with modern telecommunications.

I wonder if you would like to address the question, how do you see the university playing its roleincontinuous education in the future such that we can in fact maintain competitiveness?

DR. EVERHART:  I think that's a very good question, Mr. Westwood.  I think things are goingtochange.  They have already changed.  There is a technological university on t.v. now.  And youcanlearn a lot from it.  If you pay, I think you can even get a degree from it.  The British have hadthisSort of education going on for a long time and I think it's very important.

I think there is some value for students at age 17, plus or minus a year or so, to get together withotherstudents from different backgrounds for a few years and with mentors, who are probably calledprofessors, and come to grips with a society that's probably different than the society they grewup in. When I went from Wichita, KS, to Cambridge, MA, for college, that was probably the mostdefiningpoint in my life.  And it was, I think, a very fortunate decision.  My parents, or at least my father,thought I was silly to go so far away to school, especially when I would have to pay and work todo it. We disagreed on other things, too.  Maybe some of you can remember those days.

But coming back to your question, I think the present college experience is important.  I agreewith youthat people have to get educated the rest of their lives.  And how they're educated even in collegeischanging.  We have faculty that are developing videotapes and interactive computer programswhichenable students to learn more quickly.  They understand concepts faster and better.  And theywill comeout of college with more value added.  But those same videotapes, those same interactiveprograms canbe used in a non-college place.  They can be used in your home.

And increasingly, I think, people will be using video instruction and computer instruction of thatsort. The computers one has in a home, or can have in a home today, for about $2500 will do all ofthis andmore.  And I remind you 10 years from now, those computers will cost $500 or $600 and muchmorepowerful computers will be available in the home.  Using the Internet, a student will have a vastset ofresources around the world available.  We are in truly a time of paradigm shift in education.  AndIthink many people in education recognize that.

But, again, people feel threatened because they're changing, they have to change.  And change isalways threatening.  It doesn't matter whether you're a Ph.D. in biology or a high school teacher. Butwe have to change over a whole broad spectrum.  That's the part I think that's threatening.

DR. MacARTHUR:  About three years ago I attended a reception for Jack Gibbons.  And presentatthe dinner were heads of various scientific bodies, associations of universities, researchuniversities,National Science Foundation, so on and so forth.  The discussion after dinner was led by the hostwhoshocked me by having the lead question be, do you think that universities should practice birthcontrolin turning out PhDs in physics?  I've heard that recently again.  I think that I'd like to have youcomment on that because what kind of an irony is this?

DR. EVERHART:  My short answer to the question is no.  I don't think we should practice birthcontrol.  Let me tell you, though, what I mean by that.  I have met Ph.D.'s in physics from CalTech,who are leading computer companies.  Two of our latest Ph.D.'s in physics went to Wall Street. Thepeople there seem to feel that our Ph.D.'s know more about derivatives than they do.  There iscomplexity in many areas of life where very careful analytic thinking can provide a great deal ofvalueadded.  But if you ask me, do I think every Ph.D. in physics or any other subject should expect ajob ina university doing what their mentor did, the answer to that is also no.  I do not think they shouldexpect that.  They should understand that what they are doing is getting rather expensive trainingthatwill enable them to do a lot more than if they hadn't gotten it.  But they're going to have to be fastontheir feet in a changing world.  And the broader they are as they go out and learn other fields, themorevalue they will have for the society they expect to serve.

MR. RUSTY PATTERSON:  In a way, I think I'm surprised that we're surprised that there is agrowing disparity between the different levels in our income.

If in fact intellectual capital is an underpinning of our future development, and so on, wecontinuallyunder-invest in the same group of people in our society.  If you look at how we finance schoolsand theability to invest in that particular intellectual capital, you quickly find the remarkably largedisparity ininvestment per pupil between what you spend in a large city school and what you can spend andwhatyou can afford to spend in a suburban school.

It is consistently true that we fail to invest in the non-college bound, if you will, in our society. Andthen when they complete high school or don't complete high school at ages 16 to 25, in thetransitionfrom school to work our country does not invest like many European and other countries.  Wehave thispatchwork, fragmented sort of system that supports or doesn't really support 16- to 25-year-oldsas theywander around from job to job, dead-end and low wage and often not leading to any realdevelopmentskills before they find a home in our work force, or intellectual capital and maybe a better job. 

When we look at what we do in building human capital mostly in business, it is done by largercorporations because often the smaller or medium sized corporations don't have the amount ofmoneyto invest.  If you look at who receives training, it is largely those people who received theeducationbefore.  So, your managers and your technicians and your professional support personnelcontinue toreceive this  investment by businesses.

But if you think about it a little bit, I don't know a CEO who gets his bonus based on hisdevelopmentof human capital or intellectual capital in the organization.  The reward systems and the measuresthatwe have right now seem to favor non-investment in this very critical factor.

I would agree very much with what Tom said about it being a knowledge-based economy thatwe'removing into.  I think we can expect fewer and fewer employees producing more and more goodsin amanufacturing sector.  More and more the intellectual underpinning of our economy will be whatwespend on people.  And yet we still have, as Howard said earlier, all of these disincentives andveryillogical tax rules about investment in people.

So it's not a surprise when we sit down and really think about it.

MR. FRED KITTLER:  Just some perspective and then a question.  As it looks from aninstitutionalperspective, we're in this revolutionary time going into a knowledge economy, using informationtechnology to automate the processes, complex processes in the economy.  And some processesaresusceptible to that automation -- the easy ones, like making jet engines, or what haveyou--helping us tocompete with foreign corporations.  Corporations are using automation technology to competemoreeffectively.

They are using the resources in the economy effectively and in effect bidding up the price levelfor theinputs, for the labor force, for rents and other factors that everyone has to use.  Meanwhile, othersectors that are much less susceptible--government, health care, education--have to pay thoserents. They have to pay that price level.  And they come off as being less productive, because theycannotautomate as rapidly and can't keep up in that particular mode.

Consequently, as we begin to see some more use of technology in health care, somerationalization ofstructure, we still see pressure in government.  The question is, how can we use the technology ineducation to bring up the lower strata of the work force and bring them into this knowledgebasedeconomy? Really, where do we use technology in education?

DR. EVERHART:  That's a very good question.  And I think there are lots of ways we can dothat. For example, California is towards the bottom of per capita spending on students.  And I am notproudof our K-12 educational system in California.  Pactel has said that they will wire every school inCalifornia for the Internet.  Now, this is going to be a tremendous paradigm shift for the teachers. They don't even have a telephone in their classrooms.  Now they're going to have a computerterminal. Some of them will be scared to death about how to use it.

But the good news is that the software is getting good, as one wag said, you know, computers aregetting so easy to use that even managers can use them.  I spent last weekend installing a newcomputersystem for my grandchildren.  And I think my grandson at the end of one week probably knowsthatcomputer system far better than I did when I installed it.  He's seven years old.

And it seems to me that if he and his brothers didn't have that computer, that they might not gettheeducation in a rural school system in Vermont that they will need to compete with the studentsfrom theprivate schools and the students from Hong Kong and Singapore and other places in theworld.

So there are lots that we can do.  I thought you were going to ask me about banking.  And itseems tome if the banking systems are really good and the processes that take place in the distributedbases weremonitored correctly and came back to the headquarters, Bearings might still be in existencetoday, justas an example.

So we have a lot to do to re-engineer our processes, it seems to me, in government and inindustry andin education.

MR. YOCHELSON:  I have four on the list.  Perhaps we can do all four and then give Dr.Everhartthe last word to close off the session, starting with Mr. Van Erden.

MR. JAMES VAN ERDEN:  Thank you.  I just wanted to follow on something that Dr. Everhartsaidearlier.  And you said the country was in good shape at the college level, but the K through 12systemis in deep trouble.  And I want to build on that a little bit.  Curt alluded to something that's beenunderway for some time and that's the school to work transition issue.  And it's not just Kthrough 12reform, but it's what happens to the kids who don't graduate with a baccalaureate degree. Seventy-fivepercent of our folks, kids don't.  Only 50 and now somewhere around 60 percent actually go onfromhigh school to college.

So the issue of K through 12 reform is critical, but the issue of how the transition system worksthat sitson top  that to help those kids move into the work force is also very vital.  And I would just saytherehas been a lot of folks over the last 4 years or 5 years who have worked a lot on this issue.  A lotofmoney has been put in by the Clinton Administration for this school-to-work transition--severalhundred million dollars a year.

And while you have some good examples of some leading companies, like Motorola and likeSiemens,who have done some exemplary work that's been, I think, highly respected, I have two littleanecdotes. The folks at one of the Siemens plants in Florida, the kids who took the national apprenticeshipexamsfrom Germany scored the highest in the world.  And these are kids in a Florida school and theywerenot kids who were creamed into the program.

Yet, the problem comes back to how you value training in education.  When you go back toemployersand you say, isn't this critical?  Everybody says, yes, we have to increase the knowledge of ourworkers.  We have to be competitive.  Very few employers will enter into that discussion. They'llenter into it at the college level.  They won't enter into it at the high school and the transitionlevel. We're spending a lot of time right now thinking about how you bring employers to that table.

It's very, very difficult.  Even with money to help them through facilitation and setting upprograms. Maybe it's a discussion for Gary in the next session.  But I'd like to come back to say, what is itthatyou really need to do?  Whether it's in terms of accounting, whether it's in terms of return oninvestment, or whatever it is, how can we get employers to the table?

Educators are there.  The huge structural systems of education in this country are there andthey'reready to work on school to work.  The problem is it becomes just another education program,anotherco-op or another voc-ed.  It doesn't become the real transition program into the work place.

One final point and I'll stop.  It's back to how you evaluate or value that technology in theeducation ofyour workers.  I had an example of that at a large aircraft manufacturer a few years ago.  Weweretalking about the issues that Howard raised about the tax code and how you value increasededucationin your workers.  Look at the old pictures during World War II of the production of a wing sparon anairplane--I remember the pictures, where there would be 30 riveters all standing there with theirriveting guns, you know, making the wing spar.  If you go to the new technology plants, you'llfind inone particular plant -- and because the press is here, I don't want to mention the company--thereweretwo people working on a huge C&C machine, building a huge wing spar.  And theaccountants and thepeople who were taking us through the plant said that   there are two people now, but next weekwe'reautomating the bottom job so there will only be one.

We went back to the accountants in the company and the comptrollers and we said, how do youvaluethe human capital of the people who produce that wing?  They said, we don't value it anydifferentlythan we did in 1940.  And I said, but you have one person versus 40.  Isn't that one person doingmore?  Well, you might be right, but we haven't changed.  And I think that's a lot of the issuearoundhow do you value training and how do you value education.

MR. JAMES AUERBACH: Mr. Van Erden just picked up exactly on the first point that I wantedtocomment on.  It's on the state of postsecondary education in this country.  I would just note thatwe areholding this conference in Montgomery County, Maryland which is in fact one of the wealthierdistricts, jurisdictions in the country.  And it has a reputation for one of the finer school systemsin thecountry.  And they will probably note--and I have served on advisory groups in MontgomeryCountyto both the K-12 system and the community college--that 85 percent or more of their students goon topostsecondary institutions.  What isn't said is by the second year, those averages have droppedrightdown to the national average.  That's, I think, something that Mr. Van Erden was saying before. While you probably note how many people have started in postsecondary institutions, it's quiteclearthat the people who finish are far fewer.  

I think a more significant question then I would have of you is:  What are we really doing?  Howwellare we really making use of those degrees that are granted in the work place?

We have as the result of the impact of technology many people working in jobs for which acollegedegree really is not necessary, despite all of the talk about the needs for reskilling and higher andhigher education.  In fact, many of these jobs do not require college degrees at all.  And yet wehave anincreasing number of people going out into the work force with college degrees who will becomeincreasingly frustrated as they're unable to use many of those skills that they learned.

Let me also just ask you something else, as well, which is on a different aspect of what you weresaying.  I was struck by your admiration of the impact of some of the technological innovationson ourpersonal daily lives, from automated breadmaking machines to the latest washing machine.  Itsort ofbrought me back to the 1950's when we were filled with stories and commercials and things ontelevision about the great benefits that all of this technological innovation would give to thehomemakerin her home at that time, and how the new oven and the new washing machine would makethings somuch easier and so on. The implication was that we would have more leisure time and that ourliveswould be less driven by work from morning to night.

In fact, it seems that the cumulative effect of some of these innovations is just the opposite.  Weseem tobe driven by a work week which is longer and longer, and for which we have less and less leisuretime.

I just wondered if you might comment on that.

DR. GRAHAM R. MITCHELL:  I just wonder whether the discontinuity might be greater thanwe'repreparing for.  We're guilty of linearly thinking our way into something that's very different. Itstruckme in the early discussion about growth and wages, that they really may be sort of separable. Thatwhile we might be able to set up the conditions for growth, it seems to me there is a compellingargument that says that wages and lack of increase in wages has got a lot to do with the numberofpeople around the world who are willing to do those jobs for less money.  And it strikes me thatwemight be being a little simplistic by simply assuming that as we educate more people, they'reguaranteed to have a high standard of living.  That, to some extent, is going to be dependent onwhatthe rest of the world does.  And if they, too, educate a lot of people in some of these similarskills, willthat not, too, bring down pressure on salaries in the too able professions?

DR. RUDOLPH OSWALD:  I wanted to take part of this theme and carry it a little bit further. Maybeboth Mr. Auerbach and Dr. Mitchell said it in a different way in terms of how you value workers,butI'd really rather pick up Tom's theme earlier of empowering workers.  And Tom spoke of it interms ofchanging from rule base to use your best judgment.

What I found interesting is where he stopped.  It seems to me that so much of the empoweringworkersis not about empowering workers to have a voice in the distribution of the gains that are madefrom thiselement.  Lynn talked about it in terms of the attempt to prevent workers from forming unions, sothatthey would have a voice in that distribution question.  And I think Bob touched on it in adifferent wayearlier.  He talked about security in terms of national security or security within 
our own neighborhoods.

I would talk about Dr. Everhart's empowering workers to say they have no voice in security onthe job. And it is that insecurity on the job that I think is a matter that undermines the quality of life thatwastalked about.

And the other element that I thought Tom did not talk about in terms of empoweringworkers--and itgoes a little bit to the theme that Dr. Hermann talked about earlier--and that is, workers are notempowered to participate in the underlying judgments about whether their jobs are performed bythecorporation or are being subcontracted out or are being foreign sourced, the elements that reallyunderlie the question about economic security.

I think it is this other side of empowering workers that is as important as whether they are able tousetheir best judgment on the job or whether they are following rules.

MR. CHARLES LARSON:  I couldn't let this discussion of the importance of knowledgeworkers passwithout emphasizing the critical aspect of good management.  You can have the best and mostknowledgeable workers in the world, and unless they're managed effectively, we're not going tocompete effectively.  So we have to invest in good management practice, as well.

Going back to Bob Hermann's question in regard to economists accounting for the impact ofknowledge, I don't think economists account for the impact of good management practice inproductivity analyses, as well.

MR. YOCHELSON: Dr. Everhart, the last word for this morning's segment.

DR. EVERHART:  I'm not sure I can do justice to all of the comments that have been raised.  Ithinkthe one thing the discussion shows is that it is a fairly complex subject.  But let me try to say acoupleof words.

First of all, what happens to high school graduates and those that start college and don't graduatefromcollege.  I think that's an important problem.  And I would say a couple of years of collegeprobablyhelps a person along life's way, because it's really the knowledge you get out of college that'simportant, not the degree.  It's really not even the grades 10 years down the stream.  It's theknowledgeyou take away.  And someone that learned a lot but doesn't take tests well may in fact do verywelllater in life.  It's an important problem that I haven't thought a lot about, because it's not myproblem. But it's certainly society's problem.  And as a group around this table, we need to address it.

About the number of college entrants who don't graduate--it's certainly true that happens.  Atmost ofthe good colleges, about 80 percent to 90 percent of the students that do enter  do graduate.  Sothedrop-out rate is not so big there.  I'm not speaking for academia as a whole, but only a part I'vebeenassociated with.  And I do know those numbers pretty well.

I think the important point, though, is more students do go to college and get some college andmorestudents do graduate from college as a percentage of our population than probably any othernation inthe world.  That's a competitive advantage.  We ought to keep it up.  We ought to emphasize itevenmore.

And for graduate school, I can tell you the pressures to get in from overseas are pretty high.  Weadmitted about 200 graduate students this year from all countries of the world at Cal Tech. Probablyhalf of them American.  We had 1500 applicants for graduate school from the People's RepublicofChina alone.  And that pressure is across academia.  We have to be very, very selective.  But youcanimagine, given the small percentage of the population that even goes to college in the People'sRepublicof China, these are pretty impressive students. And they will either stay in this country and add toourintellectual capital or probably some of them will stay in this country for a while and learn ourways incorporations.  And then they may go back to China and they may even work for an Americancompanyin China as that company opens up to foreign goods.

So there are a whole host of competitive issues here that I think this group around the table oughttofocus on.  It's not necessarily just the first job out of college, which I think sometimes somemembersof Congress may focus on in making policy for the nation.

With respect to global competition, will it lower our salaries if every country gets good at usingcomputers?  Yeah, sure.  We had the highest standard of living in the world.  If we want othercountries to be able to buy our products, let's hope that they will get good enough to make adecentstandard of living and be able to buy our product.  I think Henry Ford's motivation for paying hisworkers more was so each one of them would have enough money to buy a Ford.  And that's notsucha bad idea even today.

But will it necessarily lower our standard of living?  Not if we stay ahead of all of the rest.  Andthat'sa very important issue of competition as change takes place.  It's harder to stay ahead of the restinautomobiles, because they're not changing so fast.  It's easier to stay ahead in computers, becausetheyare changing rapidly.  And there are some lessons there in a whole host of fields for thecountry.

And, finally, on empowering the workers, I agree that job security is an important issue.  I didn'ttalkabout it, because I think other people later on are going to talk about it.  It's tough if you have tocompete against products in a free market from around the world and wage rates are different inonepart of the world than the other.  And I don't have magic answers to that problem.  I think thesearetough issues.

And the out-sourcing issue is again a tough issue.  And as far as letting the workers have thedecisivepower about out-sourcing, it seems to me that they should have a voice, but not the decisivepower,because the corporation serves its employees.  It serves its customers.  It serves its stockholders. Andit has to make judicious choices about how to serve all of those.  And hopefully management andtheboard of directors are making some of the right decisions.

I have been on boards where the wrong decisions have been made and some of the managementhad tobe changed.  It's an issue to try to get the very best management.  I couldn't agree more.  Whenwe'relooking at how corporations and how the economy functions, good management is a veryimportantissue, a part of it.  And the good management has to motivate the worker.  It  actually shouldstimulatethe worker.  It should motivate the customer, so the customer will enthusiastically embrace itsproductor service.  And it must satisfy the stockholder.  It must make a profit or it will go out ofbusiness.

So there is a group of people that the board of directors has to look to.  And perhaps sometimessomeof them get more voice than others.

(Return to Table of Contents)

Session 3: The Implications of Technology Growth for Workers
DR. BURTLESS:  I'm glad to speak to so many people who already know what I'm talkingabout.  ButI prepared my remarks under the assumption that at least a handful of people may not be awareof someof these facts.  As I understand it, my job is to start a discussion about the implications oftechnologychange for workers.  And this unfortunately makes it imperative for me to make some predictionsaboutthe future.

Most people's predictions about the future are based solidly and myopically on what hashappened inthe recent past.  And I will not disappoint you.  That's what I'm going to talk about.  In thishonorabletradition, I am going to try to interpret some of these trends as they relate to workers andtechnology.  Iwant to focus on two labor market developments, the first is what has happened to relative wagesin theUnited States and the second on what has happened to the relative intensity of use of differentskillclasses of American workers.

These trends lead naturally to questions.  First of all, does it appear that the work force has theskillsnecessary for the nation as a whole to be competitive in 20 years time?  And if it doesn't, whatcould bedone to ensure that the work force develops those skills?  I see a lot of straws in the windsuggestingthat skill deficiencies are a real problem in the United States, particularly for workers withlimited skillsand even those with mid levels of skills.

Earlier this week, I asked my research assistant to tabulate wage statistics on the very largecensus filesthat the Bureau of Labor Statistics assembles every March in order to see what's happened torelativewages in the United States.  I asked her to calculate real annual earnings of every adult between25 and64 years old, who worked full time year around.  And I then asked her to calculate what are therealearnings of these people at selected points in the wage distribution: the very bottom, at the fifthpercentile, at the 10th percentile, at the 25th percentile, and so on.

The top chart that's been handed out to you [see charts at the end of this contribution] showswhat thesetrends have been for men in the United States.  And you can see in this diagram that at thebottom ofthe wage distribution, there's been a remarkable fall-off on how much men can earn.  Earningshavedropped almost 30 percent for men at the fifth percentile of the distribution.  Meanwhile, they'veclimbed a little faster than 10 percent over the two decades from 1973 to 1993, up at the 95thpercentile.  But, still, it's quite noticeable that everywhere in the bottom four quintiles, thebottom 80percent roughly of the males' earning distribution in the United States, people are not earning asmuchin gross earnings as they were 20 years ago.

For women you can see on the next chart that the trends are a lot more optimistic.  Earnings areupeverywhere in the women's distribution, above maybe the 20th percentile or so, although they'reuponly a very small amount toward the bottom end.  Earnings have only declined among womenwho areat the very bottom of the female earnings distribution.

Two things stand out in the statistics and in other statistics that I haven't brought for you.  First ofall,for the great majority of men and a substantial minority of women, wage improvements wereevenslower or wage declines were even faster since the beginning of the 1980's than they were in themuchmaligned 1970's.  So the notion that the United States has had a tremendous resurgence in itsproductivity is not reflected in the earnings statistics for most American workers.  They do notlook likethey have enjoyed the benefits of this small acceleration in productivity improvement that we'veseen inthe last 10 years.

Second, the trend toward greater labor market inequality actually has accelerated in the last 10years or12 years.  It has not slowed down.  It has picked up speed.

The next chart shows the link between growing earnings inequality and growing wage premiumsforworkers who have advanced levels of skill.  This third chart shows what the earnings of workersindifferent skill classes are in comparison with male wage and salary workers.  At the top is theratio ofearnings of someone who has a degree beyond college in comparison with a college graduate. And yousee that's marched steadily upwards since 1969.  For people with schooling attainment belowcollegedegree, there has been a substantial fall-off especially since 1979.  As recently as 1979, highschooldropout males earned 60 percent of the wage of college graduates.  And now that's dropped tojust alittle bit over 40 percent.

The next chart shows that these trends are quite similar for women, a little bit more erraticperhaps. But since 1979, in fact, they looked quite similar.

Some people claim that these trends can be explained by the influence of international trade. Chart 5tries to shed light on that question.  What I have done is divided U.S. industries into threedifferentclasses; those that are most intensively connected to international trade, those that are the leastaffectedand those that have some intermediate connection with trade.  This just shows what's happenedtorelative wages over time in the industries least influenced by trade and those that are mostinfluenced bytrade.

What this shows is the ratio of earnings in each of the years shown here between someone at the90thpercentile of the wage distribution in that industry and someone at the 10th percentile of thewagedistribution.  The gap between these two is a simple, easily understood measure of the differenceinwages.  As you can see, there has been a sharp increase, both in those industries that are highlyinfluenced by trade--that's the lower line--and those that are in the industries that are leastinfluenced bytrade.  There is no evidence that being involved in trade has had any special effect on how fastthedisparities by skill class or by skill level are widening.  They're widening everywhere in theUnited Stateseconomy, not just in those industries that are most influenced by what goes on in China orMexico orGermany or Japan.

A natural implication of this is that as workers have been forced out of the trade-affectedindustries, theyhave been forced into less trade-influenced industries.  So people have moved from industrieswhereincome disparities are somewhat lower into industries in which income disparities are somewhathigher. But most economists, looking at the statistics, agree that that shift of workers from one kind of anindustry to another is not the main reason that skill premiums or the inequality of wages havebeenclimbing.  Instead, there has been a sharp increase in inequality within all of the industries in theUnitedStates.

What has caused this sharp jump in wage inequality within all of these industries?  Is ittechnology?  Is ita change in the norms or the rules that determine wage setting in the United States?  Theliterature that'sdeveloped on this among economists over the last 7 years or 8 years is huge and it's growing veryfast. I'm sorry but I'm going to have to burden you with some of the findings from this literature.

When most economists look for an explanation for the trends that I just sketched or described toyou,they naturally tend to look in areas that they're familiar with.  I once heard the Nobel prizewinningeconomist, Robert Solow, describe an economist as a parrot who repeats over and over, supplyanddemand, supply and demand.  I am a parrot trained by Robert Solow, so that's the first place Ilook.  It'sthe first place that many economists look.  What can we say about the relative supply anddemand ofdifferent classes of workers?

The fact of the matter is the supply of skilled U.S. workers, measured by their educationalattainment ormeasured by some level of occupational qualification has been going up.  It has not beenshrinking as acommon indictment of the U.S. labor force might suggest.  We have a higher fraction of highschoolgraduates in our work force all of the time.  We have a higher fraction of college graduates.  Wehave ahigher fraction of people with intermediate levels of qualification and indeed with advancedlevels ofqualification.  We do not have a work force that is shrinking, that is declining in its average skilllevel.

Now, there is some sign that at some levels of the work force, the rapid improvements in the skilllevel ofthe U.S. work force slowed down in the 1980's, not because the cohorts of youngsters graduatingfromhigh school in the 1980's were less likely to go to college.  On the contrary, they were muchmore likelyto go to college or return to college after they had been in the work force for a while.

Instead, of course, the cohorts entering in the 1980's and the early 1990's have been smaller.  Andsobecause they're smaller and they're bringing these additional qualifications to the work force,they don'taccount for such a rapid growth in skills as we saw, for example, in the 1960's and the 1970'swhere wehad generations where everybody in those cohorts practically had a high school diploma, and 20percentto 25 percent of them had college diplomas.  And they were replacing retiring cohorts ofAmericans whoreceived their schooling in the 1920's, early 1930's, and had not got nearly as advanced aneducation.  Sothere was a slowdown in the rate of increase in skill acquisition in the work force.  But that is notthesame thing as saying that the skill level of the U.S. work force has actually shrunk.  It hasn't.

So this naturally causes economists to look under the other lamp post for the key, and that's thedemandexplanation.  That is the explanation that most economists believe is the correct one.

There has been a shift in the nature of demand for workers, which has favored the workers whohaveacquired the most advanced educational credentials or have got the best occupational preparation. Or,more precisely, there's been a sharp decline in the demand for workers who have limitededucationalqualifications or occupational qualifications.

Most of this is a result of what is happening inside the firms. There has also been a shift betweenindustries, but that shift between industries has not caused such a dramatic increase in thedemand. Instead, it looks as though within most firms,  there has been a tilt in the demand or anacceleration in theincrease in demand for workers with more advanced skills.

Part of the reason may be the nature of the equipment that is being used in production.  Thepersonalcomputer, for example, has been shown to be highly favorable to workers with more generalskills.  Itmay be because of the influence of international trade, at least for some of the industries.  Or itmay alsobe because the technology of managing, organizing and owning U.S. companies haschanged.

So that, unlike the 1960's and the 1970's, when company managers had a lot of latitude and feltas thoughtheir main job was to make their companies bigger, nowadays every manager in the United Statesrealizes that if they are not earning as high a rate of return as is absolutely possible, they can beremovedfrom their job by an unwanted take-over.  For example, a company like TWA knows that it cangetstewardesses and baggage handlers at $7 to $11 an hour and has no necessity of paying thesepeople theequivalent of $20 or $22 an hour.  If an airline manager doesn't behave in that way, even if thereis nochange in management, as there was at TWA, he realizes that if he doesn't behave that way, hecan losehis job which causes him, of course, to behave in the same way.

That's not a technology explanation as it's popularly understood.  Most people think oftechnology assimply being the machines that workers are using and the level of qualification necessary to runthosemachines.  This is a different kind of a technology.  This is the technology of organizing andmanagingcompanies.  And the people who have been favored by this kind of shift in technology are peoplewhobring a lot of skills and who have skills that are very difficult for people to replace and are skillsthatother firms are willing to bid for, thus raising the wages.

What factors might cause the U.S. system to short-change so many workers with limited skills intheUnited States?  First of all, it's widely acknowledged that secondary school graduates in theUnited Statesenter the labor force with substantially less academic knowledge and proficiency in math andsciencethan their counterparts do in other countries.

This is a country where only slightly more than half of 17-year-olds can convert nine parts out often intoa percentage.  That's not a terrific recommendation of the schooling that most of our secondaryschoolstudents receive.  Incidentally, I don't think that there is a problem with K through 12 educationas weheard earlier.  It's much more of a problem that shows up later on, because the gap betweenAmericanyoungsters and their overseas counterparts are not nearly as large when they're 10 years old or 11yearsold as when they're 17.

Once you get beyond age 17 or 18 for the people who go to our best 4-year colleges, they get aneducation that is outstanding by the world's standards.  About a quarter of the work force willcompletethat level of schooling.  That leaves three-quarters who will not complete it.  Roughly half do notgetwork force preparation that is as good as our most effective competitors; for example, Germany,Japan,and France.

Also, not much is done for these workers after they graduate.  My last graph, chart number 6,shows thepublic investments we make in the United States for workers whose schooling attainment ends atdifferent levels.  Each bar represents the total that is publicly spent on the formal schooling in theeducational system for workers in these different final levels of schooling:  school dropouts,people whoget exactly 4 years of high school, and so on.*******************************