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United States Department of Commerce ' Technology Administration

National Institute of Standards and Technology

NIST Special Publication 897

A Working Conference on

Global Growth of Technology:

Is America Prepared?

Sponsored by

Council on Competitiveness

and

National Institute of Standards and Technology

December 7, 1995

National Institute of Standards and Technology

Gaithersburg, MD

QC

100

U57

NO. 897

1996
rhe National Institute of Standards and Technology was established in 1988 by Congress

to "assist industry in the development of technology . . . needed to improve product quality, to modernize manufacturing processes, to ensure product reliability . . . and to facilitate rapid

commercialization ... of products based on new scientific discoveries."

NIST, originally founded as the National Bureau of Standards in 1901, works to strengthen

U.S. industry's competitiveness; advance science and engineering; and improve public health,

safety, and the environment. One of the agency's basic functions is to develop, maintain, and retain

custody of the national standards of measurement, and provide the means and methods for

comparing standards used in science, engineering, manufacturing, commerce, industry, and

education with the standards adopted or recognized by the Federal Government.

As an agency of the U.S. Commerce Department's Technology Administration, NIST

conducts basic and applied research in the physical sciences and engineering, and develops

measurement techniques, test methods, standards, and related services. The Institute does generic

and precompetitive work on new and advanced technologies. NIST's research facilities are located

at Gaithersburg, MD 20899, and at Boulder, CO 80303. For more information contact the Public

Inquiries Desk, 301-975-3058.
ERRATA

NIST Special Publication 897

Corrected Table of Contents

Table of Contents

Page

Introduction 1

Executive Summary 2

Summaries 3

Session 1 - The Impact of Technology on the U.S. Abihty to Compete 3

Session 2 - The Imphcations of Technology Growth for Industry 5

Session 3 - The Implications of Technology Growth for the Workers 7

Session 4 - Implications of Technology Growth on the Quality of Life 9

Session 5 - Technology and Government Policy: What Level Is Appropriate 11

Appendices 13

Appendix A - Agenda for Meeting 15

Appendix B - Edited Transcripts 16

Opening Remarks 16

Session 1 - The Impact of Technology on the U.S. Ability to Compete 18

Session 2 - The Implications of Technology Growth for Industry 30

Session 3 - The Implications of Technology Growth for Workers 43

Opening Afternoon Session 61

Session 4 - Implications of Technology Growth on the Quality of Life 62

Session 5 - Technology and Government Policy: What Level Is Appropriate ? 74

Concluding Discussion 86

Appendix C - Biographies of Speakers 91

Appendix D - List of Attendees 98

iii

NIST Special Publication 897

A Working Conference on

Global Growth of Technology:

Is America Prepared?

December 7, 1995

National Institute of Standards and Technology

Gaithersburg, MD

Editors:

George Mulholland, NIST

John Fassett, NIST

Charles Ehrlich, NIST

Sponsored by:

Council on Competitiveness

and

National Institute of Standards and Technology

Conference Coordinators:

Howard B. Samuel, Council on Competitiveness

Chris E. Kuyatt, NIST

June 1996

U.S. Department of Commerce

Michael Kantor, Secretary

Technology Administration

Mary L. Good, Under Secretary for Technology

National Institute of Standards and Technology

Arati Prabhakar, Director
National Institute of Standards and Technology

Special Publication 897

Natl. Inst. Stand. Technol.

Spec. Publ. 897

103 pages (June 1996)

CODEN: NSPUE2

U.S. Government Printing Office Washington: 1996

For Sale by the Superintendent

of Documents

U.S. Government Printing Office Washington, DC 20402-9325
Table of Contents

Page

Introduction „ . l

Executive Summary 2

Summaries:

Session 1 - The Impact of Technology on the U.S. Abihty to Compete 4

Session 2 - The ImpHcations of Technology Growth for Industry 7

Session 3 - The Implications of Technology Growth for the Workers 10

Session 4 - Implications of Technology Growth on the Quality of Life 13

Session 5 - Technology and Government Policy: What Level Is Appropriate 16

Appendices 19

Appendix A - Agenda for Meeting 20

Appendix B - Edited Transcripts 22

Opening Remarks 22

Session 1 - The Impact of Technology on the U.S. Ability to Compete 24

Session 2 - The Implications of Technology Growth for Industry 43

Session 3 - The Implications of Technology Growth for Workers 63

Opening Afternoon Session 86

Session 4 - Implications of Technology Growth on the Quality of Life 87

Session 5 - Technology and Government Policy: What Level Is Appropriate ? 103

Concluding Discussion 120

Appendix C - Biographies of Speakers 127

Appendix D - List of Attendees 135

iii

Council on Competitiveness

The Council on Competitiveness is a nonpartisan, nonprofit forum of chief executives from business,

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 whole because it underpins the standard of living of every American as well as U.S. leadership in the international

community.

The Council actively engages its 140 members in a work program that spans technological innovation,

human resource development, trade, fiscal policy, and the benchmarking of U.S. competitiveness. The

Council normally focuses on two major initiatives a year. Council members select issues to examine,

then form advisory committees to gather data and develop consensus-based recommendations. This

approach allows the Council to combine exhaustive research with the practical insights of leaders from

industry, academia, and organized labor. In addition, chief executives from more than 40 of the country's

most prominent nonprofit research organizations, professional societies, and trade associations contribute

their expertise as national affiliates of the Council.

The Council views its reports and recommendations as starting points to help set the national agenda on

competitiveness issues. Once a report has been released, Council members follow up with press

briefings. Congressional testimony, discussions at the highest levels of the executive branch, and

meetings across the country. The work of the Council is guided by a 25-member Executive Committee.

A full-time staff of 16 provides research support and operational outreach.

v
Publications

Endless Frontier, Limited Resources: U.S. R&D Policy for Competitiveness

The report examines research and development trends in the six key industry sectors, provides

policy guidelines to meet the challenges confronting the stakeholders in America's R&D

enterprise, and sets the agenda for a national discussion on the future of R&D by focusing on

industry/ government/university partnerships. April 1996 ($25.00; $3.50 s/h domestic & $6.50 s/h

foreign).

1995 Competitiveness Index

U.S. performance is compared with that of other Summit 7 countries in this annual assessment of

America's competitive position. The Index addresses four key areas: investment, productivity,

trade and standard of living. August 1995 ($15.00).

Building on Baldrige: American Qualityfor the 21st Century

This report reviews the effectiveness of and gives recommendations for the continuation and

expansion of the Malcolm Baldrige Quality Award program in promoting quality principles and

practices. August 1995 ($15.00).

Human Resources Competitiveness Profile

This report looks at a lifecycle approach to competitiveness and human resource issues in four

areas: 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 September 1994 Nil

applications conference. It lists and examines the barriers users are facing in manufacturing,

education, electronic commerce, healthcare and entertainment. December 1994. ($25.00; $3.00

s/h domestic & $6.50 foreign).

Critical Technologies Update 1994

An update from the Council's Gaining New Ground report, this document reevaluates America's

performance in 94 critical technologies. September 1994. ($10.00).

Economic Security: The DollarS and Sense of U.S. Foreign Policy

This report analyzes eight case studies involving recent foreign policy decisions, with emphasis on

export controls and export sanctions, and tallies their cost to the United States in terms of lost exports and jobs. February 1994 ($25.00).

Vision for the 21st Information Infrastructure

The first in a series of Nil policy reports, this statement defines information infrastructure, assesses the U.S. position relative to its foreign competitors and addresses the roles of government

and the private sector. May 1993 ($15.00).

Highway to Health: Transforming U.S. Health Care in the Information Age

A follow-on to the council's Nil applications conference, this report illustrates how the Nil can

be harnessed in conjunction with market forces to address the need to control costs at a time when

the demand for healthcare services is rising. It identifies the principle barriers preventing the

development of four robust healthcare market segments—"Remote Care," "Individual Health

Information and Management," "Integration of Health Information Systems," and "Healthcare

Research 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) payable to the Council on Competitiveness, 1401 H Street, NW,

Suite 650, Washington, DC 20005.

vi
Introduction

The purpose of this conference "Global Growth of Technology: Is America Prepared?" was to articulate the issues behind the question and to address these issues from the broadest range of

perspectives. The impetus for the conference was provided by the National Institute of Standards and

Technology's (NIST) Visiting Committee for Advanced Technology. The Committee enlisted the

support of the Council on Competitiveness (CoC) for organizing this meeting. NIST and the CoC are appropriate partners to host this conference: NIST's programs are defined by its core mission of

promoting U.S. economic growth by working with industry to develop technology, measurements, and

standards; 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 the conference,

representing business, economics, labor, education, and Federal policy perspectives. The meeting was

cochaired 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 by

discussion. The first three sessions concerned the societal impact of technology including its effect on

industry, workers, and the quality of life. The fourth session focused on the impact of technology on American competitiveness. The final session addressed the appropriate role of government in support of

technology.

1
EXECUTIVE SUMMARY

GLOBAL GROWTH OF TECHNOLOGY: IS AMERICA PREPARED?

Dr. Robert J. Hermann discussed American technological strengths, highlighting systems and systems

integration as a crucial American strength. A major point of his discussion was that technological

strength was only one of several strengths needed to compete in a global economy. Other key

American strengths enumerated by Dr. Hermann include military strength, entrepreneurial freedom,

and moral authority.

Dr. Thomas Everhart made a second defining point for the workshop by asserting that we are shifting

from an economy based on natural resources to an economy based on information and knowledge.

There was an extensive discussion on how to prepare workers with appropriate skills for the new

economy and how to do this in a way that benefits are evenly distributed. Economists pointed out that

intellectual skills are not properly included in the return-on-investment equation even though such skills drive "information technology." In previous resource driven economy, manufacturing equipment and

material processing were major cost factors. Dr. Gary Burtless presented data to demonstrate that over

the past two decades, the time period during which the economy changed to one dominated by

information, a widening gap has developed between the highest and lowest incomes. The problem

posed by a skewed income distribution along with a stagnating standard of living was viewed as among

the greatest problems facing our society. A number of suggestions for addressing this problem were

presented including improved education of workers, saving and investment by the public, more

involvement in the process by the information gurus such as Bill Gates and Michael Eisner, and

company sponsored worker training programs such as those being developed by Motorola and Hewlett

Packard.

The role of international companies in relation to the global economy was another key theme of the

conference. The leaders of international companies at the meeting expressed the following far-reaching

ideas: that a reduction in market share would be viewed as success, assuming a sufficiently large

increase in the total market; that the companies would focus on improving all aspects of its workers'

lives as well as the United States; that low employee wages were not the prime interest for a company

locating a facility in a foreign country; and that a company carmot succeed unless its competitors

succeed. The international companies based in the United States recognize that they must do more on

behalf of their foreign workers' standard of living and rights. Companies are finding ways to resolve

the apparent conflict between international business strategies and national interest.

Dr. Rita Colwell gave a vivid picture of the promise of biotechnology for improving our quality of life. However, she and Mrs. Diana MacArthur identified constraints for ftill realization of the evolving

technology. These barriers include lack of support for biotechnology enabling research, failure of the

Health Maintenance Organizations to support the health care infrastructure including academic health

centers, and troubling ethical questions related to manipulating the genome and paying for health care.

Mr. Robert W. Galvin acknowledged the Constitutional mandate for partnerships between government

and industry, but wasn't afraid to stir the pot by questioning whether the current government

laboratories were worthy of partnerships. He proposed that Congress fund multi-year research projects

in general fields defined by the private sector through depoliticized institutions with minimum

government interference. Mr. Galvin predicted increasing industrial revenue will lead to a shrinking

role of government in the area of semiconductor technology. He stated that mission oriented agencies

appropriately should continue to sponsor mission related research and development, using national

defense and standards missions as examples.

2
SUMMARY

GLOBAL GROWTH OF TECHNOLOGY: IS AMERICA PREPARED?

Session 1: The Impact of Technology on the U.S. AbUity to Compete

Speaker: Robert J. Hermann, United Technologies Corporation

Dr. Hermann began with the tough questions: What do we mean by competing and winning? How will

we measure success? He identified improved quality of life as an indicator of success and this should

extend to our "competitors," that is, to our trading partners and allies. He stated that it is unlikely that we can reap the benefits of a high quality of life without our "competitors" also succeeding. He went on to give an example, saying that his company makes jet engines, some of which are installed in Boeing aircraft. Neither Boeing nor United Technologies will do well in the future if the Chinese

cannot afford to buy plane tickets.

Dr. Hermann presented a strategy for American participation in a world economy. He said we must

recognize our strengths and build upon them. First, the fact that the United States is the only

superpower colors every relationship. We are expected to lead in all aspects of life, but are resented

when we do. Our political system is a key strength. It provides stability, personal freedom, and

entrepreneurial freedom. Our diversity and individual freedom are enabling features of our society

which will not be easily emulated elsewhere. He did point out one weakness in our economy: the

large gap between the highest and lowest paid. This gap puts at risk our moral authority, political

stability, and any national feeling of a superior society. This aspect of our society must be corrected.

Dr. Hermann noted that statistically we are the strongest producer in the world, world class in science

and technology, have a strong manufacturing sector, and a powerful service sector. He identified

systems integration as a unique advantage. The ability to integrate technical, financial, and all aspects

of business will be critical. The ability to organize and coordinate multi-cultural efforts will become

crucial. We have a unique, almost uncatchable position in systems.

Dr. Hermann stated that a new paradigm will be needed compared to the approach used during the cold war. Competition is taking different forms. It will depend on more than science and technology and

must be coupled to our other comparative advantages. Dr. Hermarm believes we can thrive in the

fumre and participate in the advance of other societies while we do so.

Discussion:

Standard ofLiving: Recent History

One major focus of the discussion was the quality of life/standard of living. Hermann expanded on his presentation with specifics of a quality of life including individual freedom in the entrepreneurial sense and security from physical harm. The ensuing discussion focussed on the more easily characterized

standard of living. There was general consensus that while the economy was continuing to grow, the

standard of living had stagnated over the past 20 years. It was pointed out that there was a marked

decrease in productivity growth about 20 years ago from about 2.5 percent per year to about 1 percent

per year and it has stayed flat since then. The cause is not known. Concern was expressed about the

income distribution problem, discussed earlier by Hermann, including the belief that this condition has

been 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. In terms of the economy in general, there is a need for increased investment. This point was mentioned

3
by 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 distribution was to focus on training for the less skilled. Another was to look toward corporations to address the

issue of income distribution. The negative impacts of corporate downsizing, corporate buyouts, and

reduced wages for lower skilled workers were categorized by one participant as "corporate

misbehaving." Another felt that the challenge was to keep the positive aspects of current corporate

activity while providing improvements for workers. Hermann indicated that the new wave of

technologists, like Gates, need to participate more in the political process. This will help us develop a

better intellectual basis for what determines our success.

International Trade

A third topic concerned the impact of international trade on the American standard of living. It was

stated that selling low technology products to China will not solve our standard of living problem,

especially if it leads to companies producing products in China based on paying low wages to the

Chinese workers. It was pointed out that some of the Chinese sales were high technology such as telephone equipment. This helps the economy. Another approach to improving international trade is to risk more money with small high technology companies to take back the low technology product

market at home from foreign competitors.

4
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 last century

from a resource-based economy built on natural resources, minerals, oil, and agriculture, to an

intelligence-based economy. In the future it is those processes that have value added by hum.an minds

that will grow. In a large measure, we haven't figured out the consequences of this change. And some

other countries (such as Singapore) understand it better than we do. The issues of competitiveness go

beyond just the bottom line for a company—which is short-sighted—and must include the entire fabric

of 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 to empowering of workers. The movement is away from rule-based control to workers' judgment. For

this reason, we need to invest in our workforce—to promote education and training for workers. This

investment is especially hard for small companies.

The computer industry provides a telling example of revolutionary change: in the movement from vacuum tubes to transistors to integrated circuits. The leaders at the beginning are not the leaders now. The early firms could not adapt fast enough. They could not envision what the world was going to be

like and how they would fit into it. Technological change requires imagination and creative vision - new systems to handle the change.

The role of education in America is critical. The universities must supply the intelligent people needed

to support the information-based economy. The universities must teach people how to think. The K-12

system in America is archaic and needs to be fixed. Secondary schools need to teach students about

science—how you do science, not just the content of science. As emphasized by Michael Eisner, the

head of Disney, in describing the movie "Toy Story": the technology is good, but the most important

thing is getting the story right. Both the story and the technology require intellectual input. That is the

natural resource we need to use.

Discussion:

Investment in Education

How do economists include intellectual skills in the return-on-investment equation? Normally they are not included. Traditionally, education and skills are treated by the same models as physical capital,

where future income is estimated from the investments made today. However, measures of education

are crude—years in workforce, years of education. These measures may not reflect vital information

for today's skills. It is a mistake to concentrate only on physical capital simply because it is easier to measure. We need a wiser dialogue. The errors we make in estimation of physical and educational

capital are the same. We do know what we are spending on education and training. What we don't

know 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. Tax

policy does not wisely support education. For instance, training for new jobs is not tax-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 the

5
revolutionary changes is the percentage of the population that now attends college. It is the K-12

system that is education's weak point in the U.S. educational system. However, the college system in the United States is in need of change. Continuing education is crucial to continuing growth, and a paradigm shift is needed to bring the university to the student instead of the student to the university.

Although there are nontraditional universities ("university of TV") already in place, there is tremendous value in attending college; the time spent in the college milieu and the social interactions

that occur are as valuable to the student as the information learned. It is also true that present

technological systems, videotapes and interactive computers, can and will bring education to the home,

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 our noncollege-bound students. We have a system that does not support 16- to 25-year-olds in finding jobs

with potential. Apprenticeship programs are vital. Employers in general say training is critical but then

dedicate their efforts to improve training in schools. How do you get employers to buy into and to value worker education. Businesses are not rewarded for the development of and investment in human

capital. And yet, investment in people underpins growth in our knowledge-based economy. Increased

automation of complex processes in our society, from manufacturing to government and health care, has not happened in education. The question remains, how and when to use technology in education

and how to enable the lower strata of society to deal with this knowledge-based economy. PacTel may

be wiring every school in America for the Internet, but how do you use it? It is threatening to the

teachers and really does require a paradigm shift in education. We have a lot to do to reengineer our

processes in government, education, and industry.

6
Session 3: The Implication of Technology Growth for the Workers

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 American workers?

Dr. Burtless used a series of graphs to summarize the information on these issues (see transcript later in

this report). Between 1973 and 1993 the relative wages at the upper and lower ends of the distribution

have widened greatly, especially for men, with the lowest 5 percentile earning about 30 percent less in 1993 compared to 1973. He showed there has been a precipitous change in salaries as a function of

educational attainment since 1979. For example, in 1979 the salary of a person without a high school

diploma 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. Burtless showed

that the earnings ratio for trade-affected industries and least-affected industries had the same trend over

the past 25 years, suggesting that international trade was not a major factor. He did allow that international trade could have a second order effect by displacing workers from trade-affected

industries to lower paying nonaffected industries.

Dr. Burtless then examined the classic economic factors, supply and demand, for an explanation of the

increasing disparity in wages. Contrary to some people's suggestions, the supply of skilled workers as measured by education has continued to increase, though less rapidly than in the 1960's. So supply

does not appear to be the issue.

The analysis of the demand side of the equation is more complex. There has been a shift in demand that favors the highest level of education. This is not a technology driven trend but rather a result of

changes in how firms are managed and organized. These changes arose from the corporate buyout

culture, international trade, and the emergence of the personal computer as a routine tool. The threat of corporate buyouts and the resulting focus on the bottom line has led to both a reduction in middle

managers and in reduced salaries for some workers.

Dr. Burtless then addressed the central question: What factors might cause the American worker to be

shortchanged? He pointed out that U.S. secondary school graduates are poorly prepared, especially

relative to the Japanese and European students. There is a much greater public investment in education

for the college graduate than for a student not finishing high school (approximately 4 to 1). This same

trend also persists for investment in training provided by employers. In other countries the difference

is smaller.

For the top one third of Americans, we are doing very well, perhaps the best in the world. On the

other hand, for the remaining two thirds the system is doing poorly and we need to do better. An

increased 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, that seem to invest more on training the lower skill level employees than on the higher levels. One panelist

indicated that there was tremendous resistance to changing the curricula of secondary students to provide higher skilled workers; however, community colleges were receptive to plans for improving

workers skills. Dr. Burtless admitted that there were companies providing exceptional support to the

less skilled employee, but he reiterated that surveys indicated the opposite on the average; that employers invest the most per capita in continued training in their most highly skilled employees.

7
Mobility ofAmerican Workforce

A need was identified for institutional support for the increasingly mobile American workforce - such

things as portable pensions and health care. As a result of corporate takeovers, the likelihood of an

employee's staying 40 years at one company was now small. Dr. Burdess replied that, on the average, an employee's tenure with a company was as long or longer now than previously, except for the least skilled worker. However, he pointed out that the penalty for losing a job is greater than in the past.

Reducing Wage Disparity

There was interest in the possibility of a supply side solution to the problem of wage disparity via

improved training and education. Dr. Burtless indicated that an improvement in the skill level would

increase the wages to some extent, but there is more to the problem than the supply of skilled workers.

He stated that there were other institutions within the society which ensure the persistence of wide wage

disparities.

Dr. Burtless referred to his book entitled "Growth with Equity" in responding to how the disparity in wages 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 trained their

own employees. Earlier it was mentioned by one of the panelists that the training tax had failed to excite serious political interest.

8
Session 4: Implications of Technology Growth on the Quality of 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. heakh

care system in the face of transformations caused by changes in legislation, regulation, and the

marketplace. Cost considerations are causing changes that create market barriers—barriers that not only will inhibit the growth of biotechnology and other health care industries but also impede the

delivery of quality health care. These changes are manifested by the growth of mega managed care organizations and the restructuring of the medical insurance industry.

These changes threaten a critical component of the U.S. health care delivery infrastrucmre—the

academic health centers (AHCs) that train physicians, develop biomedical knowledge and clinical techniques, provide unique patient-care resources, and treat many of the indigent and the uninsured.

The preservation of AHCs and their research and education roles in the evolving health care industry is a major issue in the broader weave of national security and requires policy development at the highest

echelons of Federal and state governments. Development of improved systems and procedures to achieve cost reductions and increased efficacy of treatment is needed to moderate the overall cost of

health care services and to allow more resources to be directed to medical research and education. The

quality 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 a revolution—biotechnology, genome sequencing, and DNA technologies promise to revolutionize

medicine. There are 108,000 employees in the biotechnology industry today. It is predicted that there

will be more than a million biotech employees in 2005 or 2010. The ability to sequence the DNA of

pathogens—there are now several examples of where this has been done—will result in different, more

effective ways to target pathogens. The goal of sequencing the entire human genome is in sight and

gene therapies have been proposed which will drastically change the nature of medical treatment. Medicine will become proactive and prophylactic rather than reactive and therapeutic. This vision may

not be immediate; in the near fumre the greatest advances will be in diagnostics.

The biotechnology revolution will create tough social issues that must be faced. The identification of

genes that predispose an individual to a specific disease state, such as cystic fibrosis or lung cancer, is information that can both be used and abused. Medical care can be provided to treat susceptibilities

and behavior can be modified to minimize the potential onset of these predisposed disease states. But

what is society's responsibility? What is the appropriate response of health insurance and health care providers? There are also complex ethical and economic issues to be faced. To what extent should the

genome be manipulated? How are medical care resources to be allocated, and who should pay? There

are no easy answers.

Biological terrorism is also a real threat and the role that biotechnology could play in weakening our

national security must be considered.

The biotechnology revolution will impact more than medicine. The potential impact on agriculture is just as great. The reengineered tomato is available today and the potential for modifying future

agricultural products to improve productivity and quality of these products is tremendous.

Bioremediation or environmental biotechnology may also be significant. The day may come when

waste streams are considered resources—to be mined by biotechnology processes—rather than the

costly nuisance they are today. Environmental biotechnology is moving to the billion dollar range and

is critical to addressing environmental problems while at the same time creating new industries. To

achieve this vision will require the education of the public about the advantages of this technology—and

its safety and efficacy.

9
International competitiveness in biotechnology is a serious problem. U.S. investment is not equivalent

to other countries or appropriate for the United States For instance, in marine biotechnology, the

Japanese have invested at least a billion dollars in the last 5 years with active involvement from

industry. 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 lose momentum and

the lead in this critical new technology area.

Discussion:

Education

We must deal with public attimdes. We must have a population educated to the point where they will

accept advanced technologies. If people are entertainable, they are educable. Government must be

there to help educate. It is up to universities and business organizations, those organizations that base

their decisions on evidence, to lead the discussion. It is up to the leaders in this room to take charge.

Ethics

What are the appropriate mechanisms to deal with ethics? Public discussion, community-based, among

the medical, religious, and scientific community leaders is essential. Universities have developed

cross-cutting resources for studying the issues. Government and corporations should avoid talking

about so-called ethical concerns since they are essentially unqualified. Such discussion invites

domination by ideologues.

Competitiveness of Biotechnology

The competitiveness of the biotechnology industry was argued. Many people view the biotechnology

industry as one of our great success stories. The United States invests a lot of money in R & D and

skews its investment toward biomedical research. However, competition is fierce and we must be wary

of complacency. The role of venture capital was also argued. Venture capital is not at all venturesome

and may not have a long enough view. It is a problem if firms are formed with the expectation that they

will be taken over rather than grown. However, it is the role of venture capital firms to avoid risk. It must be recognized that the firms receiving venture capital have higher success rates than firms

generally. The U.S. venture capital market is the envy of the world and our risk capital is way ahead

of our competitors.

Barriers

Public policy institutions that deal with biotechnology products need to be reengineered. Both

regulations and tests are out-of-date. New mechanisms are needed to help the United States compete.

This is not a problem of just biotechnology, but other technologies as well. Barriers to commercialization exist because of negative practices by the U.S. Government that delay time-tomarket. Government can institute tax and accounting policies that will reduce risk and spur investment.

The United States never seems to get any further than recommendations for change in public policy.

10
Session 5: Technology and Government Policy: What Level is Appropriate?

Speaker: Robert Galvin, Motorola, Inc.

Robert W. Galvin focussed his presentation on the question: Is there a role (in technology development)

for a partnership between the federal and private sectors? He answered this question immediately as: mostly yes, citing the United States Constitution, in which our founding fathers in effect said that Congress shall have the power to promote progress in science and the useful arts. He expressed his desire for the Federal Government and Private Sector to cooperate with each other and form alliances,

working together as effectively and harmoniously as possible to define "results-intended activities of

mutual benefit."

Galvin stated that he sees some very significant things happening with regard to what the Private Sector

profile is going to be in the next 20 years, and to demonstrate this and provoke interest he profiled his own company, which he views as not so different than others. Motorola intends that within the lifetime

of its current head of the corporation (Galvin's son), 95 percent of its business will be outside of the

United States. This is despite expecting a very robust American economy and anticipating Motorola's

success in it. Hence, the United States caimot be viewed as the center of the (consumer) world, but

rather will soon be only a 5 percent factor. Galvin also pointed out that companies like Motorola will soon be doing a lot of technology development on their own. He went through a projected growth

scenario for Motorola, which would lead to around $100 billion in technological research by Motorola

both in the United States and abroad by 2025. He stated that with similar growth by other firms the

Private Sector's investment in technology would dwarf that made by the Federal Government.

In addition, Galvin pointed out that a factor currently hindering partnerships between the Private Sector

and 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 a foreign

country. He asserted that if the Federal Government considered itself an entity that had to compete,

there is a question as to whether in the next 5 to 15 years it would be worthy to be a so-called partner

to the Private Sector.

Galvin concluded his prepared comments by reviewing a single-page handout (see transcript later in

this report) giving his view of how Congress could promote science and technology. Congress should

fund multi-year research and development in general fields that are defined by qualified, predominantly

the 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 governing and

dispersing such funds, and the funds should ultimately go to the people who can most effectively spend

the money. Government for the most part should then get out of the way. Congress should have the

power to promote progress in science and technology applied worldwide commercially and there should

not be a restriction that any (federal technology development) money spent in the United States can

only be used in the United States. Finally, Galvin proposes that in this new scenario, the depoliticized

governing bodies will annually account to Congress according to a new standard, using private sector

financial reviews performed by public accounting firms. All other methods of auditing and review

would be eliminated, in which case, Galvin asserted, the productivity of the Federal Government

science and technology would go up at least double, and then maybe the Federal Government and the

Private Sector could afford to be partners!

Discussion

Challenges for International Companies

Chief Executive Officer's of international com^panies based in the United States are put in a difficult position from time to time, because they are inevitably doing things that are good for their company

which may be viewed by many people as not being in the in the best interest of the country. Still, it was pointed out that we have to become "internationalists" because it is the best thing for our country.

11
While it may seem counterinmitive, the more invested overseas in building industries and markets, the

greater the exports that are created. A related point was that a key ingredient to becoming a successful

alliance partner is to make your partner a success. One participant felt that it was possible to deal with

the issue of loyalty to company and country as two issues. Companies' citizenship responsibilities are

different than monetary responsibilities of the country. He pointed out that there should be a strong

self interest in being in a strong country with a solid economy, since this will enhance the success of

the company in dealing with international commerce.

Ejfect of International Companies on the Standard ofLiving

There was concern expressed that the increasing trend to forming international companies and the

increased presence of American companies in foreign countries would adversely affect the labor market

in the United States. Ultimately, the standard of living would decrease in the United States. One person

stated that international trade agreements should include international labor standards, international

standards of human rights, the banning of child labor, and international environmental standards so that the economic prosperity of the developing country would be shared by the workers and the people

generally. He stated that the international business community needs to support the labor movement's

pursuit of a decent living standard as the economies in these developing countries grow. Galvin agreed

with this perspective and said that companies must serve as role models in how they treat people in the

United States and abroad, though he expects that it will take some time. Just as the level of thinking

about quality-related issues has improved markedly over the past decade, the United States could have a very positive impact on elevating standards of labor relations and compensation worldwide.

R & D by Mission Oriented Agencies

Calvin's suggestion for funding industrial research bypassed normal funding institutions. There was a question about separating the mission agencies from their R&D needs. Calvin replied that there would

be exceptions to the rule and that there would be, for example, a need for a warfare center for the

Navy 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 the

speakers, and a list of attendees.

Appendix A. Agenda for Meeting

Appendix B. Transcript

Appendix C. Biographies of Speakers

Appendix D. List of Attendees

13
I s i
A Working Conference on Global Growth of Technology: Is America Prepared?

December 7, 1995

AGENDA

Co-Chairs: Arati Prabhakar, Director, National Institute of Standards and Technology

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 Unites States and abroad

Technology industry trends in international trade

Is America keeping up with its competitors?

Speaker: Robert J. Hermann - Senior Vice President, Science and

Technology, United Technologies; Chairman, Visiting Committee,

NIST

10:15 a.m. The ImpUcations of Technology Growth for Industry

Fostering technology-based risk

Investing in, and protecting, information-based infrastructure

Committing to short-term and long-term R&D

Speaker: Thomas Everhart - President, California Institute of Technology

11:15 a.m. Break

1 1 :30 a.m. The Implications of Technology Growth for Workers

Meeting the need for new and more advanced skills Will the decline of mass production and the assembly line, and the growth of "craft- oriented" production, create more or different jobs?

Empowering workers to accommodate to technology changes

Speaker: Gary Burtless - Senior Fellow, Brookings Institution

12:30 p.m. Break and working lunch

1 :00 p.m. ImpUcations of Technology Growth on the Quality of Life

The impact of technology changes on health and on the environment

Adjusting to changing life styles

Gaining - or losing - the sense of community

Speaker: Diana MacArthur - Chair, CEO, and Co-founder, Dynamac

Corporation; member. President's Committee of Advisors for

Science and Technology

Speaker: Dr. Rita Colwell - President, University of Maryland Biotechnology

Institute; President, American Association for the Advancement of

Science

2:15 p.m. Technology and Government Policy: What Level Is Appropriate?

Should government develop a partnership with the private sector to promote and

accommodate to technology change - or leave it to the free market?

Speaker: Robert Galvin - Chairman, Executive Committee, Motorola, Inc.

3:45 p.m. Adjourn

15
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 on

Competitiveness. 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 we hope will

come out of the discussions today. The conversation that led to this meeting really began with Dr.

Hermann, who is sitting to my left.

Dr. Hermann is chairman of our Visiting Committee here at NIST, a group of outside people who come

in four times a year and talk with us about our programs. Most of our attention in those reviews has

been 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 focussed ultimately on economic objectives—we're part of the Department of Commerce and we work on technology issues

that relate to our industries and are focussed on creating opportunities downstream in an economic

sense. It became very clear as we struggled to do our job that it would be extremely useful for us to take a moment, zoom our lenses back, and think about the broader context in which we are operating.

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 to the

standard 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 of this committee, got engaged, proposed that we do this meeting, and has worked over the last several weeks

and months with some of our folks and people at the Council on Competitiveness to draw all of you

together to engage in a dialogue about the environment in which we think about technology, its role in a global marketplace, and what that means for us as a nation.

These are very broad topics. We think that there is tremendous value in exploring these questions from

many 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 for the

conversations today.

Howard, very unfortunately, has an illness in his family and isn't here today. But we will proceed with

the meeting in his name. And that's my brief welcome. Now I'm going to turn it over to John

Yochelson.

MR. YOCHELSON: I am truly the new kid on the block. I have been at the Council on

Competitiveness 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. He contributed so much. I was on the phone with him. He would very much liked to have been here. He's doing the

best he can in a difficult situation.

I will spare you an advertisement about the Council on Competitiveness only to say that we are on the

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threshold of our tenth year, bringing together leaders from industry, the university community, and

labor.

It is, we hope, not an accident that during those 10 years, one colleague mentioned before we started

that the word "competitiveness" is the most used word now by industry as it talks about itself in the rest of the world. So we are absolutely delighted.

17
The Impact of Technology on the U.S. Abihty to Compete

DR. HERMANN: We are gathered today to discuss the readiness of our society to compete with the

rest of the world. While global growth of technology is a central focus of our assessment, I believe it makes 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 technology

related industries. But this is a difficult assessment to make. That is, how are we doing? Agreeing on

what measures to use is not easy, and deciding what technology industries are, is also not quite so easy. We need to spend some time understanding what we mean by competing and winning: What would be a

successful outcome? What would it look like? It is clear that more is involved than science and

technology superiority, manufacturing superiority, or even economic superiority. Success should

involve some concept of quality of life for our citizenry and requires the balance of many attributes. We will need to assess the legitimate interests of our competitors who are also our trading partners.

Many are our allies in a broader sense of the word. It is unlikely that we will reap the benefits of a high quality of life, unless they also succeed. To guide our policies and our behavior, we need to have

a 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 our society

and of our time. It will color every relationship we have with other societies. It demands leadership

behavior 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 major elements of

national life, which includes moral authority, political stability, economic power, military power,

industrial competence, science, technology, and the productivity of our residents. Notice, I use

residents, rather than citizens. We will be expected to lead and we will be resented when we do. Our economic success will be

expected and resented and fought against unless we can translate some of our success into the success of our partners in a non-destructive way. In my view, there will not be a global environment for our wellbeing unless we lead the world community toward this objective and provide the political infrastructure

needed 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. We

have 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 it is a very strong position from which to consider the future. On the other hand, we need to consider that North America constitutes roughly 5 percent of the world's

population and will be smaller in the future. We are a minority in essentially all of the social measures

of culture, race, and religion. We now participate in approximately 20 percent of the world's economic

activity 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 in more

than three-quarters of the world's economic activity by any measure. There are more than 4 billion

people in other societies who want to participate. The information revolution has permitted them to see what is possible as a result of the efficient access to science, technology, and industrial techniques.

Many of them are making great progress. And as they do, they are performing many of the jobs which were historically performed here. As competitors, they are working hard to compete with us and the

rest of the industrialized world.

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Our morality demands that this large segment of mankind have the opportunity, even our help, in making economic progress, because we cannot succeed in the long run unless they do. I make jet

engines. We put them on Boeing airplanes from time to time, and neither Boeing nor United

Technologies 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 it possible for

both us and our partners to gain. Our economy, industrial base, technology base, science base and

military power are second to none. Those are the bases for global leadership for our society which

should be exploited.

Our political system, even with all of democracy's turbulence, provides stability, individual freedom,

and an entrepreneurial economic system. While we do not have the advantage of tribal coherence,

which some other societies enjoy, we have the crucial attribute of individual freedom in a diverse

population.

I have noticed that it is difficult to persuade the determined foreign skeptic of the value of individual

freedom and diversity. But I am persuaded; and I believe a large number of the rest of the world are persuaded. I believe there are enabling virtues of our society which will not easily be emulated

elsewhere 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 and lowest

paid of our society. This gap, which is widening, puts at risk our political stability, our moral

authority, our ability to provide a competitive work force and any national feeling of a superior society. 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. As systems

become more complex, with more information systems content and more international character, two

premier attributes needed for economic advance will arise. The first is the capability to organize and

integrate multiculmral 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. We excel at information systems, which is the primary ingredient of a systems capability. We have an industrial

base 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 citizens are experienced at dealing across cultural lines as individuals every day. And it is a critical attribute for

multicultural contribution.

Success in this systems and integration segment will be the unique ingredient needed for a high quality

of life for our society. It is an appropriate role for the work force of the world leader. In fact, our

leadership role makes this almost exclusively ours unless we fritter it away by not recognizing this as a dimension of advantage.

How do I feel about our approach for the fumre as a nation? First, we need to recognize the challenge,

which is different from challenges during past decades and different from challenges faced by any other

set of societies in the past. We should make it our objective to maintain a world leadership position.

That is a distinguishing feamre 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, and

national security continue to be a necessary part of our national objectives. I believe we need to retain a strong manufacturing base. The ability to produce things of unique value is one of the attributes of a

leader. It is a driver for converting science and technology to societal wealth. It provides for high

value employment and is an important aspect to excellence in systems and integration.

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But we also need to recognize the importance of a strong and productive so-called service sector

including: entertainment, leisure, and information management. These are also areas where

technology, systems, integration, and innovation are important. We already have a strong position in the service sector and we have a comparative advantage for continuing to excel.

We should emphasize systems/integration as a North American attribute and stress the integrating skills of technologies and information systems with their supporting activities. We must maintain a favorable

environment for capital formation, training, education, and quality of life that will be necessary to

attract and retain high value added employees for these activities. We need to sustain a superior infrastructure for these areas of activities: infrastructure elements such as communications, transportation, information systems, and access to health. The training and education

of our citizens are essential to our progress. Our superior infrastructure in these areas is tangible

evidence of our status as an advanced civil society. These infrastructure objectives and national

missions of heahh, agriculture, security, and leadership should be important drivers for government

support 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 half of the

American century. It should be the prologue for a great future for our society. However, we've

benefitted from the exit situation of World War II and in my view, we benefitted from the subsequent

cold war, however risky it might have been.

I believe the paradigms for our success in times ahead are different. The competition is showing up in

different forms. While success will depend on science and technology leadership as an essential, that

will 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 societies while

we 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: What do you

mean when you use that term? How does it relate to the concept that you advocated at the beginning of

your remark about how important the success of our trading partners is in order that they have money

to 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 I didn't think there was time to do it. I do not pretend to be an expert on the quality of life and certainly

would not like to speak for all of you on what the quality of life is. I always try to remind folks that I was 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. I would say first that individual freedom in an entrepreneurial environment is a quality of life. And I note that it's a quality of life, because I appreciate it. And I also note that large numbers of people

around the globe look at us and wish to come here and participate for that idea almost by itself. We

would 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. I believe

it's an enabler of economic success. You really can't have economic success if you don't have security or even if it's in doubt. I am speaking here of security for the nation, for your community, for your

family and for yourself. So this is not just a national security issue in the external sense. It's also an

internal security issue. It has to do with being safe where one works, lives, and plays.

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I think the third entry I have is the opportunity to add value to society and to obtain material and

psychological awards through work freely chosen. It's okay to have jobs, but to some extent prisoners

have 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 life both

extend and be reasonably high quality while one is alive is probably going to be a long sought after commodity.

Access to ideas, cultures and other places on the planet is important to quality of life. That is, I would

like to retain access, not lose it, in the actions taken to preserve our national economic well-being. I would not like to get into a position where we did not have free access to other ideas, other culmres and

other spots of the globe.

DR. PRABHAKAR: I think there is plenty there to chew on, so let me throw it open and ask who

would like to dive into this conversation.

MR. HOWARD ROSEN: I think we tend to emphasize the competitive part too much. I'm not as concerned about competing. What I'm really concerned about is living standards and people's ability to live comfortably. And I'm concerned about that not just in absolute terms, but in relative terms. Not

relative 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 are living.

That doesn't mean anything to me, because I'm not Japanese. And I'm not going to be in Japan. So I don't really care how much money they make. And if they make more than I, I don't know if that's really 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, and

then in the last 20 years the economy has been growing and incomes haven't been growing? Now, that may 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 and wages. The

wage problem may be a distribution of income problem, which I believe has a lot to do with

technology. It has to do with the kinds of investments we make. I don't think it's the traditional

distribution of income of the rich getting richer at the expense of the poor. I think it has to do with a

lot of choices that we've made and now we're paying a price for it. It has to do with how we create income 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 only non-Asian.

I was on a panel with four businessmen from the Konsai region who were asked: What was the strategy

for their companies under Asian Pacific Economic Corporation?

Each one of them independently—they had prepared their remarks before—had calculated how much

their companies would benefit if the billion people of China would buy their products. It was kind of

hilarious. Someone said, you know, I produce beer. And if we could sell an additional billion bottles of 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 big words,

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 that they

don't have money, but potentially may be able to buy our goods. Forty years ago we were not thinking

about the size of the market, but we were thinking about the quality of that market, i.e., I'm talking

about 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, but

that's not my point. My point is that we're advocating going to where the markets are big. We're

21
going for the scale economies. Because if we could only sell a billion of X, just think how rich we're

going 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 is not going to solve our problems. It's not an issue of lack of markets. We criticize the business community

sometimes for having a short-term perspective, and yet this is a very short-term perspective, in terms of

how do we raise incomes in the long run. It's not the policies that we were following 50 years ago.

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 ideologically that technology contributes to raising living standards. The question is. What's the appropriate way of doing

it? And that's where we've been having the debate. There is a need for more empirical work to prove

what I believe to be the case, that some kinds of investments stimulate other kinds of investments and

things like that.

DR. PRABHAKAR: That was a lot to chew on, too. You drew an example in which you implied that there 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 therefore higher

living standard.

MR. ROSEN: I think that there is a clear risk of that happening. But I can also argue that it can be

done in a way that we don't bid down our wages. I believe both ways can happen. If we leave it unbridled, 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 on Boeing

airplanes and Chinese workers who are able to pay. I'm not sure that that's what the future looks like,

but once trading partners get on an economic cycle of growth, I think those dynamics start changing.

And, therefore, maybe it's not a bad first round strategy to focus on where the volume is. Please dive

in. MR. YOCHELSON: It is unusual and striking that the societies that are most dense in technology and

are most innovative in technology, the United States, Europe and Japan, are all projected to be

relatively low growth societies. It is not at all strange that industry is looking to the economies that are projected to grow at 6 percent to 8 percent in Asia and perhaps in our hemisphere, all of whom are less technologically dense or sophisticated than we are.

The question that is more striking to my mind is why is it that the most technologically advanced

societies are growing at 2 percent to 2.5 percent? Furthermore, nobody has yet figured out how do we

break out of that slow growth rate. MR. ROSEN: First of all, yes, we can sell our existing products or existing industrial structure to China 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 up that curve. Selling my regular technology or low technology goods to the Chinese, is not going to do much

for my long-term growth.

I guess I disagree, John. There are some people who have suggested the cause of the slow growth in the industrialized countries. In the United States, I think a large part of the problem has to do with our

investment decisions. We have not increased our net stock in plant and equipment as a percentage of

GEP in 15 years. MR. ROBERT J. SALDICH: As a company that's active in the Asian market and in China, I'm sort of

puzzled by your assertion that what's being developed for sale there are low technology products. It's the opposite. When China builds a telephone system and we sell telecommunications equipment into

that system or airplane engines or almost anything else that America is successfully selling, it's the best

22
we've got. We're not selling brooms to them. The low technology stuff they're going to make

themselves. 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 of our

country. 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 can sell the Chinese. If you set up the telephone system there, I don't know how many more you do after that. MR. SALDICH: Let me just tell you how many. They're building 8 million lines a year, 8 million

lines a year. MR. ROSEN: I'm not suggesting you shouldn't be doing that. I'm not suggesting that at all. But if that's our total strategy and we're not investing in the next level of that telephone system that the

Europeans 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 an oldfashioned direction. I'm more and more persuaded that a major part of our problem is the income

distribution side of it, both here and abroad. I know that coming from a trade unionist, that's kind of a

self-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 to buy a house. Why isn't there any market? I think in my particular case, a middle class area in Pittsburgh,

what's happened in that particular community is that the middle income people have just been destroyed

in all of these downsizings. And the middle income corporate people who used to move in and out of our community and buy these houses and support a fancy educational system and all the rest of it, those

jobs 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 this technology. I have to agree with Howard, I guess, that it's self-evident that technology is a good thing.

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 this technological

improvement are going to a very narrow band in our society. And we don't have the mechanisms to put the purchasing power back in the hands of the American people. You don't inspire the kind of

investment that Howard is worried about if people don't see an opportunity to sell something. People

aren't going to invest in steel plants if they don't see an opportunity to sell that steel. They're not going

to have an opportunity to sell that steel if there aren't people making things out of steel. You're not going 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 in America is the enormous hostility to the labor movement. The resistance and pressure that's put on

workers, who want to organize and improve their circumstances and insist that their employers share a

little bit, doesn't really exist in any other advanced country in the world. It doesn't exist even in some

less 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 a decent kind

of civilized society. That has a lot to do with quality of life. I don't know if access to culmre, travel and the other things Bob suggested is important, if we're not prepared to do anything to pay some

taxes, provide culmral facilities in our society, and share the wealth that this technology is producing.

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So I think there are some very fundamental distribution problems similar to those before World War II, that we resolved after World War II, that are emerging again and we have to find a way to distribute

the wealth that this technology is capable of producing.

DR. PRABHAKAR: Thank you, Mr. Williams. Other comments? I wanted to pry a little bit more on

terms that have been used here. Mr. Rosen, you talked about living standards. And Mr. Williams and

Dr. Hermann both have talked about quality of life. Are we talking about the same thing when we use

those 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 get into that discussion because I'm not sure who has the vocabulary to even discuss those things. Just as an aside, I think one of most interesting things that I do is to sit with a group of theologians to talk about ethics in economics. Those guys have a view on quality of life that's very different from the view of those

around this table, I'm sure.

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

debate.

What we have been looking at has been restricted to incomes, not so much wages, although we do talk about wages. Now we get into some of the details of what's going on here in this economy, not all of it having to do with technology. We tend to make a correlation between technology developments and

the shift in the distribution of income. In fact, there are some other things that are also taking place.

We're finding at the end of this 20 year to 25 year experiment that we have absorbed 80 million people

into 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 from Japan, let me 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 United

States is because of the woman, because of the second earner in the family. So it's no longer just a nice

opportunity for women to work. Women have to work now in order for families to keep their incomes

the 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 they are very

interrelated, 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, but

they have to be paid to folks who are of value. If we wish to have open markets, which I think is a good idea, then we must use the word compete, because we will be competing with other folks who can add 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're

positioned well to do it. In order to change the balance of the distribution of income, we must educate

ourselves. We must become good at those things which will be valuable in the comparative advantage

areas that we have. That is not very original, but I do not see any escape from that equation if one is in

fact 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 presentation

focussed on U.S. leadership in the world. What about leadership in the United States and the

implications of technology for the kinds of people who are our leaders?

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Is it an accident that Bill Gates is perceived as one of the two or three most influential people in the

United States and that Michael Eisner is another one and Rupert Murdock. All of them rank above

President Clinton in terms of the perception of power and influence that they have within our society

and in the world as a whole. Leadership in the 20th cenmry would be perceived as coming perhaps

from politics, from the military. Are we going in a direction in which people from the technology

world in the United States will have more expected of them by way of our society and by way of our

leadership?

And, to remrn to Mr. Williams' people, do people who are at the cutting edge of this world of

technology really understand what's going on in the middle class neighborhood in Pittsburgh? Do they

have the links to the less trained in our society to the technological have-nots to provide the kind of

leadership that we may need?

DR. HERMANN: Since I don't know any of those folks, I don't know. But I certainly believe that leaders such as Bill Gates and Michael Eisner and other folks who have power, are going to find it useful to have a really good, coherent, competent nation from which to operate. And, therefore, they

will have to participate more aggressively in the collective act of governance of our nation than has

historically 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 in place

yet in our idea structure. So I would say that ideas are a precedence to getting this straight. But I'm

actually fairly hopeful.

The dimensions of the problems of the world are transnational in character. And instimtions like big

businesses and small businesses that go across sovereign territory are important institutions in global

governments.

DR. PRABHAKAR: Bill.

DR. WILMER R. BOTTOMS: I'd like to go back to the issue that Lynn raised concerning income

distribution, and I guess Howard raised it, as well. It's clearly a problem. But I believe the comments

so far were focussed on the income distribution problem on the high end of the scale. There are some

abuses in my view. But I think our income distribution problem in the country is really more focussed on the fact that there are a lot of people on the low end who are really outside the net. It's not the

people who are receiving union wages. It's not the people who are in manufacturing jobs. It's the

people who aren't in those positions, the people who don't have the wherewithal because of training or

other reasons.

And the only way that we can really benefit from technology is to make sure that technology drives

productivity, which allows us to be competitive. We have a segment of society that doesn't have that oppormnity to participate in this increased productivity. In order for them to do that, they have to have

appropriate training. It goes back to the primary school level, not just graduate school level. They also have to have adequate capital investment.

If we have training and capital investment, the wages problem on average will respond remarkably,

because we'll take the people at the lower segment, who are dominantly in no jobs or service related

jobs, 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 bringing up

the bottom.

MR. JOSEPH P. COATES: I think the conference has to either engage or as a minimum acknowledge

an unpleasant situation. And that has to do with the fact that the corporation is the primary

organizational instrument by which competitiveness is implemented. And if one looks at corporate

behavior in the last 15 years, I think that one can fairly say the following.

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That it's become single focussed. It focuses exclusively on the shareholder. It's moved away from any

concern for the community, for the managers, for the workers, for a set of other factors that have

traditionally engaged it.

Secondly, in contrast to Japanese or German or French multinationals, the American corporation has

lost 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 socially destructive,

because what we're seeing is as the corporation caters to the stock market, as it caters to the pension

funds and to the mutual funds, the executive leadership is constantly driven to improving the bottom

line. And the consequence of that is out-sourcing, downsizing and constant implementation of the tools of competitiveness to in fact heave the social burdens onto places where in a broader sense of the

constituency it wouldn't fit.

Now, add to that the present work force is 139 million people. By 2005, it will be 153 million people.

Our analyses suggest that by 2005 , 70 percent to 75 percent of the work force will be able to satisfy all of the internal and external demands of the U.S. economy. In other words, flip it around, 25 percent to 30 percent structural unemployment.

So I think you have to engage the question or at least recognize and defer to another time the role and

behavior of the corporation as the primary instrumentality in enjoying the kinds of things that Bob so

beautifully told us about. I don't find anything objectionable in what Bob has talked about. But what I find 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 are elements of

truth. I think the trends that you've described in terms of corporate behavior are accurate. But I think

it's probably an overstatement to say that no corporation thinks about the national interest, that no

corporation thinks about workers and management and issues, other than those for shareholders.

But I think fundamentally you've put your finger on a key point, which is that there is a national

interest. It has overlap with the interest of companies based in this country. But it's not 100 percent

overlap by any means.

You described the downside of that. The upside perhaps could be characterized as a vibrant market

economy 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 the income

distribution, we in fact have upset the pattern from 1920 to 1970. There was a very, very stable distribution of GNP across the five quintiles. Now, what we have witnessed in the last 20 years is a

shift toward the top quintile, then the top decile, then the top centile, each acquiring a totally

historically 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 I give

you a thousand bucks, you're going to spend it. If you make $300,000 a year and I give you a thousand 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 are not feeding it back into the economy. It's not in fact stimulating the very thing that you would hope it would stimulate. It's not providing the money to buy refrigerators and stereos and automobiles and

26
furnishings and homes.

So fundamentally we have to look at the question of how to keep the market economy healthy. How do

we put the productivity gains in the pockets and purses of individuals? And that's the core public

policy issue. If we grow 2 percent per year, which is realistic, we will double national income in a

generation. But do we want half of that to accumulate in the top decile? I certainly don't. I want to keep the economy vital by putting those gains in the purses and pockets of ordinary people. And

corporate misbehavior is effectively thwarting that national objective.

Let me illustrate with one recent anecdote. Boeing, a company that Bob is not unfamiliar with, just

earned $800 million. And what's it doing? It's in labor strife to chisel some health benefits from its highly paid workers. That kind of dissonance characterizes the American multinational. Every penny

they chisel from the worker is another penny to give to the shareholder and in turn to the mutual funds.

If you want to look at the economics of it, the core social issue is that the stock market has gone

berserk. It obscenely rewards CEOs for their misbehavior, because they're all from Kansas. They all think that the only way the world acknowledges that they love them is double dipping them in money.

And what we have to do is change that social structure. We have to Francophile or Germanophile the

corporate mentality in America.

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

it.

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

DR. VAN DOORN OOMS: I'd like to do just a little basic economics. Number one, the European

societies that Mr. Coates so admires in the organization of their work place have already achieved 10

percent to 15 percent structural unemployment rates and are likely to continue those for the foreseeable

future until they begin to move, as they're very quickly learning, toward a more flexible labor market.

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. I just want

to underline strongly my agreement.

We now have a net national saving rate of about 2 percent of national income in this country. We're

not investing any of it, any of our national income, except a very small amount. We're investing barely

enough, and perhaps not enough, to keep productivity growing at the approximately one percent rate at which it's been growing for the last 20 years.

The process that Mr. Coates deplores, people not spending all of their income on refrigerators, but

acmally saving a little bit of it, which indeed does go back into the economy through the financial

system 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 rate of the

United States. Krugman has documented it very well. It is not because they're brilliant, that they're smarter. 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 well understood.

But the puzzle is, to go back to Mr. Rosen's earlier remarks, why productivity growth slowed

approximately 20 years ago from a rate of about 2.5 percent a year, which was sustaining income

growths at that rate in the first quarter century after World War II, to less than 1 percent a year, which

is 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 of it in

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terms of lower investment. We can account for a little bit of it in terms of technological factors. But

by 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 of the

things that we think are likely to raise productivity growth. And when we go through all of that, you come basically back to two. One is productive capital, which means saving and investment. And the

other, and perhaps much more important, is human capital, very broadly defined, which takes us back

to the skill issue. And I just again wanted to subscribe extremely strongly to what Bob Hermann was

saying earlier about the importance ultimately of getting the skills to the people that need them in order

to 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 real danger

of an inequitable dynamics. There is a real danger that as technology becomes more and more

important, that those that have will get more of it. That they will get the benefits of technology in the sense that they will disproportionately get the additional skills. And the people at the bottom who don't

have the skills, rather than catching up, will find it harder and harder to get a fair share of the human

capital that we create in the society through technical change. That is the real issue and it's certauily

my concern about income distribution.

Thank you.

DR. MacARTHUR: I'm rather interested in what the World Bank is undertaking. I suppose

economists are involved in this. They are trying to work up a new way of counting a nation's wealth.

It would be based on what you referred to as the productive industrial activity and human productivity.

It would include certain quality of life issues such as a good environmental quality, not destroying our

natural 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 20 years is that we have had too many examples of barbarians at the gate. You can't just count transactions as national wealth. The junk bonds, leveraged buy-outs and difficulties with our banking system have

been very detrimental.

The early giants of capital formation in this country made their money doing things like building roads

across the United States, the Suez Canal, or China. We could do that. Real work. The notion that Smith-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 investment

theme. All of us would agree that in the long term, if we had a higher saving rate in the United States and a higher investment rate, long term economic growth and productivity growth would accelerate and

eventually this would show up in higher living standards. But I think it's important how you get there.

The objective should be to channel more of the growth of the economy into saving and investment, but

not at the expense of consumption in the short term. So the notion that it's okay that we're saving and

investing more, but that families are being squeezed and spending is being adversely affected, that is not a healthy environment for long term economic growth and long term investment. We need balance.

The challenge is, how do we do that. How do we get the economy growing? And as we grow, how do

we grow both consumption and saving and investment, but skew the share increasingly towards saving

and investment in the future?

I want to pick up the point that Joe is making about corporate behavior. And while I think he probably

overstates it in many ways and perhaps significantly overstates it, there is some element of truth that's been mentioned by others in what he says. And it seems to me the key point is that the system is increasingly skewed toward the short term.

The pressure to meet earnings expectations and a whole range of tax factors is increasingly pushing us

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toward the short term focus, unhke many of our foreign competitors. If we want to overcome this problem, then we need to find poHcy 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 we upsized. Twenty years ago you were rewarded if you hired more workers, if you increased their wages

and benefits, if you increased your R&D spending. Now, if you do that, you take a big hit on Wall

Street. And the way to pick your stock up is to do exactly the opposite.

It all reflects the short tenn focus that is now far more pervasive in this system than it ever was. From

a policy perspective, I think that's the number one challenge we have. How do we shift the focus more

toward the long term?

MR. ROSEN: Larry, I think you're saying something important and I don't quite understand it. You

said, in the long run, saving and investment is good. In the short term, we shouldn't save at the

expense 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 and then

you 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 lowering interest rates and have a more accommodating monetary policy, which I think would give us the biggest bang

for 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 up this session.

DR. MARY L. GOOD: I just want to add one thing to this. We're focusing a lot on the big companies

and the big issues. Everybody around the table is doing that. I'd like to bring us back to the fact that the biggest portion of our economy in the United States is in the small and medium sized businesses.

And that's true of manufacmring firms as well as it is of service businesses.

The Commerce Department has two kinds of high technology industry issues that it follows. One of

them is the high technology products. The other is high technology industries. My view is we spent

too much of our time over the last 10 years focussing on high technology products and not enough on

high tech industries.

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

the American market.

The whole issue of deciding that we cannot compete in the United States on products in the American

market at the lower end of the technology scale, is insane. Today, the processes are technology driven,

but the products themselves are not.

Let me give you a couple of examples. Rubbermaid makes a very common commodity product. It is one of the outstanding high technology businesses in the United States. They can sell a rubber bucket

in the United States against a Chinese import for lots of reasons, which I don't have to go into.

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This economy is not going to get grown in the big corporations. They need to succeed and they need to go forward. And they need to do whatever they have to do. But you're going to have to grow it with

new companies starting up. The average productivity will go up by starting small manufacturers across

this 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 more

faith in being able to risk some of that. There's capital. It's not that it's not available. Starting up

small, high technology processes gives you mundane products, but they can compete in the American

market. So I hope we don't get bogged down talking only about what is happening in the Fortune 500.

The Implications of Technology Growth for Industry

DR. EVERHART: Thank you very much. Let me reassure you in view of what's been said about

Kansas, that I went to high school there. So I do come from a humble background. And you will have

to 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 it may

appear a little more disjointed than it would have. I won't totally change it. I have some comments to make about technology ~ the implications of technology growth for industry in a global economy. But

I was going to give you a historical example and spend a lot of time on that. And I will cut that historical example down on the grounds that probably some of you know it already, some of you don't

know 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 about this subject. And I thought I'd approach it by making a couple of comments. Perhaps the one comment

that I think might be most interesting to you right now is the idea that we're not in a technology

economy. We've moved in this country in the last 100 years from what I would call a resource based

economy, based on our natural resources. These natural resources may be minerals we take out of the

ground or oil. We hit our maximum oil production rate in this country, I think, in about 1967. And

since 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 exporting

agricultural products and we still are exporting agricultural products. But we've taught the rest of the

world how to become more self-sufficient in agriculture. Fifty years ago I remember reading in the

paper about the great famines in Asia. We don't read about those any more. China and India have

become more self-sufficient in food, and that's because the technology that we applied in the genetics of

seed hybrids and so on has helped them.

We based our wealth on productivity from factories. And we still get some wealth from productivity

from factories. But I think we are moving—perhaps have moved—from a resource based economy to an intelligence based economy. And we haven't really figured out what that means yet. And it seems

to me that's in some sense what this conference is about. And it seems to me some people, perhaps some of the countries in Southeast Asia—Singapore, for example—may have figured it out considerably

better 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 line of a corporation and is it competitive, that is very short-sighted. We have to focus on the entire fabric of

the Nation, its policy and so on. It's appropriate that NIST and the Council on Competitiveness should

sponsor this conference.

I think it's appropriate to ask if you're in an intelligence based economy: what is going to grow and

what are the things based on intelligence? Whose names have been mentioned? Bill Gates. Now, how

much natural resource goes into the products of Microsoft? You know, a few hundred thousand trees, because they print a lot of stuff on paper. A little bit of plastic for the disks they send out. But most of

it is value added from human minds. And they're ahead, because they are ahead and they want to stay

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ahead. If they don't stay ahead, they won't be a profitable company. And that's also true in jet

engines. Think of the changes from the piston engine to the jet engine. That was a basic change.

I think there are several types of change one can focus on. Revolutionary change, I would say, was the

change when we went from a piston engine to a jet engine-and most of us got here in jet powered

airplanes if we came by air. The switch from radio to television was a pretty revolutionary change.

You could see people. You could see what was happening in a foreign land. You could see what was

going on in Vietnam, whether you were on leave in Germany as I was for a year, or you were in an American 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 an

evolutionary change. The cars I get into today—and I'm on the board of General Motors—still have a reciprocating engine in them, just as they did when I learned to drive in the 1940's and 1950' s. There

hasn't been a fantastic change in those cars. They look different and so on and the styling has changed,

but that's what I call evolutionary change.

There are some labor saving changes. There have been two that impressed me a lot. Having helped

my mother wash clothes with an old wringer washer with several tubs—the automatic washer was a

terrific labor saving device. There may be a couple of other people in this room old enough to remember wringer washer technology. The most recent one, which I think is a terrific labor saving

device, is the automatic breadmaker, which the Japanese had long before we did. I think it is one of

the 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. For

example. E-mail and fax have speeded up the interaction back and forth across the country. When

Chuck Vest and I want to talk to each other, we do it by E-mail, because it's sure a lot faster. He's

always someplace else when I call. I'm always someplace else when he calls. But by E-mail we can

get back to each other in a few hours. And that's one way two college presidents can stay in touch

across the country.

And think of the societal change that these things have brought, not just to travel to this meeting, but

via t.v., the poor see how the rich live. The Asians see how Americans live. Aspirations are raised,

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 smdents to focus on what the society thinks is most important, not particularly what the research professor thinks is most 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 to reengineer, to use a popular word, the processes we use in our institutions—whether it be a corporation or a university.

Now, a lot of that re-engineering has been accompanied with downsizing and so in some people's

minds, it's coupled with, well, that's just the way you get rid of people. I think that's unformnate. We

need to change the processes. And we can do it—and in some companies, even add people if the

company is growing.

But the difference between a Hewlett-Packard, for example, that's growing over 20 percent per year, even though it's a $25 plus billion company, $30 billion plus company today, is that it's in a field where there is an increasing demand for product. So, Dr. Good, when you say small companies will

be the ones where growth will occur, I think that's true. But they have to have products or services

that 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 this re- engineering, what we're really doing is empowering workers. For a long time—and I think the Federal

31
Government is to blame for a good bit of this—we have essentially been rule based. You know, what

can I do? Well, look it up in the rule book. The rule book is so big, no one can look it up in the rule

book any more.

And what we used to do is say, use your best judgment and we are going back, it seems to me, to a country which could get back to, use your best judgment. Tell the worker, use your best judgment and

we're not going to fire you if you make a mistake. Use your best judgment and you won't have to look

it 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. In order to do that, we have to reinvest in people. We have not spent much money in training past the

final degree that people get in this country. The better companies have. That's incidentally hard for

small companies. And that's where universities, community colleges and others can play a role. I don't think we've done a terrific job in investing in what I call the mid-level, technical, high school plus

technical 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's do 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 little time on

a historical example. It just covers my lifetime and it covers a lot of my experience in college and

graduate school and research. It's a historical example of revolutionary change—going from vacuum

tubes to transistors, which happened in about 1945 to 1960; then transistors to integrated circuits; and

then, 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 so

interesting about this change is that after about the first decade it was predictable. It was predictable

because Gordon Moore coined the law which said that the number of active devices on an integrated

circuit chip was doubling every year. It's dropped off a little bit, but it's still going up that fast ~ or almost that fast. The tremendous increase of power and information processing was made predictable.

Once he had that law, Gordon spent most of his time at conferences trying to say to people, how are you going to use all of this? We know it's coming. How are you going to use it? Gordon Moore was

trying to create a market. He spent his time trying to create a market for a product he knew he was

going to have at Intel.

I think we have to have more of that sort of vision, looking ahead and saying, what's the world going to be 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 a big

difference in industry, because in the beginning, no one knew even how to go from tubes to transistors. You had to learn whole new skills and none of the workers out there had it then. But the high

technology corporations and here the small corporation did it. If you look at who were the leaders in

tubes, they were GE, RCA—go look in an old surplus radio if you have one sticking around in the attic. Ask who are the leaders in integrated circuits today—not GE, not RCA. They couldn't change fast enough. Not Westinghouse. Even the leaders in transistors had a hard time moving in the integrated

circuit field. Intel was not a company when the transistor was invented or when the integrated circuit was invented.

So that's revolutionary change. And these companies have adapted. Have they always adapted

correctly? No. There was a time when Intel was not using its own information processing devices at

all. I talked with Bob Noyce and Gordon who said: "You know, it's funny. We don't use computers

very much in our business." They didn't use them partly because the software wasn't there and they

moved 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 to make the

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process 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, because

universities have to supply people. If you're going to be in an intelligence based economy, you better

have some people coming out of universities that have some of the intelligence you want. And the most

important thing it seems we can do in the university is to teach people to think, teach them how to solve

new problems and give them a background that's broad enough, so when the new problem comes along

that 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 scientist or an

engineer, I can virtually say almost no one. If you're an economist, I guess you've learned an awful lot since 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 our K-12

educational system, because it's not doing very well. If you compare the results of our K-12 system

with the results of the other industrialized nations of the world and some of the non-industrialized

nations, we don't compare very well at all. That is the human potential on which in the year 2010,

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 Tech now.

This is not part of our mission, but we have faculty that say we have to become involved. We have a very large grant in which all of the Pasadena schools are involved. We're teaching kids and their

teachers K through 6 about science, not details of science, but how you do science, why it's fun to do

science.

This statistic bothered me the most when I heard it: a few years ago I learned that in a state university,

in a different state, thank goodness, there were something like 30 students declaring they were going to major in chemistry and over 2000 declaring they were going to be undergraduate majors in business.

Now, that isn't probably going to satisfy the nation in the best way if in the long term we have no

chemists and all businessmen—because the businessmen won't have anything to sell. We have to make

sure 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 discussion by

giving an example from Michael Eisner. I heard him speak about three weeks ago and he gave some

clips 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 —was that the

technology is pretty amusing and it's really good. Despite the technology, he said, the most important

thing is getting the story right. He said, we went through six endings for Toy Story before we thought

we had it right. Now, you'll have to go and pay your money and see if you think he got it right. When

you see that movie, remember, to Michael Eisner, it was not the technology, it was the story. Both the

technology and the story require an intellectual input. That is a natural resource that we have to use.

Thank you.

MR. YOCHELSON: Well, our horizons have been much widened and extended. Who would like to kick off?

DR. HERMANN: I would like to ask the economists how we should count investment in human

capital. In other words, when you have a conversation about savings and capital and investment, how

do you count the capability to produce value intellectually in that equation? I just don't understand.

Perhaps an economist could give us a little tutorial on how it counts in the investment rate or not.

DR. OOMS: I really ought to defer to Gary Burtless who has joined us, who is something more of an

expert than I am in this field. In our normal accounting, we don't include it. I mean, our normal

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national 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. But in a formal sense, 30 years or 40 years. There is a tradition that recognizes the fact that in many respects

you can treat the accumulation of education, of skill, of all of these abstractions that we talk about in models, in the same way that one can treat the accumulation of physical capital. Simply, that people

acquire abilities to do things—and these have long-term payoffs over a period of time—so that you have an income stream in the future generated by an accumulation of these skills over some shorter time

horizon.

Measuring it is extremely difficult and this is one of the problems. I mean, the measures that we use

are extremely crude. They're accretions of years of schooling with some types of quality adjustments

or amount of years in the work force with certain types of adjustments made on the basis of income as a rough proxy for quality or productivity adjustments of some kind. But that's conceptually what one

tries to do.

DR. HERMANN: As a non-economist, shouldn't it bother me that we have this dialogue around only

counting physical capital in an economy which is fundamentally dependent on intellectual capital for our future? I understand that it's easier to measure. It is not obvious that that's an excuse for being the

only thing we measure. I'm not in the business, but it does seem to me that we shouldn't stand for it. Being precise may not be such a requirement because we arbitrarily decide the depreciation rates and a bunch of other things that are absolutely random, but on the other hand are folded into the process.

I'm looking for some way to imagine that we would have a wiser dialogue, a better understanding of

what investment means and what its payoff would look like if we had a better way to deal with the fact that the creation of human capital has a downstream, future revenue stream which is similar to an

investment in tangible capital.

MR. ROSEN: If I could, I just want to dissect your question a little bit. Are we asking, how do we

measure how much we invest in education? Or, what's the return on our investment in human capital?

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 us something about the return on that investment. But we know very little, if anything, about that return on investment. When it comes to education training, we say, oh, we can't measure that. Well, I'll say

that the errors in measurement are probably the same. It's just that we're willing to make those errors on 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 we

also know that it's going down in this country in relative terms. Now, what we don't know is what

we're getting for that dollar. And we need to do more work on that. You're correct, we do need to do more work in that area especially as we move into this technology and intelligence based society. And

just because we haven't done it doesn't mean it can't be done. But we do already know the first part of

that equation.

There is only one way I know to spend on education. Somebody has got to put up the money. I'm

talking about education broadly. So it's either going to be individuals who are going to pay for it—they

have to have incomes—or, it's going to be a communal thing. But we have to pay taxes. Or it's going

to be companies that are going to take some responsibility. And I don't see any of that happening.

Maybe we all need to do it together, but someone has got to bring it together so that we all start doing

it. But when we go to the firms, they say: if we invest in these people, these people just pick up and go

to another firm. Or, we don't get anything back for it. You know, that kind of thing. I'm making a generalization and there are a lot of stars around this table. So, please don't take this personally.

One of the great ironies is when you fill out your taxes—your 1040 every year—you cannot deduct

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training for a new job. Here we're talking about encouraging this flexible labor market and you can

only deduct—if people even do this—training to keep your current job. It's the opposite of what we

should be doing.

We should change that rule immediately and we should be encouraging everyone to continue education

and to deduct its cost. Of course, you've got the problem with how to handle a basic college

education, 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 is willing to pay 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 litde self-serving, but I think the

country is in pretty good shape when it comes to college and graduate education. It's the K-12 part that

is not working well. I'm not trying to point my finger, because I'm a citizen. We have a public school

system and everyone around this table is culpable if the K-12 system is not working well. It's our

responsibility. We can't lay the blame someplace else. So it's not a matter of pointing fingers. We're

pointing 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 our colleges and

our graduate schools, we know a market is working and it's working in our favor. And, if you think a

little bit about revolutionary change, one of the revolutions in change has been the number of people

who go to college and the number of people who go to graduate school as a percentage of our

population. I was the first member of my family to go to college. I got interested in it and I went right

through to a Ph.D. That's a litde unusual. But nonetheless there are many of the students in my

institution today that are the first members of their family who have ever gone to college. We are

utilizing human potential because of an education that other nations aren't utilizing. So we're doing some things right.

How to use our human potential is always a subjective judgment. When you hire people in your firm,

you may use data, but in general, it's a subjective judgment. When we admit students to Cal

Tech—and most of the other universities do the same thing—it's a subjective judgment. We have more

applicants, thank goodness, than we can admit and we try to choose the best ones. So it seems to me

that 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 can quantify,

you can put into a spreadsheet. Generally it will come with as many significant figures as you want. Most of the assumptions aren't worth one figure or certainly no more than two. So it's really very

funny to see some of these projections of what your budget is going to be next year, to five significant

figures, when you have no idea what it's going to be to more than two. But that's another issue.

I would say one other thing while I have the floor, and that is I don't think we can over-emphasize

motivation. One of the reasons corporations pay their CEOs and high level employees a fair amount

and then try to tie them up with stock options, and so on, is to keep them from moving—because in our system they're very mobile. The way our system works they have to suffer an economic loss if they move. 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 a percentage 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 a bigger

percentage.

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

DR. EVERHART: Everyone gets the same percentage bonus.

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MR. COAXES: 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 a question for Dr. Everhart. It seems to me—I suppose to most of us—the concept of continuous

education is crucial to continuing competitiveness. So we all are also aware of the fact that education

as we practice it today is getting simply too expensive. A hundred thousand dollars for a bachelor's

degree 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 about

education. At first, it would have to be continuous, as I've mentioned. But that implies, I think, in

reality that we can't any longer consider the notion that the student goes to the university. We have to consider that possibly that the university goes to the student. And, of course, that opportunity now

exists with modern telecommunications.

I wonder if you would like to address the question, how do you see the university playing its role in

continuous 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 going to change. They have already changed. There is a technological university on t.v. now. And you can

learn a lot from it. If you pay, I think you can even get a degree from it. The British have had this Sort 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 with other

students from different backgrounds for a few years and with mentors, who are probably called

professors, and come to grips with a society that's probably different than the society they grew up in. When I went from Wichita, KS, to Cambridge, MA, for college, that was probably the most defining

point 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 to do 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 agree with you

that people have to get educated the rest of their lives. And how they're educated even in college is changing. We have faculty that are developing videotapes and interactive computer programs which

enable students to learn more quickly. They understand concepts faster and better. And they will come

out of college with more value added. But those same videotapes, those same interactive programs can be 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 that sort. The computers one has in a home, or can have in a home today, for about $2500 will do all of this and

more. And I remind you 10 years from now, those computers will cost $500 or $600 and much more

powerful computers will be available in the home. Using the Internet, a student will have aVast set of

resources around the world available. We are in truly a time of paradigm shift in education. And I think many people in education recognize that.

But, again, people feel threatened because they're changing, they have to change. And change is always threatening. It doesn't matter whether you're a Ph.D. in biology or a high school teacher. But

we 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 present at the dinner were heads of various scientific bodies, associations of universities, research universities.

National Science Foundation, so on and so forth. The discussion after dinner was led by the host who

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shocked me by having the lead question be, do you think that universities should practice birth control

in turning out PhDs in physics? I've heard that recently again. I think that I'd like to have you

comment 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 birth

control. Let me tell you, though, what I mean by that. I have met Ph.D.'s in physics from Cal Tech,

who are leading computer companies. Two of our latest Ph.D.'s in physics went to Wall Street. The

people there seem to feel that our Ph.D.'s know more about derivatives than they do. There is complexity in many areas of life where very careful analytic thinking can provide a great deal of value

added. But if you ask me, do I think every Ph.D. in physics or any other subject should expect a job in a university doing what their mentor did, the answer to that is also no. I do not think they should

expect that. They should understand that what they are doing is getting rather expensive training that will enable them to do a lot more than if they hadn't gotten it. But they're going to have to be fast on

their feet in a changing world. And the broader they are as they go out and learn other fields, the more

value 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 a growing disparity between the different levels in our income.

If in fact intellectual capital is an underpinning of our future development, and so on, we continually

under-invest in the same group of people in our society. If you look at how we finance schools and the

ability to invest in that particular intellecmal capital, you quickly find the remarkably large disparity in

investment per pupil between what you spend in a large city school and what you can spend and what

you 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. And

then when they complete high school or don't complete high school at ages 16 to 25, in the transition

from school to work our country does not invest like many European and other countries. We have this patchwork, fragmented sort of system that supports or doesn't really support 16- to 25-year-olds as they

wander around from job to job, dead-end and low wage and often not leading to any real development

skills 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 mosdy in business, it is done by larger

corporations because often the smaller or medium sized corporations don't have the amount of money

to invest. If you look at who receives training, it is largely those people who received the education

before. So, your managers and your technicians and your professional support personnel continue to receive 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 his development

of human capital or intellectual capital in the organization. The reward systems and the measures that we 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 that we're

moving into. I think we can expect fewer and fewer employees producing more and more goods in a manufacturing sector. More and more the intellectual underpinning of our economy will be what we

spend on people. And yet we still have, as Howard said earlier, all of these disincentives and very

illogical 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 an instimtional

perspective, we're in this revolutionary time going into a knowledge economy, using information

technology to automate the processes, complex processes in the economy. And some processes are

susceptible to that automation ~ the easy ones, like making jet engines, or what have you—helping us to compete with foreign corporations. Corporations are using automation technology to compete more

37
effectively.

They are using the resources in the economy effectively and in effect bidding up the price level for the

inputs, for the labor force, for rents and other factors that everyone has to use. Meanwhile, other

sectors that are much less susceptible—government, health care, education—have to pay those rents. They have to pay that price level. And they come off as being less productive, because they cannot

automate 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, some rationalization of

structure, we still see pressure in government. The question is, how can we use the technology in education to bring up the lower strata of the work force and bring them into this knowledge based

economy? 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 do that. For example, California is towards the bottom of per capita spending on students. And I am not proud

of our K-12 educational system in California. Pactel has said that they will wire every school in California 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 computer terminal.

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 are

getting so easy to use that even managers can use them. I spent last weekend installing a new computer

system for my grandchildren. And I think my grandson at the end of one week probably knows that computer 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 get the

education in a rural school system in Vermont that they will need to compete with the students from the

private schools and the students from Hong Kong and Singapore and other places in the world.

So there are lots that we can do. I thought you were going to ask me about banking. And it seems to me if the banking systems are really good and the processes that take place in the distributed bases were

monitored correctly and came back to the headquarters, Bearings might still be in existence today, just as an example.

So we have a lot to do to re-engineer our processes, it seems to me, in government and in industry and

in education.

MR. YOCHELSON: I have four on the list. Perhaps we can do all four and then give Dr. Everhart

the 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. Everhart said

earlier. And you said the country was in good shape at the college level, but the K through 12 system

is in deep trouble. And I want to build on that a little bit. Curt alluded to something that's been

underway for some time and that's the school to work transition issue. And it's not just K through 12

reform, but it's what happens to the kids who don't graduate with a baccalaureate degree. Seventy-five

percent of our folks, kids don't. Only 50 and now somewhere around 60 percent actually go on from

high school to college.

So the issue of K through 12 reform is critical, but the issue of how the transition system works that sits on top that to help those kids move into the work force is also very vital. And I would just say there

has been a lot of folks over the last 4 years or 5 years who have worked a lot on this issue. A lot of

money has been put in by the Clinton Administration for this school-to-work transition—several

hundred million dollars a year.

And while you have some good examples of some leading companies, like Motorola and like Siemens,

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who have done some exemplary work that's been, I think, highly respected, I have two little anecdotes.

The folks at one of the Siemens plants in Florida, the kids who took the national apprenticeship exams

from Germany scored the highest in the world. And these are kids in a Florida school and they were

not kids who were creamed into the program.

Yet, the problem comes back to how you value training in education. When you go back to employers

and you say, isn't this critical? Everybody says, yes, we have to increase the knowledge of our

workers. We have to be competitive. Very few employers will enter into that discussion. They'll

enter into it at the college level. They won't enter into it at the high school and the transition level. 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 up programs.

Maybe it's a discussion for Gary in the next session. But I'd like to come back to say, what is it that you really need to do? Whether it's in terms of accounting, whether it's in terms of return on

investment, or whatever it is, how can we get employers to the table?

Educators are there. The huge strucmral systems of education in this country are there and they're

ready to work on school to work. The problem is it becomes just another education program, another

co-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 the education of

your workers. I had an example of that at a large aircraft manufacturer a few years ago. We were

talking about the issues that Howard raised about the tax code and how you value increased education

in your workers. Look at the old pictures during World War II of the production of a wing spar on an

airplane—I remember the pictures, where there would be 30 riveters all standing there with their

riveting guns, you know, making the wing spar. If you go to the new technology plants, you'll find in one particular plant ~ and because the press is here, I don't want to mention the company—there were

two people working on a huge C&C machine, building a huge wing spar. And the accountants and the

people who were taking us through the plant said that there are two people now, but next week we're

automating 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 you value

the human capital of the people who produce that wing? They said, we don't value it any differently

than we did in 1940. And I said, but you have one person versus 40. Isn't that one person doing

more? Well, you might be right, but we haven't changed. And I think that's a lot of the issue around

how 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 wanted to comment on. It's on the state of postsecondary education in this country. I would just note that we are holding this conference in Montgomery County, Maryland which is in fact one of the wealthier

districts, jurisdictions in the country. And it has a reputation for one of the finer school systems in the

country. And they will probably note—and I have served on advisory groups in Montgomery County

to both the K-12 system and the community college—that 85 percent or more of their students go on to postsecondary institutions. What isn't said is by the second year, those averages have dropped right

down 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 quite clear

that 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? How well

are 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 a college

degree really is not necessary, despite all of the talk about the needs for reskilling and higher and

higher education. In fact, many of these jobs do not require college degrees at all. And yet we have an

increasing number of people going out into the work force with college degrees who will become

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increasingly 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 were

saying. I was struck by your admiration of the impact of some of the technological innovations on our

personal daily lives, from automated breadmaking machines to the latest washing machine. It sort of

brought me back to the 1950's when we were filled with stories and commercials and things on

television about the great benefits that all of this technological innovation would give to the homemaker

in her home at that time, and how the new oven and the new washing machine would make things so much easier and so on. The implication was that we would have more leisure time and that our lives would 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. We seem to be driven by a work week which is longer and longer, and for which we have less and less leisure time.

I just wondered if you might comment on that.

DR. GRAHAM R. MITCHELL: I just wonder whether the discontinuity might be greater than we're

preparing for. We're guilty of linearly thinking our way into something that's very different. It struck

me in the early discussion about growth and wages, that they really may be sort of separable. That

while we might be able to set up the conditions for growth, it seems to me there is a compelling

argument that says that wages and lack of increase in wages has got a lot to do with the number of

people around the world who are willing to do those jobs for less money. And it strikes me that we

might be being a little simplistic by simply assuming that as we educate more people, they're

guaranteed to have a high standard of living. That, to some extent, is going to be dependent on what

the rest of the world does. And if they, too, educate a lot of people in some of these similar skills, will

that 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. Maybe

both Mr. Auerbach and Dr. Mitchell said it in a different way in terms of how you value workers, but

I'd really rather pick up Tom's theme earlier of empowering workers. And Tom spoke of it in terms of

changing 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 empowering workers

is not about empowering workers to have a voice in the distribution of the gains that are made from this element. Lynn talked about it in terms of the attempt to prevent workers from forming unions, so that they would have a voice in that distribution question. And I think Bob touched on it in a different way

earlier. 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 on the job.

And it is that insecurity on the job that I think is a matter that undermines the quality of life that was

talked about.

And the other element that I thought Tom did not talk about in terms of empowering workers—and it goes a little bit to the theme that Dr. Hermann talked about earlier—and that is, workers are not empowered to participate in the underlying judgments about whether their jobs are performed by the

corporation or are being subcontracted out or are being foreign sourced, the elements that really

underlie the question about economic security.

I think it is this other side of empowering workers that is as important as whether they are able to use

their best judgment on the job or whether they are following rules. MR. CHARLES LARSON: I couldn't let this discussion of the importance of knowledge workers pass

without emphasizing the critical aspect of good management. You can have the best and most

knowledgeable workers in the world, and unless they're managed effectively, we're not going to

40
compete 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 of

knowledge, I don't think economists account for the impact of good management practice in productivity 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. I think

the one thing the discussion shows is that it is a fairly complex subject. But let me try to say a couple

of words.

First of all, what happens to high school graduates and those that start college and don't graduate from

college. I think that's an important problem. And I would say a couple of years of college probably

helps a person along life's way, because it's really the knowledge you get out of college that's important, not the degree. It's really not even the grades 10 years down the stream. It's the knowledge

you take away. And someone that learned a lot but doesn't take tests well may in fact do very well

later in life. It's an important problem that I haven't thought a lot about, because it's not my problem.

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. At most of

the good colleges, about 80 percent to 90 percent of the smdents that do enter do graduate. So the

drop-out rate is not so big there. I'm not speaking for academia as a whole, but only a part I've been

associated 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 and more

smdents do graduate from college as a percentage of our population than probably any other nation in the world. That's a competitive advantage. We ought to keep it up. We ought to emphasize it even

more.

And for graduate school, I can tell you the pressures to get in from overseas are pretty high. We

admitted about 200 graduate students this year from all countries of the world at Cal Tech. Probably

half of them American. We had 1500 applicants for graduate school from the People's Republic of

China alone. And that pressure is across academia. We have to be very, very selective. But you can

imagine, given the small percentage of the population that even goes to college in the People's Republic

of China, these are pretty impressive students. And they will either stay in this country and add to our

intellecmal capital or probably some of them will stay in this country for a while and learn our ways in corporations. And then they may go back to China and they may even work for an American company

in 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 ought to focus on. It's not necessarily just the first job out of college, which I think sometimes some members

of 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 using

computers? Yeah, sure. We had the highest standard of living in the world. If we want other

countries to be able to buy our products, let's hope that they will get good enough to make a decent

standard of living and be able to buy our product. I think Henry Ford's motivation for paying his workers more was so each one of them would have enough money to buy a Ford. And that's not such

a bad idea even today.

But will it necessarily lower our standard of living? Not if we stay ahead of all of the rest. And that's a very important issue of competition as change takes place. It's harder to stay ahead of the rest in automobiles, because they're not changing so fast. It's easier to stay ahead in computers, because they

are changing rapidly. And there are some lessons there in a whole host of fields for the country.

41
And, finally, on empowering the workers, I agree that job security is an important issue. I didn't talk about it, because I think other people later on are going to talk about it. It's tough if you have to compete against products in a free market from around the world and wage rates are different in one

part of the world than the other. And I don't have magic answers to that problem. I think these are tough issues.

And the out-sourcing issue is again a tough issue. And as far as letting the workers have the decisive

power about out-sourcing, it seems to me that they should have a voice, but not the decisive power,

because the corporation serves its employees. It serves its customers. It serves its stockholders. And

it has to make judicious choices about how to serve all of those. And hopefully management and the

board 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 management had to be changed. It's an issue to try to get the very best management. I couldn't agree more. When we're

looking at how corporations and how the economy functions, good management is a very important

issue, a part of it. And the good management has to motivate the worker. It actually should stimulate

the worker. It should motivate the customer, so the customer will enthusiastically embrace its product

or service. And it must satisfy the stockholder. It must make a profit or it will go out of business.

So there is a group of people that the board of directors has to look to. And perhaps sometimes some

of them get more voice than others.

42
The Implications of Technology Growth for Workers

DR. BURTLESS: I'm glad to speak to so many people who already know what I'm talking about. But

I prepared my remarks under the assumption that at least a handful of people may not be aware of some

of these facts. As I understand it, my job is to start a discussion about the implications of technology

change for workers. And this unfortunately makes it imperative for me to make some predictions about

the fumre.

Most people's predictions about the future are based solidly and myopically on what has happened in the recent past. And I will not disappoint you. That's what I'm going to talk about. In this honorable

tradition, I am going to try to interpret some of these trends as they relate to workers and technology. I want to focus on two labor market developments, the first is what has happened to relative wages in the

United States and the second on what has happened to the relative intensity of use of different skill classes of American workers.

These trends lead namrally to questions. First of all, does it appear that the work force has the skills necessary for the nation as a whole to be competitive in 20 years time? And if it doesn't, what could be

done to ensure that the work force develops those skills? I see a lot of straws in the wind suggesting

that skill deficiencies are a real problem in the United States, particularly for workers with limited skills and even those with mid levels of skills.

Earlier this week, I asked my research assistant to tabulate wage statistics on the very large census files that the Bureau of Labor Statistics assembles every March in order to see what's happened to relative

wages in the United States. I asked her to calculate real annual earnings of every adult between 25 and

64 years old, who worked full time year around. And I then asked her to calculate what are the real earnings of these people at selected points in the wage distribution: the very bottom, at the fifth percentile, 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] shows what these

trends have been for men in the United States. And you can see in this diagram that at the bottom of

the wage distribution, there's been a remarkable fall-off on how much men can earn. Earnings have

dropped almost 30 percent for men at the fifth percentile of the distribution. Meanwhile, they've

climbed a little faster than 10 percent over the two decades from 1973 to 1993, up at the 95th

percentile. But, still, it's quite noticeable that everywhere in the bottom four quintiles, the bottom 80

percent roughly of the males' earning distribution in the United States, people are not earning as much

in 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 are up

everywhere in the women's distribution, above maybe the 20th percentile or so, although they're up

only a very small amount toward the bottom end. Earnings have only declined among women who are

at 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 of all, for the great majority of men and a substantial minority of women, wage improvements were even

slower or wage declines were even faster since the beginning of the 1980's than they were in the much

maligned 1970' s. So the notion that the United States has had a tremendous resurgence in its productivity is not reflected in the earnings statistics for most American workers. They do not look like they have enjoyed the benefits of this small acceleration in productivity improvement that we've seen in the last 10 years.

Second, the trend toward greater labor market inequality actually has accelerated in the last 10 years or

12 years. It has not slowed down. It has picked up speed.

The next chart shows the link between growing earnings inequality and growing wage premiums for

workers who have advanced levels of skill. This third chart shows what the earnings of workers in

43
different skill classes are in comparison with male wage and salary workers. At the top is the ratio of

earnings of someone who has a degree beyond college in comparison with a college graduate. And you

see that's marched steadily upwards since 1969. For people with schooling attainment below college

degree, there has been a substantial fall-off especially since 1979. As recently as 1979, high school

dropout males earned 60 percent of the wage of college graduates. And now that's dropped to just a

litde bit over 40 percent.

The next chart shows that these trends are quite similar for women, a little bit more erratic perhaps.

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 5

tries to shed light on that question. What I have done is divided U.S. industries into three different

classes; those that are most intensively connected to international trade, those that are the least affected

and those that have some intermediate connection with trade. This just shows what's happened to relative wages over time in the industries least influenced by trade and those that are most influenced by

trade.

What this shows is the ratio of earnings in each of the years shown here between someone at the 90th

percentile of the wage distribution in that industry and someone at the 10th percentile of the wage

distribution. The gap between these two is a simple, easily understood measure of the difference in

wages. As you can see, there has been a sharp increase, both in those industries that are highly

influenced by trade—that's the lower line—and those that are in the industries that are least influenced

by trade. There is no evidence that being involved in trade has had any special effect on how fast the

disparities by skill class or by skill level are widening. They're widening everywhere in the United

States economy, not just in those industries that are most influenced by what goes on in China or Mexico or Germany or Japan.

A natural implication of this is that as workers have been forced out of the trade-affected industries,

they have been forced into less trade-influenced industries. So people have moved from industries

where income disparities are somewhat lower into industries in which income disparities are somewhat

higher. But most economists, looking at the statistics, agree that that shift of workers from one kind of an industry to another is not the main reason that skill premiums or the inequality of wages have been

climbing. Instead, there has been a sharp increase in inequality within all of the industries in the United

States.

What has caused this sharp jump in wage inequality within all of these industries? Is it technology? Is

it a change in the norms or the rules that determine wage setting in the United States? The literature

that's developed on this among economists over the last 7 years or 8 years is huge and it's growing

very fast. 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 to you,

they naturally tend to look in areas that they're familiar with. I once heard the Nobel prize winning

economist, Robert Solow, describe an economist as a parrot who repeats over and over, supply and

demand, supply and demand. I am a parrot trained by Robert Solow, so that's the first place I look.

It's the first place that many economists look. What can we say about the relative supply and demand

of different classes of workers?

The fact of the matter is the supply of skilled U.S. workers, measured by their educational attainment

or measured by some level of occupational qualification has been going up. It has not been shrinking

as a common indictment of the U.S. labor force might suggest. We have a higher fraction of high

school graduates in our work force all of the time. We have a higher fraction of college graduates. We

have a higher fraction of people with intermediate levels of qualification and indeed with advanced

levels of qualification. We do not have a work force that is shrinking, that is declining in its average

skill level.

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Now, there is some sign that at some levels of the work force, the rapid improvements in the skill level of the U.S. work force slowed down in the 1980's, not because the cohorts of youngsters graduating

from high school in the 1980's were less likely to go to college. On the contrary, they were much

more likely to 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. And so because they're smaller and they're bringing these additional qualifications to the work force, they

don't account for such a rapid growth in skills as we saw, for example, in the 1960's and the 1970's

where we had generations where everybody in those cohorts practically had a high school diploma, and

20 percent to 25 percent of them had college diplomas. And they were replacing retiring cohorts of

Americans who received their schooling in the 1920 's, early 1930's, and had not got nearly as advanced an education. So there was a slowdown in the rate of increase in skill acquisition in the work

force. But that is not the same thing as saying that the skill level of the U.S. work force has actually

shrunk. It hasn't.

So this namrally causes economists to look under the other lamp post for the key, and that's the demand

explanation. 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 who have

acquired 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 limited educational

qualifications or occupational qualifications.

Most of this is a result of what is happening inside the firms. There has also been a shift between

industries, but that shift between industries has not caused such a dramatic increase in the demand.

Instead, it looks as though within most firms, there has been a tilt in the demand or an acceleration in the increase 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. The personal

computer, for example, has been shown to be highly favorable to workers with more general skills. It may be because of the influence of international trade, at least for some of the industries. Or it may

also be because the technology of managing, organizing and owning U.S. companies has changed.

So that, unlike the 1960's and the 1970's, when company managers had a lot of latitude and feh as though their main job was to make their companies bigger, nowadays every manager in the United

States realizes that if they are not earning as high a rate of return as is absolutely possible, they can be

removed from their job by an unwanted take-over. For example, a company like TWA knows that it can get stewardesses and baggage handlers at $7 to $11 an hour and has no necessity of paying these

people the equivalent of $20 or $22 an hour. If an airline manager doesn't behave in that way, even if there is no change in management, as there was at TWA, he realizes that if he doesn't behave that way,

he can lose his 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 of technology as simply being the machines that workers are using and the level of qualification necessary to run those

machines. This is a different kind of a technology. This is the technology of organizing and managing

companies. And the people who have been favored by this kind of shift in technology are people who

bring a lot of skills and who have skills that are very difficult for people to replace and are skills that other 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 in the

United States? First of all, it's widely acknowledged that secondary school graduates in the United

States enter the labor force with substantially less academic knowledge and proficiency in math and

science than 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 of ten

45
into a percentage. That's not a terrific recommendation of the schooling that most of our secondary

school students receive. Incidentally, I don't think that there is a problem with K through 12 education

as we heard earlier. It's much more of a problem that shows up later on, because the gap between

American youngsters and their overseas counterparts are not nearly as large when they're 10 years old or 11 years old 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 an

education that is outstanding by the world's standards. About a quarter of the work force will complete

that level of schooling. That leaves three-quarters who will not complete it. Roughly half do not get

work 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

the public investments we make in the United States for workers whose schooling attainment ends at different levels. Each bar represents the total that is publicly spent on the formal schooling in the

educational system for workers in these different final levels of schooling: school dropouts, people who

get exactly 4 years of high school, and so on.

The lighter part of the graph shows the part that we spent publicly on manpower training programs, job

corps, job training partnership act and other similar kinds of programs. The lower your level of

schooling attainment, the greater is the proportion that comes from these kinds of manpower training

programs. But that manpower training investment is nowhere close to the amount of formal school

investment that we are publicly putting in people who get higher levels of schooling.

Someone who has four or more years of college receives the benefit of $24,700. This was in the late 1980' s. I'm sure the numbers are greater now. Whereas the person who is just a high school dropout

gets the benefit of $5520 total combined for manpower training and formal education.

Is there some other place that these people who have less formal schooling might get training? The

namral place to look is within American firms. Unfortunately, everything that we know about how

American firms invest in their workers suggests that the pattern for public support would be duplicated

exactly by American companies. They invest more in their college graduate workers than they do in their high school dropout workers and their workers who have just a high school education.

When you put these two kinds of investment, one on top of each other, the public investment and then

the company investment which occurs after people enter the labor force, we have a dramatic disparity

in the level and kind of investment that we're making in workers whose formal schooling ends at a

different point.

In other countries, the disparities are a lot smaller. Even Japan, which is as capitalist as the United

States and which has as small a public budget as a share of national income as we do, the degree of

equality in this kind of investment would be much greater than it is here in the United States because of

the very large investments that Japanese firms make early in the careers of their high school graduate

workers. In Germany, because of the combination of public and private apprenticeship system that they

have, there is a lot of investment that goes into the school dropouts and the people who have completed

secondary schools, but who do not go on to the formal schooling system.

What are the implications of technology for the work force? For the top one-third, the system is working beautifully. Their wages are climbing. They are the beneficiaries of this large public

investment. They're the beneficiaries of large private investment made by themselves and by their

employers. Things are going beautifully. And I think an argument could be made that the United

States, for those workers, is doing a better job than any other industrialized country.

Unfortunately, that leaves two-thirds of the workers out in the cold, relatively speaking. We have to think very, very hard about the institutions that we have for educating these people at the end of their

46
secondary schooling to make them the equivalent of workers in some overseas competitor countries of

the United States, where that kind of preparation is just a damn sight better than it is here in the United

States. MR. YOCHELSON: Dr. Burtless, thank you very much. May I take this opportunity to welcome

Deputy Secretary of Commerce, Dave Barram. And, Dr. Burtless, you raised a range of issues

pertaining to industry and what you referred to as the technology of management, as well as to public

policy. Dr. Prabhakar has reminded me that we have not heard as much yet in the day from industry as we might. On that note, I open the floor. MR. SALDICH: I want to start with a quick question. With respect to chart 1 and chart 2, have you

run the same numbers for countries like France, Germany and the United Kingdom? Do you know

how they would stack up on that measure?

DR. BURTLESS: In France, there has been very little change in the distribution of hourly wages over

the last 12 years. In Germany, there has been more, but not nearly the same amount that there has

been in the United States. And in the United Kingdom, there has been more than there has been in Germany. In Europe, the United Kingdom is probably closer to the United States in replicating these

kinds of numbers, although it should be emphasized that in the United Kingdom, charts 1 and 2 would

not show people with a 30 percent decline in their real annual earnings.

Canada is the most similar to the United States. But even in Canada, the shrinkage in earnings of

workers toward the bottom has been significantly smaller than in the United States. So the United

States has seen the biggest increase in these kinds of skill premiums and relative wage gaps of any of

the industrialized countries. I'm not arguing, incidentally, that France and Germany do not face other

kinds of problems. But the fact is that on this score, the United States has certainly been the extreme

performer.

MR. WILLIAM ARCHEY: I would just make a couple of observations and then ask Dr. Burtless a question. I represent a high tech industry. About 3 years ago, we engaged in a major study of what

are the skills needed for three kinds of workers, a worker in a high technology assembly line, a sales worker in a high tech industry, and an office manager. The study was funded by a grant from the

Department of Labor, and those were the days when business and government cooperation was not considered an ideological mortal sin.

It's very interesting what happened. My colleague at the National Association of Businesses is still involved with this study. There were about six different industries that were in fact studied. I think,

Mr. Oswald, your group was involved with some of the study.

The report got an awful lot of attention, because people felt that it passed the feel and smell test, that it made a lot of sense. We discovered that the skills necessary to perform well in these high tech

industries were not the skills that were being taught. We are now doing pilot studies with community

colleges and with high schools. What we're discovering is an enormous resistance, particularly at the

high school level, of fundamental changes in the curriculum to beget the kind of skills enhancement of

students that they really need; less resistance at the community college level, but still some resistance

there. I agree with Dr. Everhart that the community college is probably one of the real potential jewels

in dealing with this issue as far as an institutional locus.

The other point is when it comes to doing it, the industry that I represent has in fact been very much at the ramparts on this issue. Hewlett-Packard spends probably a couple hundred million dollars a year on

direct training, education, and remedial training. About 2 years ago Motorola spent about $82 million on just remedial math and remedial skills training for workers.

We're discovering that despite knowing pretty much which skills are needed the institutions are not so gung ho about changing.
One of the things we're deaUng with is high school students competing with high school student from

Hong Kong and Singapore. We are dealing with literally an international marketplace and we still believe in that incredibly important idea in American education of local control of schools. If we're

going to do something dramatic that deals with this issue, the issue of local control of schools has got to be put on the table. Nobody wants to talk about it.

MR. WILLIAMS: First of all, a quick commercial. All of those other countries you're talking about

have more unions and more collective bargaining going on than we do in the United States, with the

possible exception of France which doesn't have as high a percentage of unionization even as we do,

but which has a very public way of bargaining as we've been reading about every day.

I believe very much in training and education. I'm totally committed to it, trying to do a lot of work in

that regard over the years, have tried to think a civilized society should be doing that, should be

providing education and training to the maximum of the capacity of its citizens regardless of the

economic implications of it. So I have no question about the importance and the significance of

education and training.

But I do want to ask you a question as an economist about whether you're really saying there is a supply side solution to this problem. I've had this concern all along as we promote training and

education. But whether what we're really saying is that if we go out there and we educate and train all of these people better, that automatically these numbers are going to move up for everybody. And I wonder about that a lot just in terms of common sense, particularly when I see things like the beginning

of the current administration. One of the first good ideas that went down the tubes before the

administration even took office was the idea of a training tax. It would require all of the employers to either train or pay a tax. The tax was 1 percent or 1.5 percent. That disappeared so quickly that it's difficult now to remember that it was out there as a serious idea.

Small and medium sized businesses are reluctant to move into higher technologies. They are opposed

to this training tax which says we can't begin to afford to do any of these things. If they felt some need

to do it in economic terms, surely they would be more sympathetic to having it done. Indeed the more

advanced of them, one would think, would have some kind of a community interest in requiring

everybody in this society to do that, so you don't steal each other's trained workers.

My question is, do you as an economist, or do the economists for whom you're speaking, generally see a supply side solution to this problem, or are there other kinds of interventions that we need in terms of

providing a much broader range of opportunity for American workers?

DR. VICTORIA F. HAYNES: My comments will build on the comments of the other two, although

they weren't planned. We've talked this morning about the problems that technology brings including

the knowledge economy and loss of jobs. Being a technologist and when presented with a problem, I always look at this from the standpoint of what can technology bring in terms of solving the problem.

There are two issues we should be addressing as a group. One has to do with the demand side. That

is, how do you create better jobs, more of them, in the kind of global economy that we're working in,

and, specifically, more in the United States. We shouldn't overlook some of the comments that Mary

made earlier. That is, that you have to create demand by using technology to enable our industries,

whether they're small, medium or large, to produce the kinds of jobs that provide a higher standard of

living, higher wages for people within this country. That's number one.

The second concerns what technology can do to enable training and education. We're talking about

information systems and about access to all types of technology anywhere in the world. And yet we

have not addressed how we can use technology to solve some of the problems that are a result of

technology development.

DR. HERMANN: My question. Dr. Burtless, is what might we do to correct this disparity. I'll lead

48
by saying that we have put a lot of the power to create in the corporate hands. We need to do

something about the salary disparity as corporations. As Mr. Williams indicated, when the time comes

economically, small and medium sized companies will do that for their own selfish corporate reasons. We have been slow to do so. Some companies like Motorola and Hewlett-Packard are exemplars of

investing in training. They are being repaid in the marketplace for their investments. In due course the mechanism of the private company, will make some contribution to changing the

education system, including continuing education throughout the life of an employee. We will cause some competition between locally dominated, locally controlled school systems by choosing where to locate in part on the basis of good smdents. In a modest sense, there is a competitive aspect that will cause Arizona to try to do this and North Carolina to try to do that. So it's not clear to me that a

national solution is an absolute necessity, although an average national solution is required.

There are some things that are occurring within corporate governing structure. But aside from that, do

you have recommendations as to models that we might come to agreement on and pursue as a product

of this dialogue? Thank you.

DR. CHIMERINE: Even if Dr. Burtless' conclusion is right, that income disparity has not worsened

because of trade or global competition, there is still the distinct possibility that the general reduction in the growth of real incomes across the board has to some extent been caused by large, structural trade

deficits in the United States.

In fact, even in your numbers, Dr. Burtless, at the upper ends, perhaps with the exclusion of the top 1 percent, even though earnings have grown over the last 20 years in real terms, those are not large

increases relative to what occurred during the prior 20 years. So it's still reasonable to assume that trade related impacts on the wage structure of the United States are not insignificant. They may not be

dominant. They may not be causing much or all of the increase in income disparity. But

they are affecting the wage level in the United States to some degree.

We talked earlier about the level of saving and investment in the United States, and that in the long run,

if we want to increase productivity growth, we need to save and invest more. And hopefully through

the market mechanism, this will translate into faster growth in real earnings.

But it seems to me that's long term. That may or may not happen. But isn't the bigger issue the

composition of investment? Aren't we all saying that because of the tax system, because of the reward

system, perhaps because of the influence of Wall Street earnings expectations and other factors, that a

significant share of our investment may not be going in the right place. That at the corporate level, it's too much towards short term payoff kind of investments, mergers and acquisitions, and not enough on

the long term R&D and training programs that, again, have a very long term payoff.

From a more macro perspective, too much of our investment dollars is going into real estate and stock

market speculation, and not into the kinds of investment that stimulates long term productivity growth.

From a policy perspective, if that's the case, we have a better chance of shifting the mix over the next 5 years or 10 years than we have in making a dramatic change in the level of saving and investment.

MR. GARY BACHULA: I'd like to add another issue or two to this discussion of the work force in

this new knowledge based economy. It's clear that education and skills are the primary issue, but it's not the only one. As we look at what's happening in this new economy, mobility/flexibility of the work

force is also merging as a very major issue. The idea that you would graduate from high school or

college and affiliate with a company for a 40-year career and then retire is literally gone today.

Successful workers are not only going to be those who are better educated and better skilled, but who

are also mobile and flexible. And that raises some questions about the institutions that we have in place

to allow that worker to be mobile and still be secure. It requires us to think about portable pensions. It requires us to think about portable health care. And it requires us to think about portable life-long

learning institutions, because, again, one company may not want to train you if you're going to be able

49
to move and go to your competitor down the road.

When we moved from an agrarian economy to the industrial one, the poHtical systems developed new

institutions to cushion the impact and enable the industrial economy to work, whether it was minimum

wage in labor laws and social security or child labor laws or whatever.

There are going to be new institutions to make this knowledge based economy work. It does relate to portable pensions. It relates to health care and it relates to this life-long learning mechanism. It may

mean that there are new kinds of groups that will have to emerge. There may be a new role for the

labor movement with less bargaining on wages. But representing millions of people in terms of their

pensions, in terms of health care, in terms of life-long learning and training. And that may be a new

direction. Professional associations may take on new kinds of roles.

Colleges are going to start offering contracts that go beyond the four years and that literally give you a

life long connection in which you go back on a regular basis to talk to the faculty, to access the library,

to get weekend learning on the latest thinking in your area. You'll be going back to campus a lot more

than just simply for football games and for reunions. But you'll be doing it in a variety of ways that

will be enabled by some of the new information technologies.

So the debate goes beyond just the absolute level of education and training. It has to include the

instimtions that deliver education and training throughout a life, as well as portability of pensions and

health care. MR. PATTERSON: High schools are not delivering on the contract that they have to produce.

Currently the high school diploma does not ensure that the students have adequate skills in English and

Math.

The leading companies are spending a huge portion of their budgets to bring people up to a true high

school level of education so that they can be in self-directed work teams and learn new concepts and

new skills sets. But they don't have the basic skills coming out of high school.

How do we get the secondary school system to produce a specific level that would enable companies to build on a high school diploma, rather than starting and spending several years getting them up to.

DR. PHILIP BRODSKY: Many American companies, including my own, have policies that when we

build a plant in another country, we maintain certain standards the same as or, at least as good as, our American standards in areas such as safety and industrial hygiene. That frequently involves extensive

training of workers who may not have even the hygiene standards in their own homes that we want to maintain in our plants.

Looking at that in reverse now, as more foreign companies are setting up plants in the United States and in fact whole towns are now being dominated by Japanese assembly plants, I assume they are bringing some of their training practices to this country.

What we have seen as an American company is when we set up high standards in a foreign country, we

tend to change the patterns in that community. People want to come to work for us. And pretty soon,

the competitive local companies have to start raising their standards.

Are we seeing that happening in towns that are now dominated by foreign companies where they may

be increasing their training standards or other standards for how they educate workers; and is that starting to spread now to American-based companies?

DR. BURTLESS: As the brother of a member of the United Steelworkers, I will answer Mr. Williams'

question first, because it's a very fundamental question that is always asked. If you build it, will they

come? If you increase the skill of the bottom third or bottom two-thirds of the U.S. work force, can we

50
be sure that indeed firms will start to use high performance methods, higher productivity methods in the

way their companies operate?

I don't think we have any clear answer. We know that relative supply does seem to affect relative

price. In the 1970's, there was a dramatic increase in the proportion of young entrants into the labor

force, people between the ages of about 20 and 35, who had a college degree. There was an equally

startling decline in the relative wage received by these young college graduate workers. The relative

wage of the highly educated workers fell relative to that of the high school graduates or even the high

school dropouts. So relative supplies do seem to have an influence on the price.

Now, lurking behind your question, I detected anther kind of a question. And that is, is there some

other source of greater wage disparities in the United States that isn't accounted for just by the relative

skill of workers. And I think you're right. There is another source.

By training more workers to a higher level of skill, perhaps we can go toward the wage distribution that Germany has, which is more egalitarian than the wage distribution we have here in the United States. But I don't think it's going to take us all of the way, because we have many other institutions in the

United States that ensure that fairly wide wage disparities will remain.

Briefly, the answer to your question is, yes. Increasing the supply of highly skilled workers or people

with good medium levels of skill will indeed raise their wages.

Dr. Hermann said that there are some things happening right now that are going to reduce wage

disparity. Some day, firms are going to have to invest a lot more in training their workers. Some day,

they will start to locate in areas where the skilled workers are relatively abundant. I wouldn't hold my

breath.

When you think of the story of industrial location in the United States, a lot of the footloose industries

have gone to areas not where workers with high skills are abundant, but where workers with low skills are fairly abundant, to take advantage of the much lower average wages in those sectors. The success of North Carolina and South Carolina in attracting so much manufacturing is not attributed to the

terrific educational systems in those two states. It's attributable to the low wages in those two states.

Also, if firms have opportunities to locate in other parts of world where wages are much lower and

where skills aren't necessarily very much lower, they may choose that rather than to move to the part

of the United States where skills are very abundant. There is an important exception to that, and that

is, high tech industries. They do certainly tend to locate where very skilled workers are abundant such

as eastern Massachusetts and California.

I do not see any forces on U.S. companies that are going to make them invest in their less skilled

workers when it's so easy to avoid that obligation, which is precisely what on average they're doing.

Someone asked me, what would I do to reduce these disparities in training investments. I wrote a book

with a couple of my colleagues. Now both of them are in the administration. It's called Growth With

Equity, in which we talk about mechanisms to boost investments that have high long-term pay-offs.

One of those was investments in less skilled U.S. workers.

Our suggestion was a training tax that firms could avoid by investing themselves in their less skilled

workers, because the demand for workers with better skills is not so powerful that it will offset what is the companies' main focus, which is on their own business. The history of the relationship between

most U.S. companies and most local U.S. schools does not suggest that firms are ever going to make

big investments in maintaining close relationships with those schools to try to make them improve.

In the mid 1950's, businesses in the United States and homeowners paid the same property tax. If you

look at the latest national income and product accounts of the United States, you'll see that businesses

now pay half the rate of property tax that homeowners do. The main reason for that change is that

51
businesses located in areas that will give them tax breaks. Businesses are not even paying property

taxes, which is the main source of financing for schools.

To expect businesses to maintain costly and time consuming relationships with the local schools to improve their output of trained workers is just not very likely. Businesses have other things that they

want to focus on and the level of preparation of a handful of graduates that they might hire next year is not high on their list when they can recruit workers or locate their businesses.

It's widely believed in the United States that there is much less job stability than there used to be. But

the statistics don't support that view. There is one group in the economy that has less job stability than

it used to have, and that is the least skilled workers. For people with average skills or above average

skills, there is no evidence whatever that careers in a firm are shorter than they once were. Workers

have the same job tenures that they used to have.

What's changed is the penalty for losing that job. The penalty for losing a job nowadays, if you have

gotten halfway up the career ladder, is very big, because for most workers who have inched up the

seniority scale with their employer, to lose their job, their next best job involves a very substantial loss

in earnings, especially for people with only moderate levels of skill. It's that penalty that is making

workers a lot more nervous. It's not the actual increase in turnover in the labor force. Only for the

least skilled workers has there been an increase in the turnover rate.

So I certainly favor life-long learning in any kind of institutional arrangement. My guess is that the

best mechanism to achieve life-long learning in the United States is to increase the incentives both for

workers and for their employers to invest in that activity. And for employers, the incentive to invest in

the skills of their least skilled workers is very low.

I hear the remark that many companies are making big investments in these least skilled workers.

When I say that the investment that companies make in their workers is strictly proportional to how

much formal schooling the workers bring to their company, that's on the basis of surveys of companies

and of workers. I'm sure that there are exceptional companies in the United States that don't follow

that kind of practice. Maybe Siemens doesn't. But Siemens is a German company with a German

culture, and perhaps that's the reason.

The dominant mode in the United States is firms invest the most in their most highly educated workers.

And they invest least in their least educated workers. So all of the disparities that you see in this figure are compounded, if we can take account of how enterprises invest in their own workers. It's that culture that we really have to change through training tax or through some new kind of institutional arrangement.

MR. COATES': I had a comment on Gary's material before. Unfortunately he's not here, but I think

there is an error in his chart 3. If you look at Gary's chart 3, you will see that in 1969, what he is saying is that people who had degrees beyond college earned no more than college graduates. So what

that suggests is there was a printout error perhaps in that whole line. But that was just a possible

mistake.

But more important, aside from the excellent data he presented, it gives a muted story. It really gives a

relatively blunted story of the significance of the points he was making, because he's dealing only with

full-time labor. If we look at the 5 percent unemployed, if we look at part-time worker, a quarter to a

third of whom are eager to find full-time work, if we look at temporary and contract workers and so

on, these are all in relatively depressed positions compared to these full-time workers.

^Comment given during general discussion after last presentation.

52
Plus, the uncertain percent, perhaps as high as 7 or 8 percent, who have simply dropped out of the

labor force.

So working on full-time employed people only for earnings gives you a much more positive view of the

situation than an overall view.

Secondly, he is presenting the data in terms of earnings. If he switches to income rather than earnings,

what he would be showing would be a skyrocketing in the income in the 95th percentile, because a

large portion of the income is not from earnings but from dividends. Now, the point of that is when

you look at the source of those additional incomes, they are going to be connected with the

multinational corporation, they are going to be connected to international trade.

So I think that we have a very nice story here, a problem that we face, but it's a much, much too muted

story.

MR. BURTLESS': There was no error in Chart 3. Male wage and salary workers with post-college

degrees received the same average annual earnings as college graduates in 1969. Remember, many of

the highest-earning males with post-college degrees, like doctors and lawyers, are self-employed rather

than wage and salary workers. High school teachers, who have low annual wages, have post-graduate

degrees.

^Written comment supplied by Mr. Burtless after the meeting.

53
DR. BURTLESS' CHARTS OF ECONOMIC TRENDS

Chart 1. Changes in Male Earnings,

1973-93, Full-time Year-round Workers

20 , ^ —

5 10 25 50 75 90 95

Percentile

Source: Gary Burtless tabulations of the Current Population Survey (25-64 year-olds).

54
Chart 2. Changes in Female Earnings,

1973-93, Full-time, Year-round Workers

5 10 25 50 75 90 95

Percentile

Source: Gary Burtless tabulations of the Current Population Sun/ey (25-64 year-olds).
Chart 3. Relative Earnings by School

Attainment, Full-time Males, 1969-93

140

Degree

beyond

college

^ Some

college

iglT^

school

graduate

High

school

dropout

1969 1973 1979

Year

1989 1993

Source: Gary Burtless tabulations of the Current Population Sun/ey (wage and salary workers).

56
Chart 4, Relative Earnings by School

Attainment, Full-time Females, 1969-93

140

1969 1973 1979

Year

1989

Degree

beyond

college

f Some

college

school

graduate

High

~

school

dropout

1993 J

Source: Gary Burtless tabulations of the Current Population Sun/ey (wage and salary workers).

57
Chart 5. Ratio of Earnings at 90th Percentile to

Earnings at 10th Percentile, 1969-93: Males*

5.5

5.0

4.5

G)C

c 4.0

LJJ 3.5

3.0 t

1969

I I

Least

affected

1973 1977 1981 1985

Trade1 affected

I industries

1989 1993

Annual earnings of full-time, year-round male workers.

Source: Author's tabulations of the Current Population Surveys.

58
Charts.

Cumulative Public Spending per Person Aged 16-24 on

Education and Training (Excl. Tax Subsidies to Firms)

Completed Cost of Cost after

Level of Schooling Total Cost High School High School

High School Dropout $5,520 $3,800 $1,720

High School Graduate $10,840 $9,500 $1,340

Some College $17,100 $9,500 $7,600

College Graduate $24,700 $9,500 $15,200

30,000 .

School dropout 4 yrs high school 1-3 yrs college 4+ yrs college

Completed level of schooling Spending on|

education

Source: U. S. General Accounting Office, "Training Strategies: Preparing Noncollege Youtli

for Employment in tlie U.S. and Foreign Countries" (May 1990), p. 24.

59

Opening Afternoon Session

DR. PRABHAKAR: Let me just say that so far in the conversation a lot of our discussion has focussed on issues of work force concerns, income gap and disparities. We've talked about education and

training. I think these are all very vital areas. We have not yet really heard a lot of the company

perspective from any of the company people sitting around the table. I'd like to make sure we get some

of that out and into this flow of conversation.

I would comment that most of our conversations so far has been discussing the implications of the

change that technology has wrought as opposed to thinking about technology, per se. That's highly

appropriate. But as well, it would be valuable for us to think a bit about how we might best think of

new technologies and that process in a way that will optimize our future in all of the dimensions that we've been talking about. So I think there are many conversations that we could have that point a little bit more in that direction.

We're going to mrn to a session now on the implications of technology growth on the quality of life in an attempt to try to look at some of the broader aspects of quality of life.
Implications of Technology Growth on the Quality of Life^

DR. MacARTHUR: The title of this conference poses a critical question about America's future

prospects. That the Nation's technological preparedness is being questioned is an unsettling turnabout

in our national self-confidence and our characteristic optimism about the future.

There is a consensus that the Nation must balance its budget, although there is disagreement on how to accomplish this. One would hope that expenditures for science and technology, education, health, and

the environment would be considered as investments for the future and would not be cut arbitrarily.

But, no matter how you slice it, we must learn to do more with less. It is urgent to find ways to produce real benefits for people and communities through better priority setting, more cost-effective

management of R&D, and more collaboration and cost-sharing among community, academic, and

industrial stakeholders and all levels of government.

In addressing the topic I was assigned, "The Implications of Technology Growth on the Quality of

Life," I had intended to discuss the impact of managed care on biomedical research and the delivery of

health-care services and the importance of preserving biodiversity for a sustainable future. But it is late in the day. So, in the interest of saving time, I will cover only the issue of managed care.

America's preeminence in biomedical research and innovative health care has been the envy of the

world. This preeminence has come at great cost: it now reaches $1 trillion a year. Most people

acknowledge the need to slow the growth of health-care costs and to enhance medical efficacy and cost- effectiveness. As a resuk, the U.S. health-care system is being transformed by legislation, regulation,

and the marketplace. Unfortunately, this transformation is being forced almost solely by cost considerations. One apparent outcome of this concentration on cost is the rapid growth of medical

mega-organizations that care for tens of thousands of patients.

Managed care is a health-care snowball gathering speed and weight. Managed care now covers more

than half of all patients in the United States—50 million individuals—and this number is increasing by

11 percent annually. Even more dramatic increases will occur if Congress passes legislation that allows

Medicare recipients the choice of remaining within the present Medicare system or electing managed

care.

Managed care is answering the call for cost containment, but what are we sacrificing to achieve such

savings? Managed-care organizations are erecting tough cost and efficacy criteria, which leave little room for the application of experimental medical therapies because such therapies have no track record

and, most certainly, tend to be expensive. (Managed-care organizations are interested not only in cost containment, but also in maximizing profits for their shareholders.) These hurdles to innovation are already taking their toll on small companies developing new or improved medical devices and

biotechnology products. Even the larger players in the pharmaceutical and biotechnology industries are

feeling the pinch and are likely to reduce R&D expenditures as a result. The ultimate consequences of

these market barriers to innovation will be slower progress in improving the quality of delivered care and the discouragement of risk taking by medical innovators and their backers.

As the fee-for-service system shrinks and cost-focused managed care grows, the medical-insurance

industry is restructuring itself. This realignment is already shutting off the flow of funds and patients to academic health centers (AHC's). AHC's are teaching hospitals affiliated with university medical

^Text based on manuscript prepared for the workshop

62
schools and research laboratories—such as Johns Hopkins, George Washington, and Yale-New

Haven—that train physicians, develop biomedical knowledge and clinical techniques, provide unique

patient-care resources, and treat many of the indigent and the uninsured. At the same time, because of

budgetary constraints, AHC's are facing sharp cuts in patient fees and graduate medical education

subsidies from Medicare and a reduction in highly specialized graduate research training grants from

the National Institutes of Health. The country's AHC's have been a major force in making American

medicine the world leader in quality. If their crucial research and education missions are not preserved, the historically rising quality curve of American medical care will flatten, maybe even

decline. This is a quality-of-life issue for Americans—if there ever was one.

Managed-care firms that have reached sufficiently large economies of scale should recognize that it is in their best interest to fund their own research, perhaps on a cost-shared basis with other entities,

including federal and state agencies and third-party payers. But, at present, only a few firms, such as Kaiser Permanente, Puget Sound, and U.S. Health Care, are conducting research. Although large

managed-care organizations are especially well positioned to provide the patient volume for clinical research to evaluate innovative treatments and practices that may have a short-term payoff in cost reduction and efficacy, few of them show signs of committing to the often expensive application of

experimental therapies or to the medical education function undertaken by AHC's. Moreover, the same

competitiveness that drives managed care to large economies of scale may still leave us v^^ith a few

health-care giants barring the gates to new technology not developed in house, that is, not developed by

them.

The preservation of AHC's and their research and education roles in the evolving health-care industry

is a major issue affecting the quality of life of Americans and requires policy development at the highest

echelons of Federal and state government. An approach that should be considered is the establishment

of an all-payer system, one that shares the cost of the research and education missions of the AHC's

among all those who benefit from AHCs. Managed-care organizations certainly benefit from the

training of health-care professionals and from clinical research that has established the value of new

and/or experimental patient treatments, so managed-care organizations should also share the costs.

To maintain increasing quality in health care, the greatest pressure must come from community-level

public and private agencies and from those health-care-plan subscribers who are well informed about

the stake they have in adequate long-term support of medical research and education. Generating a

sufficient amount of public information to spur action on such issues will require greater collaboration

among community organizations and across all levels of government.

In this regard, information technology and systems have a particularly critical role to play. Information

systems are needed to keep people, employers, and government informed about available health-care

plans, cost, and performance, so that health-care organizations are under continuing pressure to become

more efficient at a higher degree of service quality. Health-care organizations must be able to assess

quality of care provided at the individual-patient level; large health-care organizations must be able to assess the quality of public-health services provided to thousands of people.

With adequate public information and effective collaboration among community groups, health-care

organizations and third-party payers will also be pressed to seek new ideas and models for more cost- effective management, organization, and financing of health-care services. The development of

improved systems and procedures for communication and cooperation among health-care professionals

will speed up technology transfer to achieve earlier cost reductions and increased efficacy of treatment. By these means, the rising national cost for health-care services may be moderated, allowing more

63
resources to be directed to medical research and education. After all, although we are interested in cost containment of health care, we are also interested in the quality of health care for all of our citizens.

In summary, we must make health care more cost-effective and accessible, but, in the process, we must

not sacrifice American leadership in advancing medical technology and medical education on the altar of cost containment. The survival of AHC's is critically important in maintaining the primacy of

American medicine and in enhancing the skills of health-care professionals.

In ensuring the quality of life of all Americans, there is no more important issue than access to quality

health care at an affordable price. To provide such health care, all levels of government, industry,

academia, communities, and individual citizens must be players in establishing priorities and policies

for allocating R&D resources. New systems of management, organization, cost-sharing, and

collaboration must be explored. The effort required is great but well worth it.

64
Implications of Technology Growth on the Quality of Life

DR. COLWELL: Thank you. I appreciate the opportunity to talk with you.

Let me say in dramatic, but accurate terms, we are Uving in a revolution and have been since about

1970. Watson and Crick proposed the helical structure of DNA in 1953; the first gene was cloned in the early 1970's; and, soon thereafter, the human insulin gene was cloned into a bacterium. And, that marked the beginning of a new industry.

There was no biotechnology industry to speak of before about 1970. In 1995, there were about 1300

biotechnology or biotechnology-focused companies in the United States employing about 110,000

people. And, when you compare this with one of the largest of the pharmaceutical companies, Merck,

with about 88,000 employees (now downsized to much less), it is clear that growth has been rapid. The

prediction is that approximately one million people will be employed in biotechnology or biotechnology-related industries by the year 2005

.

The products of biotechnology include the pomato, protoplast fusion of the potato and tomato, and the

geep, a cross between a goat and a sheep. These are the more pyrotechnical developments. There are other important developments taking place in medicine. Concurrent with this meeting, a meeting on the

human genome and gene sequencing is taking place nearby, presenting dramatic and very exciting

findings. Having said this, I'm not sure that we, as a society, are prepared for what the future will

bring, especially with the new information that will be available from sequencing the human genome in

its entirety. The entire genomes of two bacteria have already been sequenced and the results published

recently.

One point I wish to make is that we now can sequence the entire genomes of various human pathogens,

providing by means of searching the database, the mechanism for developing new vaccines, vaccines

much more effective since the external surfaces of the bacteria, e.g., the subtle structures uncovered by means of information derived from sequencing will allow more effective vaccines.

Inborn errors of metabolism will be amenable to correction by genetic engineering. The example of

diabetes is useful. At the turn of the century, a child born with diabetes faced a shortening of life span

and a less than optimum quality of life. By the 1930's, Banting and Best had extracted and purified

from hog pancreas the insulin molecule. An injectable insulin was eventually produced that allowed

diabetics to achieve a longer life and a much better quality of life. By 1977, the cloning of the human

insulin gene into a bacterium was accomplished. And, now we have a recombinant insulin that is more

effective in many ways.

Within a decade, a child diagnosed at birth as having a defective gene for insulin production will be

able to be "cured." It is feasible that cells will be extracted from the child and the cells grown in the

laboratory. The "corrected" gene, i.e., an active gene will be inserted and incorporated into the

genome and these cells reintroduced into the child. Biotechnology will, thereby, be used to correct

errors of metabolism.

These kinds of advances are extraordinary. In the interim, we must deal with difficult social issues; namely, the ability to learn by gene sequencing and cloning a predilection to lung cancer or perhaps to multiple sclerosis (MS) or cystic fibrosis (CF). With modern techniques, we've been able to extend life of CF victims. Without cure, the question is how to deal with insurance, health care, and other such

difficult social and ethical problems?

65
These issues will arrive upon us faster than we would like. Pick up the Washington Post or the New

York Times, and we find another gene has been cloned and sequenced and a probe prepared for

diagnosis. What is portended is the practice of a new kind of medicine. Instead of treating symptoms

and treating disease post-facto, being armed with knowledge of susceptibility to a given cancer, by

modifying one's lifestyle and avoiding exposure to specific chemicals, one may be able then to take

responsibility for one's own health care more firmly and more directly.

There is the issue of irresponsible behavior to consider. What is societal responsibility for irresponsible

actions? Possessing a gene(s) for susceptibility to lung cancer. Persisting in smoking and developing

lung cancer. Whose responsibility? The answers to such questions are not simple nor are they easy.

For the immediate future, advances based on genomic sequencing will be most rapid in diagnostics.

And, with diagnostic capability will come greater individual responsibility.

A bit of a scatological example—but technologically, I don't know how else to say it: The Japanese

have invented a toilet that allows daily monitoring of blood, sugar, protein, etc., in urine. A daily

record can be maintained and transmitted by direct line to the physician. A new kind of patient

monitoring, from the home, on-line to the physician's office will be possible.

A further prediction, a credit card-sized record with one's educational record, including Ph.D. thesis, if completed, in its entirety; list of publications; medical record; and genomic sequence, the latter comprising one's identification. Your "thumbprint" will be your DNA sequence, rather than actual

thumbprint on file at the police station.

Other interesting developments in medicine and agriculture are occurring. For example, Charles

Arntzen at the Boyce Thompson Institute has pioneered a wonderful approach to vaccine delivery by

introducing genes for cholera, typhoid, and other bacterial antigens into bananas. Children in the

poorest of countries are able to be immunized through their daily diet, without injection, by eating

bananas that have the gene that produces the protein that induces the immunoresponse, i.e., a new kind

of vaccination. This is very exciting and sustainable technology. The results are promising and field

trials are planned.

The U.S. investment in biotechnology, proportionally, has not been equivalent to other countries and

appropriate to U.S. capability. I challenge this group to think about this state of affairs.

Let us consider marine biotechnology. The Japanese have invested at least a billion dollars in marine

and environmental biotechnology over the past decade. Two major laboratories, costing about $100

million each, with investment by industry as well, have been built by the Japanese. In the United

States, at best, we have invested about $100 million annually. Only about 40 percent or 50 percent of

this investment is from the Federal Government. The United States is losing leadership in this area of

biotechnology which will be—along with environmental biotechnologies—a major component of the

predicted $75 billion to $100 billion gross sales for the biotechnology industry in the 21st century.

The Department of Commerce has focused on bioremediation and environmental technology through

the Advanced Technology Program. Environmental biotechnology is critical because it will

revolutionize industry. We will look to waste streams not to be discharged, buried, or otherwise

disposed of, but as added value products. Wastes will be recovered as products through biotechnology.

The bioremediation industry is beginning to take off at $300 million or $400 million annually, and

moving to the billion dollar range. This is an area of biotechnology that is critical for addressing

66
environmental problems and in creating new industries.

On the darker side, biological terrorism, exemplified by the Sarin incident in Japan and stockpiling of

biological agents by Iraq, will become increasingly a problem. National security in the future will

involve deterrence in use of biological agents and/or biologically produced substances. For example,

release of the Ebola virus, for which there is no cure, or pneumonic plague, could be catastrophic.

International competition in biotechnology includes Western Europe, where the number of companies is about the same as in the United States. And, the advances are being made at a rapid clip. With the

investment being made by the European economic community, in some areas of biotechnology, they

will soon overtake us. Japan, Korea, Singapore—Singapore has an extraordinary investment in biotechnology—Thailand, and other countries of Asia, have made significant investments in biotechnology.

It is reported that in China defective fetuses are rejected. The implication is that if a fetus is known to be defective and/or to carry genes for irremediable disease or organically contrary states, it is mandatory that the fetus be rejected. A telling statement that economic grounds for fetal selection has

been considered! The inability of society to withstand the enormous economic costs of raising children

with serious complements of inborn errors of metabolism may have to be faced in the future.

Biotechnology will change our lives in other ways in the future. Improvement of health, such as the

flavor saver tomato is one such example. Would you rather have a tomato with a few bases in a gene

removed so that it matures slowly with natural flavor and its natural enzymatic system; or, would you

rather have a "golf ball," now in the supermarket, traditionally selected, but so hard it can withstand

travel, after which it is sprayed with chemicals to induce ripening quickly. So, would you rather have a chemically sprayed "golf ball" or would you rather have a naturally ripened tomato?

We will have some interesting and difficult choices ahead of us. A very important task is public

education in science and technology. The comments this morning about education being critical for our

future are important. A nation of Luddites fearing changes taking place in technology will not allow

economical and social benefits of biotechnology to be realized.

DR. PRABHAKAR: Thank you. Dr. Colwell. I was going to ask you, Dr. Brodsky, if you wanted to respond on the flavor saver.

DR. BRODSKY: As a company that has invested over a billion dollars in the last decade or so in biotechnology, one of the issues we face is public acceptance. It has nothing to do with the technology

itself. And, it actually fits also with some of the comments this morning from Dr. Everhart.

We talk about education K through 12 or improving education for K through 12, so that we will have

the people available to do the technology. But, the other side of that coin is having people that are educated enough to accept the technology. If, in fact, we come up with genetically modified plants or hormones to improve milk production or whatever it may be—obviously, we have an interest in all of

those—and the public won't accept them, not for scientific reasons, but for lack of scientific education,

we have failed. The public is already getting all kinds of mythology thrown at them which they can't evaluate.

I think that's a major problem facing technology in this country.

67
DR. COLWELL: I agree with you. And, one of the things that we've done in Maryland is invest in a pubUc education center, joined with a modern laboratory. In the Inner Harbor of Baltimore, we've

built a 200,000 square foot center. One hundred and sixty thousand square feet of marine

biotechnology laboratories and 40,000 square feet dedicated to public education with exhibits designed

to explain molecular genetics and biotechnology.

The public exhibits are next to the aquarium which receives about 1.6 million visitors each year.

The public must be comfortable with technology.

Intermingling of science and technology with day-to-day public interaction is critical.

MR. WILLIAMS: I'd just like to ask in your view. Doctor, what are the appropriate mechanisms for

dealing with the ethical issues, because I think that's what frightens many of us. How do we really

cope with the dramatic changes, cope with the question of dealing with fetuses? When you talk about

not being able to afford in this magnificent society to look after children who might be somewhat

deformed or something. Those are frightening questions.

DR. COLWELL: They really are.

MR. WILLIAMS: What are the mechanisms for dealing with that as you see it?

DR. COLWELL: Public discussion and public discourse are vital. Had we done this in the 1940's with

nuclear power, we might not have run into some of the difficulties that we did. We've tried to avoid

such mistakes with position papers prepared at our University of Maryland Center for Public Issues in Biotechnology, which includes ethical, medical, legal, philosophical, and economic, i.e., interdisciplinary analyses of the issues.

On a community basis, with a combination of community, industry, religious, and medical leaders,

these discussion can take place. They are very important. Leaving such issues more or less to chance

is not a good solution.

DR. BURTLESS: There is one statement that interested me a lot and that was the difficulty that firms

have in the United States in attracting investment funds into biotechnology. And, the reason I find that very surprising is that in research that my colleague, Martin Bailey, and I did on how the United States invests in research and development in comparison with the other countries with big scientific establishments, like the United Kingdom, France, Germany, and the Soviet Union, when there was a Soviet Union, what really jumps out at you about the United States is we do spend a lot of money on

research and development. The way it's divided between public and private is different than it is in some other societies.

But, the one area in which the United States just has far more investment, it skews its investment much,

much more than the other societies do is toward biomedical research. And, I'm surprised that we

would be short on biotechnology given that we spent so much on biomedical research relative to the

entire rest of the world.

DR. COLWELL: I must agree with you.

MR. DAVID J. BARRAM: I want to come back to the question that Lynn asked you about the ethical

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issues and about the kind of dialogue we need to have in this country. It's interesting to live here and

to be right in the middle of what is a culture of advocating and spinning with very little evidence-based

decision making. It's easy to be cynical about it. Most people are, I think, around here. Who had

responsibility to change it? Maybe, if we believe it's critical to the future of our society to change it, as

I do, then, how do we change it?

I'm coming more and more to the conclusion that we're going to have to take the institutions that work,

which I think are academic instimtions and business in this country, and there take the responsibility to change the dialogue.

In the business world, if you don't make decisions based on evidence, you've got a very short life. That is not true in Washington and in the public sector enough. We need to take responsibility for

education, responsibility for these incredible ethical issues. If we had the discussion on nuclear power

in the 1940's, as you said, we'd be in a different place today. In 2020, we don't want to say the same

thing about biotechnology. But, we're not going to get there unless we demand of people that have any

cause at all to think they represent us to have this kind of evidence-based civil discussion about things.

I think that responsibility has to fall to people like the people in this room and all of our colleagues, and

I don't think we do a very good job of demanding it.

DR. EVERHART: First of all, I'd like to thank Dr. Colwell for a terrific presentation. It raises three

issues with me. I'd like perhaps for her to comment on one or two of them. First is, how do we deal

with the ethical issues which Mr. Williams raised. This is a very difficult issue. Several years ago, I persuaded Lee Hood and Dan Kevolas—Lee, professor of biotechnology at Cal Tech at the time and

Dan, a humanist who is a scientific historian by background interested in public policy—to convene

over the course of the year a seminar on exactly this topic, with the best people from around the

country. Coming from that is a book called The Code of Codes, which I think is the best book that I know of on this subject. Dr. Colwell may know better ones and may be able to suggest them to you.

But, it is at least a start. And, I commend it to you.

The second issue is, in educating the public, I think if you can entertain the public, you can probably

educate them. I'm very glad to hear about your building in Maryland. I believe that the AAAS is building a new building in Washington. And, I understand there is exhibit space in that.

But, I think it will be very important to have every visitor to Washington learn that there is something

called science that will impact their future life. Their government better be doing something to make

sure it impacts their future life in a good way.

And, the third issue I'd raise is a public policy issue. In my initial remarks, I talked about change and

the rapidity of change. And, it is changing nowhere as fast as in biotechnology today. And, the

institutions we have to deal with the products of that biotechnology were set up 30, 40, and 50 years

ago in very different times. And, if there is a place that needs re-engineering, it is certainly in the

regulatory mechanisms. The reason one can't get venture capital is because it takes too long to bring a drug to market. And, why is that? A whole series of regulations and tests.

I would think that there could be some new mechanisms, experimental mechanisms that the Federal

Government could try, for instance, licensing a company if people volunteer to be tested with this drug,

to allow them to do that. They give up their rights of suing the company if it doesn't work and all of

that sort of thing. But, we have to develop new mechanisms to compete in the world and the Federal

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Government is probably almost the farthest behind in that. And, we all have a responsibility for that,

just as we all have a responsibility for K-12 education.

DR. BOTTOMS: I'd just like to respond to Dr. Burtless' comment or question. And, I think it relates back to something that Dr. Colwell said. It's not just biotechnology. We have had a problem in the

last 20 years or so in investing and supporting the investment requirement for technology-based

businesses that require a long time to mature. It's because of a variety of things which includes tax policy and accounting policies that mitigate against the long-term investment. And, we generate more R&D and more work product from development, from research, than anyone else does. We have a smaller percentage of our development commercialized initially in the United States for exactly that reason. People have talked about it a number of times, but it's nowhere more evident than it is in biotechnology. A company gets started based on a new idea. There was a window of time when the

public market would capitalize that new idea, when they'd run through the money that the public

market gave them to capitalize the new idea.

The United States doesn't have the same kind of financing mechanism that the Swiss biotech companies

and pharmaceutical companies have, or Japan tobacco, for that matter, which has been one of the

largest single investors in U.S. biotech companies. It's an issue that can be addressed if people believe

it's an important issue. But, it can only be addressed effectively, I think, by mitigating the problem of

the total short-term focus, which is not the subject of this meeting.

DR. COLWELL: I'd like to comment further on that. Venture capital is a misnomer. There isn't much venturesome about venture capital. If you've tried to raise venture capital, maximum return on

investment guaranteed within 2 years is expected. I'm exaggerating a bit, but the point is it's very

difficult to obtain funds for a capital-intensive industry. And, more than that, it's unfortunate that companies increasingly are established with the intent of them being taken over and/or merged, rather

than with the intent of growing to mid-size or large companies.

It's also important to emphasize that compared to the computer software and chip industries,

biotechnology has managed, within 15 years, to reach gross sales of $5 billion to $10 billion, despite

being heavily regulated. The other industries are unregulated.

DR. BOTTOMS: If I could just respond briefly, since I am one of those venture capitalists that you

talk about. Our job is to avoid risk. If you look at the statistics, you'll find out that the companies who

are successful in finding financing from professional sources have a much higher success rate than

companies founded by any other mechanism. Therefore, I think there is evidence that there is some

success there.

But, industry as it's structured has no mechanism to capitalize things that take as long and cost as much

as a new technology for producing integrated circuits or technology for producing biocircuits.

DR. COLWELL: That's true.

DR. BOTTOMS: And, we need to have a different mechanism. I think it's tax policy and accounting

policy and things that move us away from short-term focus. There is no other way to do it that I know

of.

DR. PRABHAKAR: I think the topic of short-term versus long-term focus is a very appropriate one. We can pursue that at greater length.

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MR. COATES: I'd recommend that you abjure all discussion of any significant corporate or government issue in ethical terms. Ethical discussions are essentially self-defying and paralytic for the

following reasons.

Ethics has become a voguish category in government and the corporation, and it's a voguish category

that is the receptacle for a whole set of interesting new issues that those organizations are confronted

with. Not having a proper place to fit them into the organizational hierarchy, they get thrown into this ethical box. And, most of them are simply not ethical.

But, the more important reasons for not talking about ethical concerns is that it ends up being, "my old

man can lick your old man" kind of argument. I'm sure that not more than two people in this room

have ever spent more than a year in serious studies of ethics. Yet, what makes us think that we're

qualified to talk and analyze in ethical terms? It's as if because I've been sick with pneumonia, I have

the right to talk about medicine. Or, because I've been infected with a fungus, I have a right to talk about plant biology.

So, essentially, we're unqualified for that discussion. But, more significantly, what the ethical

discussion does is it invites strong-willed ideological people to come in and dominate the discussion.

Look at the current situation with right to life or freedom of choice. The ideologues have occupied the

full ground and rational people no longer have any contribution to make to that discussion.

So, I recommend you abjure this. Instead, I think that what one should do is look at whatever the issue

is that you think is ethical, that you already dropped in that hopper. And say, let's look at what it means to our planning. What does it mean to our reputation? What does it mean to our production?

What does it mean to our market? What does it mean to our work force? Look at it from every other

conceivable point of view that you're qualified to deal with and then see if there is anything left that would fall into an ethical hopper.

But ethics is essentially either self-defying or paralytic, albeit voguish.

MR. MITCHELL: I'm a little bit surprised that the discussion about biotechnology is so dismal. It strikes me as one of our really great successes as compared with most other industries. I mean, we

have three quarters of the world's gene patents, and we've invented 80 percent of the drugs, and so

forth. And, it does seem to be an area where the United States genuinely doesn't have any major

competitors as yet in a way we have in most of our other leading industries. And, I know that people

are obviously coming here because this is where it's done and this is where the climate is better.

So, what is the issue? What's the thing we want to face?

DR. COLWELL: The issue is, complacency. We have much more fierce competition than recognized.

I've just returned from Japan, having reviewed their exploratory research program. The investment

being made there is intensive and highly focused. In the United States, the attitude prevails that we're

ahead, doing okay, and have a tremendous research capability. However, in terms of marketing

products, we are not competitive.

DR. PRABHAKAR: I had started joking that the stages in the evolution of the technology are discovery, hype and investment, over-hype and over-investment, disappointment, under-investment,

and then finally success. And, it is possible that biotechnology is going through some of those curves and dips.

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DR. GREGORY TASSEY: I wanted to follow up on what Mr. Mitchell said. I think the venture

capital market in the United States gets a bum rap, as this discussion implies. I talked to a lot of

economists in European countries, Japan, and elsewhere. And, our venture capital market is the envy

of the world. It has some problems. It has a very cyclical nature to it, which is what has happened in particular to biotech. But, by and large, the amount of capital, risk capital that's made available is way

ahead of our competitors.

The second point is you cite the Japanese investment, the German investment. Certainly, when they

see a winner, it's natural for them to try to get on the bandwagon. And, that's what's happening. But,

we're certainly not slacking off as shown by the budget of NIH. The amount of venture capital

currently being made available to biotech firms, to my way of thinking, is substantial.

MR. JACQUES GANSLER: I just wanted to make a quick comment. It's been bothering me that every meeting I go to of this sort always says what we have is this very short-term focus on return, and

then go onto the next topic. And, yet there always are these recommendations, you know, for different

forms of change in public policy that could, in fact, change that orientation and would be very positive not only for biotech, but also for most technology investments. And, yet, we never seem to get beyond

recommendations in these discussions. I just wanted to raise it as a topic.

DR. PRABHAKAR: Dr. MacArthur, I want to tie some of this conversation back to your comments. It seems to me that you were describing the enormous pressure and restructuring in the health-care system

in this country that is driven by rapid growth in escalation of costs, which, I think, to some substantial

degree, is driven by new technology itself.

Given where we are in restructuring health care and given those pressures, how do you see the role of

these kinds of new technologies and what kinds of additional forces and pressures do you see coming

from them?

DR. MacARTHUR: Traditionally, academic health centers have trained health-care professionals and

have provided clinical settings where new drugs and therapeutic inventions can be evaluated, improved,

and expanded. Training and clinical research are expensive, but, in the long run, the "bench to bedside" approach is cost-effective. The clinical research approach is akin to the introduction of any

new technology, the cost of which can be brought down by continual improvement. In an academic

health-care setting, the benefits of interdisciplinary science and technology are also realized. For

instance, I recently toured the teaching hospital of the University of Maryland at Baltimore, which

collaborates with the various biomedical and engineering departments of the University of Maryland

System. Together, they are looking for noninvasive imaging techniques to detect changes in the brain

that might help diagnose, say, schizophrenia—a brain disease that has cost Americans billions of

dollars.

Rita Colwell has given us a marvelous vision of the future of biotechnology. I believe that—left to managed care as we know it—there is no future for the therapies she described. Unless managed-care

organizations shoulder their share of the expenses for development and improvement of those therapies,

academic health centers will be unable to carry the burden alone. This turn of events could put the

emerging biotechnology industry out of business. We will see.

The infrastructure of the academic health centers is needed as the next step in the development of

therapies and their improvement. But, now that more and more of our health-care dollars are going to managed-care organizations, academic health centers are in serious financial straits. They are losing

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revenues from privately insured patients, and, if public policy is changed so that they lose Medicare

patients as well, many may close their doors. So far, most managed-care organizations do not do

training or clinical research. They have counted on using the trained professionals and the improved

therapies provided by academic health centers; they are "takers." If the academic-health-center well

dries up, the real losers will be the American people, who expect the best medicine in the world.

I want to point out that, at a time when big government is being blamed for waste and for

overregulating industry, if managed care draws most of our health-care dollars away from academic

health centers and takes but does not give back to our knowledge base, this bankrupt state of affairs will

have been created by the marketplace. What irony!

DR. PRABHAKAR: So there is no dearth of monsters being created.

DR. MacARTHUR: Well, that may change when the movement to managed-care providers shakes

down and there is no more free lunch for them. Managed-care providers may then invest some of their assets and undertake clinical research and training themselves. But they see no need to get involved

now, and only a very few are conducting research. Hopefully, they will respond to pressure from their

subscribers for quality. And, as in other industries that serve the public. Federal and state government

may have to step in and/or help them to recognize the advantage, to ultimate cost savings, of clinical research and development and continual improvement.

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Technology and Government Policy: What Level is Appropriate?

MR. GALVIN: Thank you. Dr. Prabhakar, and ladies and gentlemen. I sent down to the staff a single

page sheet of paper, which I will now invite them to pass out to the group as I will refer to this single

sheet momentarily [see end of this section] . What I would appreciate would be your courtesy of setting

it aside and permitting me to lead you through it very briefly at the appropriate time in my comments.

The question that is laid alongside of my name is: Is there a role for a partnership between the federal

and the private sector? And mostly my answer to that question is yes. And the answer derives from

the Constitution. And let me remind you of something that I find that not everyone has recalled. The

Constitution says in Article I, Section 8, that the Congress shall have the power to promote progress in science and the useful arts. Let me repeat myself, because this sentence goes on and it has a

particularity to it.

The Congress shall have the power to promote progress in science and the useful arts by reserving for a

limited time the exclusive right to authors and inventors, that of their writings and their discoveries.

And, of course, the result of that is that we now have a patent and copyright office.

I respectfully suggest that the founding fathers had a much more profound intent behind that, although

they could not possibly have imagined what useful arts would represent or what science might generate.

This is because what they essentially needed to do was to create the means of having an affordable large

republic, which was the only means that they thought of that could preserve freedom for the rest of the

long existence of this country.

I will leave you with that, but I think it's quite significant that I put one point of emphasis. That's the

only right granted in the Constitution. It's the only place in the Constitution where the word "right" is written. You might say the Bill of Rights. The Bill of Rights grants no rights.

Madison, recognizing that we didn't need a Bill of Rights, but being obliged politically to at least compose them, composed them in a very clever way by saying. Congress shall pass no laws, and then

the rest of the document, which I paraphrase, goes on to say. Congress shall pass no laws abridging

your right to freedom of assembly, speech, et cetera, which rights you had long before we ever imagined we'd have a Constitutional Convention. They are the natural rights of man.

Well, our founding fathers in effect said, Congress shall have the power to promote progress in science

and the useful arts. And I hope we can succeed in doing that. I therefore am mostly positive, but I'm

going to leave with you eventually a question as to whether or not both parties are going to be able to

live up to whatever we might refine—I don't know whether we can define a thing called partnerships.

I'm not going to spend much time talking on the head of a pin, but partners are normally joint

principals, p-a-l-s, and the Federal Government and the private sector—and incidentally, I am now

including all universities, whether they're state universities or not, as the private sector. Forgive me

for being simplistic.

But we really aren't joint principals. In one sense, the government is the 400-pound gorilla. In another

sense, it won't be long before the private sector will be far more significant in terms of size and

influence, and I'm going to portray that for you in my expression of biases that I'm going to share with

you in this short comment.

Well, I don't know that partnership is the right word, but it's a neat word. It says, why don't we

cooperate with each other, link, have an alliance, et cetera, et cetera. And we ought to strive to

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accomplish what the Constitution at least partially directs us to do and we ought to certainly work

together just as effectively and harmoniously as we can.

Well, let me now just profile some companies. And my guess is these are slightly exceptional, but I hope they would provoke your interest. I think there are some very significant things happening with

regard to what the private sector's profile is going to be here in the course of the next score of years.

I'll personalize it, meaning I'll particularize it to our company, but I don't think we're so different than

other people.

Motorola intends, because it's the namral expectation, that in the lifetime of my son, who is now a third

generation head of the corporation, that 95 percent of our business will be outside of the United States. That's not forsaking the United States. That is expecting a very robust American economy and

Motorola's immense success inside the United States.

The algorithm is quite simply an algorithm of population. It's not gross national product. The only

way we look at economies basically is population. And we think we're showing the way in telecommunications. And we can do so in energy. And we can do it in a couple of other things, to where the rest of the world is going to move up or could move up an awful lot faster. And, therefore,

we must think not of the United States being the center of the world. We're a 5 percent factor. The

government will be a 5 percent factor. Sure, it will have an extra division or two to handle some very

noble causes, like we try to do in Bosnia. But economics wise, we've got to think in terms of the fact

that the United States is a 5 percent factor in the world.

Companies like ours are going to grow, we think, at 15 percent a year. So we'll grow from 25 billion

this year to 50 billion by the end of the decade. That's 15 percent compounded, and by five times you

double. Then it goes to 100. And then it goes to 200. When we have to grow from 200 billion to 400

billion in 5 years, that's only 15 percent. Somebody says, you can't do that. Well, how come we did it up to now?

Lots of people are going to figure out ways of doing this and have strategies to accomplish them.

When that happens—and I like to use decimals—when Motorola finally becomes a trillion dollar

corporation and we spend 10 percent of our sales on engineering, we'll have a $100 billion engineering

budget. That's three times the size of the Federal budget for real engineering, not testing and all of that kind of smff

.

Why not Hewlett-Packard? Why not Monsanto? Why not somebody else? So you say. Bob, you're never going to get there. You may get $500 billion by that time. Well, okay, so I rate it down.

The point is, the private sector is going to be over there a heck of a lot and doing a gigantic amount of

engineering on its own. And at this point in time, I had lunch with the gentleman that manages this for us or he facilitates it. We're setting up research labs. He just came back from Paris, Russia, China,

Malaysia, Singapore, Germany, Switzerland. So our research is now being spread all over the world,

because that's where there are also some very bright people. I happened to sit at lunch with this same

gentleman and a man who had been an associate director at one of our largest labs. The scientists in the room would know him.

He's a distinguished fellow and he's now consulting with us to try to help us better interrelate if we can

with government laboratories. And my associate, who is a very stable, quiet, Asiatic gentleman, was

asked by this former government or laboratory associate director, well, how do you rate on a scale of 1 to 10 the ability to do business with government laboratories. And he said, oh, I'd give it about a 3.

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At which point, I said, Terry, what's your answer if he had asked the question in terms of getting along

in the Ukraine. He said, that's an 11.

Now, if the Federal Government were to consider itself an entity that had to compete and that knew

what these kinds of things were—and my guess is Dr. Good could give this speech better than I could, or Dr. Prabhakar or many others—and then had the chance to believe it, then I say that there is a question as to whether or not the Federal Government in the term that I'm speaking of, the next 5, 10, or 15 years, is going to be able to measure up to be worthy to be a so-called partner. You've got the

money. So if you'll pony up, I guess we'd accept you. But we're not counting on you. People like ourselves, we're not counting on you.

Now, if I can, I'd like to just conclude my comments by asking you to look at the sheet of paper that I passed out or look at it again if you would. And let me walk you through it very briefly. I dare to start this at least with the same phrasings of the Constitution, but it's not intended to be a Constitutional

amendment. It's just a rhetorical device.

And I say here that Congress shall have the power to promote progress in science and technology,

including science and technology applied world wide commercially. There's a very challenging issue

in that short thing. Let's cut out this stuff about if the money is spent in the United States, it can only

be used in the United States. Our customers are 19 times more overseas. We're not going to run any

strategy based on some requirement that we have to restrain our use of technology because a dollar was

spent here, the taxpayers' money, only in the United States. To heck with it. We've got to go and

serve the other 19.

Funding multi-year research and development in general fields of investigation, I know there is a so- called Congressional problem. But that's your problem. Change it. Rewrite the rules. It's got to be

multi-year research and development funding, defined from time to time by qualified science and

technology professionals predominantly chosen from the private sectors, which include the universities,

whatever the venue of those universities would be. Roadmapped, if possible. That's a particularity of

mine. I didn't invent it, but I certainly invented it for our company. And our semiconductor industry,

I think, is showing the way as to how roadmaps can be used for very general, very generic and very

energizing programs of a very broad nature. And there is a process there that would allow that we

would most effectively pursue mostly productive areas.

The Congress will authorize and appropriate funds in block sizes to broaden generic categories of

investigation. Stop micro-managing. I don't know any Congressman that has the credentials to allocate

funds for science. But I think that collectively, with the wisdom of the kinds of entities around this room, including government institutions, but with a lot of bias in favor of universities and the private

sector, you would get very good definition if the partner that happens to have a facility to have a lot of

money available would just simply allocate it in block form.

And then through depoliticized institutions—and don't hold me too much to my modest examples. The

National Science Board for NSF or the national academies if indeed they could be refocussed, or newly

formulated corporatized boards of trustees, which are or will be endorsed and established for these

research and engineering government's purposes, give the job to them.

And then whatever our so-called government laboratories—unless it's a warfare center for the Navy or

a particular activity of ARPA, there are always going to be very worthy exceptions, but almost all of it, give it to somebody else to run it. You, the government, have a big block of money to give. That's

your job. Then get out of the way and let effective people spend it for you.

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And the members of the private sector with relevant interest and potential benefits should expect to share m particular funding responsibilities. I think this should become a much more active policy. The

private sector should expect to pony up in this area.

I think we're learning how we can do that. It's going to take some culture changes, SEMATECH is one such example. The Electric Power Research Institute is another. There must be five others that I don't understand well enough.

But the private sector has to pony up if some of these other things are to get done.

And, finally, the depoliticized facilitating entities will account to the Congress annually to a new

standard of Congressional satisfaction ordained in this legislative policy, which will adopt audit

practices and reviews consistent with the standards and methodologies of the private sector financial

reviews performed by public accounting firms, and all other methods of auditing and review will be

eliminated. In which case, the productivity of science and technology will go up at least double, and

then maybe we could afford to be partners.

Thank you.

DR. PRABHAKAR: Thank you, Mr. Galvin. Comments and questions and conversation on this?

DR. EVERHART: I like your proposal very much, Mr. Galvin. I'd just like to ask you a question,

which is self-serving as a university educator. But, nowhere in your proclamation here do you put in a requirement to provide for a work force that is educated enough to put this science and technology

research into practice for the benefit of society here and abroad. And I know you know that's important and you must think it's implicit. But should it be explicit?

MR. GALVIN: Dr. Everhart, you are right. First off, this is only one page. We could have written a second page, I presume. And your point is—by all its implications, I totally agree with. But I guess

you probably talked about that so ably over the morning time, I'll just leave it go at that. Yes, it is implicit. This is a systems problem. And the system implied is education, and it requires ethics,

however we define it, et cetera.

All I did was try to find a narrow slice of the issue, wherein there would be enough controversial

suggestions that come out of my kind of biases that would under themselves be worthy of

chewing on. Incidentally, please don't get off on education too much here. I hope to stay a little bit with this.

But one of the things that I think could help the education thing is we concluded a long time ago that education in our companies doesn't cost any money. That's a fact. So let's go spend a lot more

money. But I hope we can stay with this.

DR. PRABHAKAR: Then we'll come back.

MR. GALVIN: Well, I hope after I leave, you might get back on that one.

MR. SALDICH: I just wanted to piggy-back a little bit on Mr. Galvin's comments. Dr. Hermann

started this morning with kind of a glowing description of where this country stands, which was, by the

way, largely ignored by all subsequent speakers. The facts are that the country is in pretty good shape

right now by most measures. It's certainly not without problems, but basically in pretty good shape.

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What comes to mind from Mr. Galvin's comments to me is one of the dilemmas of being the CEO of an

international company—my company right now does about 70 percent of its business outside of the

United States and has about 60 percent of its employees outside of the United States. So the employees

of my company are our employees, whether they're Chinese or Brazilian or French. And we think of

them as our employees, not as our foreign employees. In fact, we stopped describing our company as an American company. We describe ourselves now at the suggestion of our employees, by the way, as an international company which happens to be headquartered in California.

This puts you in kind of an odd position from time to time, because you are inevitably doing things

which are good for your company, which in the opinions of many people and in fact maybe in fact are not good for your country. You're in an odd position, at least many people would assert that they're not good for your country. So the dilemma, it does exist.

I think the real irony that comes to mind with Bob Galvin's 95 percent number is this. That in a curious way, it's the businessmen of the world who are becoming the real one-worlders, when you

think about it. The least likely crowd to assume that mantel are the business leaders of the world,

because we are operating in a boundary-less way. We're really not thinking too much about the

boundaries we cross with our people or with our products or with our technologies. We're simply

trying to do what's best to build and preserve our companies. And that really is the end game that we're in here. How do we build a successful company?

So I just sort of offer that for you to ponder. Our objectives are to obsolete our own products, to generate growth through technology, to drive for better companies. Motorola has taught us a lot about

how to do that, how to become more effective companies. To develop our own people. The thought

that we are indifferent to our own people and their development is at a minimum offensive. And it's inaccurate.

Our people are our resource. As corny as that sounds, it is true. And the only way we can succeed is

if our people develop and if we invest in them. Our people are golden to us. And do we sometimes

have to lay some of them off? Yes, we do. And that's very, very painful. And anyone who thinks it isn't hasn't done it, I would submit.

But we are in a very fiercely competitive world. We are doing our best to build great companies. And

I think America should be proud of what it has in its industrial base right now. But we are

internationalists, more so than many of the folks who have been urging internationalism on us for a long time.

DR. GANSLER: I wanted to ask Mr. Galvin two questions that relate to this paper, which I happen to think is great. Particularly the idea of the block grants from Congress, which make so much sense. I was surprised to see that, especially after the comment that ARPA seems to do a good job, that the

normal funding institutions, NIH or NIST or the Department of Transportation or the Department of

Energy and so forth, are bypassed sort of with the recommendation going directly to, say, the National

Academy or places like that. That struck me as sort of decoupling the mission agencies from the R&D

needs that they might have and that they might fund for high risk, long-term investments. That was one

question.

And the second one had to do with if you go back to the Constitutional objective to promote progress in

science and technology, my perception is that the amount of funding that the government would do is probably the secondary consideration. And that there would be many other techniques, whether it be

taxes or other things that could be used to encourage the promotion of progress in science and

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technology. And you seemed to focus on the funding itself directly. I was curious as to whether you

felt that was in fact the best way for the government to get involved.

MR. GALVIN: Your perceptive observations and/or questions are a high testimony to the assembly of

this wise group and I compliment you. Again, this is a one page document. First off, there would

absolutely be exceptions to something as general as what I have said. Let's take a warfare center of the

Navy. We'll need warfare centers of the Navy, so there is going to have to be something in the DOD

budget for that kind of thing.

Whatever happens to the aggregation of something called commerce—frankly, I hope it stays. But

there would have to be a budget for the standard setting. And I'm being pedantic in that detail. So

there would have to be exceptions.

Concerning the second point, this is meant to be in effect the tactical aspect of this part of the budgeting

process that would have an impact on improving science and technology, sort of the operative part. But

indeed all of the things that you have otherwise talked about that would encourage better education,

would encourage better investment policies, et cetera, those are even more significant.

But I was getting down to when a Congressional committee is thinking of appropriating $600 million

for some science program, if they're going to do that, please do it more this way. May I just ride side

saddle on the fine observations that Mr. Saldich made about the fact that, like it or not, we're all international. And we better like it, because it's absolutely the best thing for our country.

And I would remind you that when we try to be wise—and it's pretty arrogant to think that anybody is particularly wise to me one of the ways of searching for wisdom is to appreciate the merit of counterintuitiveness. And the intuitive is to, say well, it's America, focus everything here, only investments

here, et cetera. And absolutely the opposite is the right way to go. The counter-intuitive is almost

always the right way to go if you're going to make progress.

So, for example, investments are the algorithm of exports. The more you invest overseas, the greater

the export you create, because, among other things, your present products follow what you have

invested in. And how are we going to have a great international market if we don't create the market

overseas? I said to Minister Nuwait, a wonderful lady who came and visited us for two months on a

sabbatical, why do you think we're interested in investing in your country (China).

And she said, oh, very simple. You want our large market and our low cost labor.

And I said, well, my answer will probably surprise you. I said, absolutely, we're interested in your

large market. But we're not the slightest bit interested in your low cost labor.

How can you be a large market if you're low cost labor?

We have to build industries. We have to build markets. And there are a few of us that think this way.

So we go out and change the rules, make investments, create customers who have discretionary

income. And then they can maybe buy Proctor and Gamble's toothbrush, but they'll finally have to have a two-way radio or a pager to go along with it. And there is an opportunity for the energy

industry to come along and create more energy and then they'll spend more, et cetera.

So our job is creating an economic viability overseas. And, frankly, to some of us, that's paramount in what we do. And that's why we can grow our companies. We grow the environment in which we

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grow our companies.

DR. PRABHAKAR: I'd like to use my position to interrupt this conversation because I really want to probe this for a moment. And then I'll come back around to some of the hands that were raised. A

question for both Mr. Galvin and Mr. Saldich. I think you characterized actually quite eloquently

what companies focus on, how they think about their economic

futures and economic growth.

My question to you is, how does that relate to national goals? How does that connect to issues for

citizens in a nation like this?

MR. SALDICH: Well, I think Mr. Galvin said it perfectly just now. That we are in a world wide

society. We're major players in it. We're going to benefit from the growing wealth of the world. Bob

Hermann said that America today represents 5 percent of the world's population and 20 percent of the

world's economic activity, moving towards 10 percent. Which means that success for us will be

halving—cutting in half, our share of world's economic activity.

One thing we've all learned in alliances is that the key ingredient to be a successful alliance partner is to make your partner a success. And that's what's happening world wide. I think if they're

successful—this is what I think Bob Galvin is saying—we become successful.

MR. GALVIN: I am very pro that there should be national goals. And I don't care what the rhetoric

is, national planning or what have you, if the profile of the peoples and energies that are engaged in it are biased in the direction of the private sector defining what it is ~ and, again, the private sector is everything other than the Federal Government with this simplistic definition.

For example, I am an advocate that it ought to be the national goal of this country to cause that those

who have the means and the talents, should for the next 10 years to 20 years be out establishing energy

generating plants in every quarter of the world that they could possibly imagine there might be some

compensatory benefit to that energy investment, as soon as possible.

We have all manner of utility companies right now that are living in fear—somebody was speaking of

the fear factor—because now they're going to be deregulated. If every one of those companies would

pick a country and decide they were going to be a dominant force of providing energy for that country

that needs energy, energy makes people productive. Productive people earn more money. The more money they have, the more discretionary income they have, the more the economy is made dynamic, et cetera.

So, yes, there should be national policies. But it shouldn't be governed by the government. So we

have to have a new culture or a modified culture that in effect says, let's aggregately accomplish things.

And I believe the culture is now installable or inspirable for collaborative action on the part of

competitors in industry that can cause that to happen. Again, I think the semiconductor industry is a wonderful example of that.

So, yes, particular national policies ought to be established and they ought to be driven and helped and

facilitated by the federal government with a strong bias from the private sector.

DR. HERMANN: I wanted to return to the dilemma that Mr. Saldich put forth, because I think many

of us who are American based and international in scope have to deal with this problem both

intellectually and publicly. And I would like to argue that we can split the response of dealing with this

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dilemma into two pieces. This is at least a version of how to do that. And one is to say there is no

question, but we are chartered and legally obliged to respond to our owners to do good in a global

economy. And we will be driven to be self-centered with respect to the objectives of the corporation or

the company.

But separately we are, I believe, a citizen. And in this country, we are a corporation citizen. And we

have citizenship responsibilities which are different than the responsibilities brought forth in the

fiduciary responsibilities.

So I believe that as corporations and as leaders in corporations and companies and private sector

instimtions, we have the obligation to make our confidence, our judgment and allegiance to the

community within which we operate as fine as it can be. And I believe that we have a very keen selfish interest in being located in a solid country with a solid economy, a strong position in the world, and

that our position in this international domain is strengthened by operating out of a fine

country. We have an obligation to make that occur. And I see it possible to deal with both of those

without conflict.

DR. BRODSKY: We have another self-serving reason for raising the standard of living of people

around the world. And that has to do with not only creating our own markets, but also in controlling

population. Probably the greatest threat to our fumre and the sustainability of the earth is out-ofcontrol, population growth around the world.

And the one factor that seems to relate to population growth consistendy is standard of living. The

higher the standard of living, the lower the population growth. So, in fact, if we can spread technology

around the world that helps raise standard of living, get crops into Africa that are resistent to blight, so

that people don't have to have large families to survive, et cetera, I think we stabilize the earth in addition to creating affluence there in terms of markets. In terms of our long term survivability, I think

it's an imperative.

MR. GODFREY: It seems like this focus is on the creation of technology which sometimes gets

interpreted as a creation of products. So how are we going to emphasize the adoption of technology

and the risk associated with adopting the manufacturing changes? I think that's a problem.

MR. WILLIAMS: First of all, I just wanted somewhat impertinently to make Mr. Saldich's day by

assuring him that there are a number of us who have been accusing companies like his of being

international companies for some time and not really being American corporations. So we find

common ground in this affirmation.

(LAUGHTER)

I am really thrilled at the idea that we're going to move around the world with all of our international

corporations and create higher living standards and consumers and purchasing power, and that clearly

is obviously in the most commonsensical of terms the direction we need to go.

I have a little difficulty in terms of my experience in these issues—present company probably excepted,

I'm not really sure. I know that I shared many trade battles with Bob in a very positive atmosphere.

So I'm not making an accusation about Motorola in this regard. But in general terms, the international

business community, the American international business community, if you will, has not in my view

been very sympathetic about the labor movement's attempts to establish international labor standards,

international standards of human rights, banning of child labor, and international environmental

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standards. We had an enormous struggle about NAFTA.

And the heart of that from the labor movement's perspective was precisely from our point of view what

we're talking about, which was try to have international trade agreements that would have some

guarantees in them, that as the economy of the developing country or the newly industrialized country

or whatever the circumstances might be, that as those economies developed, indeed the benefits of that economic development would be shared with their workers and with their people generally.

And we had from a labor movement perspective two points of view on that, two particularly important

issues. One, obviously to guarantee the competition in terms of wages and benefits and so on would be on as level a playing field as is conceivable in a developing international economy; that we would push

things in that direction.

And, two, and I think even more importantly, that we would be creating customers around the world,

so we would not have exploitative trade agreements that permitted corporations to simply go and take

advantage of low wages. But we would be creating countries where there would be the potential for

real trading partners with real purchasing power. When the Koreans built Pohang Works and had this marvelous steel company in South Korea, the most advanced in the world, for a long time, they simply

poured steel products into the international marketplace without any compensating improvement in the

living standards of their workers.

So you would go to visit Pohang Works in South Korea and the parking lot wasn't full of automobiles,

it was full of bicycles. Now that's changed. The Korean workers have gotten a little freedom, gotten a

little democracy, gotten some chance to organize, some chance to improve their wages. And now when

you go to visit Pohang Works, you see a parking lot that has automobiles in it. We've developed some

customers in South Korea.

But it seems to me that if this vision that we've just been hearing from both Dr. Hermann and Mr.

Saldich, which obviously is a pretty exciting vision, if this is to have real meaning, then the

international business community needs to ally itself with the labor movement and other progressive

forces in the pursuit of decent living standards and guaranteed improvement in living standards, wages,

benefits, the environment, and all of the rest in these countries as their economies grow.

MR. GALVIN: I'd like to ally myself with Lynn. He and I have shared many discussions and we've

found so many more times than others that we were very congruent with each other. I am totally in congruence with your fundamental. Let me give you an anecdote. The preamble to the anecdote is that whereas we talked a lot about education this morning, one of the things we have to do is, among us

"leaders," we must continue to educate ourselves. We must benchmark ourselves. We must learn

from each other. And we learn from so many of you. And once in a while, companies learn from us. So we must be role models. And let me give you now a situation.

In 1986, I said to Jiang Zemin who is now the Chairman and to certain others of the vice chairmen of

China when I visited there, if you let us come in and own our own business on a capitalist basis, we'll

be your role model. In January of this year, Jiang Zemin personally went to Tienjan. He spent the

better part of a day, or roughly 5 hours, going through our factories and all of the things we're doing

for our Chinese employees and the way we're running our business.

He was so impressed he went back to Beijing. And he said, next week, I want all of the members

of—whatever they call it, the politburo—to go to Tienjan, see what Motorola is doing with people, how

they're being paid, how they're being treated, how they're living, how they're being made into better

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people. This is how we want employees to be treated from a labor relations standpoint. I don't know

that we can call this "human rights." I don't think we've reflected back to their prison system, yet.

But to the degree that we can have an influence in places, I respectfully suggest that we can do just

exactly what we want. It's going to take a little time, however, because some of us take a long time to learn these things. We business folks are just kind of as slow as anybody else. But once we learn

something, we get to be pretty good at it. And I again look at the analogy of quality. I think that the

government wisely established the Baldrige standards.

In the last 10 years, there's been quite an elevation and we're all a lot better on quality than we were

before. I think we can be an awfully lot better on labor policies around the world in the next 10 years, because nobody can compete with us—well, China is so big, at least by some indexing of comparisons,

but they can't compete with us in China unless they start treating people well too. So we sort of bring

each other up.

So I think inside of this little single sheet of paper that I have here, which hopes that we can have

enough science to make better products that will be better manufactured and financed, and that we are able to run, I think we can have a very positive impact on elevating standards of labor relations and

compensation.

MR. COAXES: Looking at Mr. Calvin's business forecast, the trillion dollar corporation, if one took

that seriously, one would also have to believe that there will be other trillion dollar corporations. So

let's assume that there are 10 or 20 of them that are involved in the same time frame. And if they

followed your prescription, 10 percent of revenue for research or even R&D, you're talking about a

situation that would just simply swamp out anything that government is doing or has done.

That makes this one page utterly irrelevant, because the new gorilla in the R&D game is going to be

corporate research. So the most I would see this would have any value for is as a transition piece.

But what's left out of this may in fact be the interesting opportunities for government. Namely, you

give no discussion of those areas in which there is market failure. And government may be the ultimate

place for market failure. Who is doing research really? What's the business interest on restoring soil? Where is the research going on earthquake prevention? What are the real dollars going into research

for the handicapped and the impaired?

So all of those places where there is market failure is essentially the residual opportunity for

government, if one takes seriously your claim for the future.

But the more important point I would like to make is suppose we did follow your prescription for

helping development in these developing countries, suppose that we did build the power plant a week

that China will require to maintain its 8 percent growth.

If we look at the time cycle that is in your mind, I presume, 15 years, 20 years, something of that order

is what we're talking about, what will happen in international commerce in that 15-year period? Every

time we invest in the Chinese or the Malaysians or the Indonesians or the Philippines or the Indians,

they're not going to allocate a portion of their population to live as if they're in New York or Scarsdale.

What they're going to do is continue to have relatively depressed wages in order to move effectively

into the international market competitively.

So the strategy you're outlining in this very important 15-year transition period is going to be an

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international disaster for the United States The price elasticity of labor demand is so steep that however

much the Chinese are jacked up, double, triple, quadruple their wage rates in that 15-year period,

they're still going to be able to drive down the cost of products and kill us in international trade.

So I think that your argument is fundamentally non-systemic or even specious. I think you have to look

at the argument systemically over the period that you're talking about and look at what each of the

actors would in fact be likely to be doing. And I think it just guts your argument.

MR. GALVIN: Sir, that is a very intellectual statement and it is as specious as any I've ever heard. So

we might as well look each other right in the eye. Sir, these people are not going to depend for their

competitiveness on low cost labor over the course of the next 15 years to 20 years. As a matter of fact,

what I'd really like to do is to cast this in a 50-year cycle, because nothing happens as quickly as 10

years or 15 years as all of us would recognize.

The competitiveness of our people in Tienjan is a function of the degree to which we have applied to them the highest order capital that we can apply to any place in the world. And we can produce—now

I'm going to switch gears for a minute—we can produce in Arlington Heights, Illinois or Boca Raton,

Florida as low cost as we can produce in Tienjan. And we can't produce low enough cost in Tienjan if we don't use exactly the same capital and science based businesses. And that's going to be true of more and more and more businesses along the line.

So the world of 2025, the world of 2050, that's only 30 years away, is going to depend on the

employment of capital, on tools, both of which I think have been alluded to in prior discussions, on

educated people to do the job. And so I think there is a high systems relevance in what I have

suggested.

But I respectfully suggest that neither one of us know how to orchestrate this situation. And what I've learned from my experience is that if one gets a general idea of where one wants to go 30 years from

now, first off, we know that whatever we exactly think of will be wrong. But if we start going in the

right direction, we'll muddle around and figure out better words than I wrote 5 years from now and

better words 10 years from now. And we'll gradually shake it into the right kind of thing.

I just think there are more ponies in what I've suggested than doing what we were doing yesterday.

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Conference Handout:

Mr. Galvin's Model for Government-Industry Partnership

The Congress shall have the power to promote progress in science and technology including science

and technology

• applied worldwide commercially by

• funding multi-year research and development in general fields of investigation as

• defined from time to time by qualified science and technology professionals predominately

chosen from the private sector.

• Roadmapped, as possible.

• The Congress will authorize and appropriate funds in bloc sizes to broad and generic categories

of investigation

• through depoliticized institutions such as the National Science Board, National Academies and

newly formulated Corporatized Boards of Trustees which are or will be endorsed and

established for these research and engineering governance purposes.

• Members of the private sector with relevant interests and potential benefits should expect to share in particular funding responsibilities in part.

• The depoliticized facilitating entities will account to the Congress annually to a new standard of

Congressional satisfaction ordained in this legislated policy which will adopt and audit practices

and reviews consistent with standards and methodologies of private sector financial reviews

performed by public accounting firms.

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Concluding Discussion

DR. PRABHAKAR: Let me give everyone around the table a chance to revisit previous topics from

earher in the day. If there are briUiant insights to be offered, here is your opportunity.

DR. BRODSKY: We still operate basically a linear life plan. You get educated at the beginning of

your life, you work in the middle of your life and you have retirement at the end of your life. I have

children that are now out of college, who aren't operating under that paradigm at all. They went to college. They retired. They go back to college. They work. They retire.

And in fact we are seeing more and more a different paradigm among young people that education is going to be a cyclical thing. It's not just remedial that we need to train a few people here and there

during their lives.

But in fact, you won't get a plug of education at the beginning that has to carry you through your work

years. That's going to change a lot of the ways that we think about education and work and play and

how people go through their careers. We need to think about how people will use technology in terms of their different life stages—play,

work, education.

MR. BARRAM: I want to ask a question of Dr. Colwell. As you were talking, I was imagining a dramatically increasing life span and perhaps a dramatically increasing vital lifetime. If you took the

claims of Melatone we are all going to be pretty vital at age 210. It sounded like progress in biotechnology could have some of that same kind of effect.

Do you think that is something that is likely to occur in the next 20 years or 30 years.

DR. COLWELL: Do you mean the extension of life span?

MR. BARRAM: Yes.

DR. COLWELL: When social security started, the life expectancy of men was 59 years old and the

retirement age was 65. Today, the life expectancy is 77 and the retirement age is 65. That's one of

the issues that faces us.

MR. BARRAM: But what if our life expectancy changed dramatically; and might it change

dramatically?

DR. COLWELL: Right now we do have people who live to be 115 and 120 years old. So it means

that we haven't reached the end of capacity of the life span. We are simply living in the environment

with all of its interactive factors. The average tends to be shifting towards the longer life stage.

Yes, knowing that you have certain genetic disposition and being able then to live your life strategically, you then create the odds that gives you a longer life.

The other question that I was asked similar to this was what does that do to the population. Aren't we

going to end up with standing room only?

The interesting thing is that with an improved standard of living you get smaller families. But I would

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add that the really key factor is the education of women. That has been directly correlated with

reduction in family size. So with improved standard of living with educated women, and with the

capacity to take advantage of the technology, we'll probably have smaller families and longer lives.

And, as Dr. Brodsky has pointed out, we now can expect—and I think Dr. Everhart can confirm

it—every 1995 graduate can expect to change his or her career at least three times, which means that

it's not just retooling, but it means learning a whole set of new kinds of technologies.

MR. BARRAM: The change in life expectancy was fairly gradual for whatever the reason up until now. Do you imagine a pretty dramatic spike given the things that you talked about that are being

worked on?

DR. COLWELL: There are some developments that really can be pointed to as enhancing the life span. For example, the discovery of antibiotics and the ability to bring children through many of the

childhood diseases. But the dark side is that we face in the next decade perhaps or even 5 years, increased mortality due to standard infections for which we no longer have a pharmaceutical

armamentaria because of the excessive improper use of antibiotics and the development of multiple

drug resistant drugs, such as TB, streptococcous, pneumonia, et cetera.

As a biologist, I should say that life is a shifting dynamic equilibrium. You move forward. You

recalibrate and then you move forward or backwards. So I'm not sure there will be this dramatic spike.

I think it will be a continuum. But then my crystal ball may be a little cloudy. That's the best I can

say.

I would like to ask a question that's actually posed in the agenda. And that is, in terms of the global

growth of technology, is American prepared. Would it be out of place or too forward to ask for a show

of hands. Is America prepared? I'd like to see what the opinions are of this group around the table.

MR. WILLIAMS: Not nearly well enough. How about that?

DR. PRABHAKAR: That's a good category. So you want a yes, no, and a not nearly well enough.

DR. COLWELL: I think I would separate it. I feel optimistic. But on the other hand, I really am

concerned that we've got some serious, serious problems to overcome.

MR. WILLIAMS: I vote for the position. I'm optimistic always, but I think we're far from prepared

to deal with all of the implications that we've been discussing today. We have enormous problems in

this society. You can look at the half full, half empty sort of glass. You can assure yourself everything

is fine. But I think it's foolishness to assure ourselves that everything is fine.

I don't know when I go home and lock my door with two locks at night and worry about where my

wife and I are going to walk around late in the evening, and watch all of these murders and everything on television and on and on and on. I find it hard to affirm this is the ideal society. This isn't what I expected that I would be involved in at this stage in my life. We were doing better by some of these measures 30 years or 40 years ago than we're doing today.

On the other hand, we've accomplished some marvelous things. We're talking about living to 120

years of age and still be in good shape. I can't knock that.

So I think we're somewhere in the middle.

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DR. PRABHAKAR: Would anyone like to disagree with optimism coupled with some concerns about

key issues? That was broad enough that we got consensus?

MR. GALVIN: The previous discussion should not be examined in the context of what's happening

here in the one and only great center of the world, the United States. Remember the other 95 percent

of the world.

Our people in Costa Rica and in the Philippines and in Singapore and in India and in Beijing are looking for lifetime careers. And if America thinks it's going to get by uncertainties and

discontinuities, again, there is a place where we ought to be pretty pessimistic.

And incidentally, as a corporation, we have confirmed to our people that they can look to our loyalty to them. And we expect their loyalty to us. We're going to build for multiple generations of families

serving the corporation as one of our strategies for growing. So there are other contexts in which these

things should be done, even though anecdotally we see evidence of a fad at this time. I think that's what it is. That somehow or other we're going to have a lot of bouncing around. I don't think we are.

I think things aren't going to change that much in human nature.

MR. BRODSKY: The one area I want to readdress that I think we all should be pessimistic on is the

issue of sustainability. I think by many measures we cannot sustain the kind of industrialization we

have right now and the kind of population growth. It's not just population growth, but it certainly plays

a major role. We are not in balance with the use of raw materials. We don't do full cost accounting in industry, and it's getting worse. We don't account for depletion of natural resources. And I think

that's going to take a major change. We're not seeing the end coming. I hate to be like the guy

walking around with robes saying, the end is near.

But, in fact, it's going to all of a sudden hit a critical mass and it may be too late for the world to respond if we don't get it now,

DR. PRABHAKAR: I'm glad you mentioned that, because in fact that's a topic we haven't touched

on. But it's actually probably worth a whole day's discussion. So, thanks for getting that in the record.

MS. GODFREY: Being pessimistic, the thinking skills bother me the most. I can get lots of people to come in and do computer aided design, but they can't design. I get people who do industrial

engineering and they can put out a lot of pretty charts. We can get off looking good in the meeting for a few minutes. But they haven't thought through what that all means. And I think that's more and more occurring is the thinking skills, the problem solving skills.

MR. ROBERT L. CATTOI: Dr. Prabhakar, I think another caution has to do with the development of

small and medium sized enterprises. A lot of what we talked about concerned the leading companies

like Motorola or UT. The leadership in those companies is pretty good. But there is a disconnect as we get down to the supplier base in the second and third tier companies that we had better consider.

We have to develop that base. As Mary said earlier today, that's very, very important.

There is one other phrase that impressed me today. David used the phrase of decision based on

evidence. As we looked at the evidence of issues today, such as education, that evidence was either

incomplete or irrelevant in some respects. And it was usually dollars thrown at the process. And that's how we measured the goodness or the badness.

There are other dimensions, such as the quality of the process and the quality of the output and the

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timeliness of the output, the relevance of the process and the output. And if we don't look at that, we

can base our decisions on evidence that really doesn't mean anything. We have to be more careful as we look at that kind of evidence. It has to be information that shows trends, as well as current status. Status is a good snapshot, but it really doesn't tell you what direction you're going, or if that direction

is proper.

DR. PRABHAKAR: Thank you for the comment. We sometimes fall victim to the problem that we

track those things that are easy to measure, rather than going after the things that are really meaningful.

I think that's important.

MS. MACARTHUR: One of the problems that we haven't discussed is the people who will be

invisible to this growing society.

I had an opportunity to go to at least two of the meetings that were held after the report. Science and

Technology in the National Interest, came out. The idea was that universities would sponsor meetings

and invite industry, universities and whatever federal technology institute there would be in that area to come.

The one at MIT was without surprise. The one that was held in Florida where the host of the meeting was the president of Florida A&M, which is a historic black college, was very interesting. Dr.

Humphries was sure that most of the historic black colleges in the southeast were there, as well as the

other major universities.

The industrial people talked to us. The one who really got me thinking was the manager of the Boca

Raton Motorola plant. He was describing criteria for which they would be hiring employees. It was

clear that they could not lower their standards. That their policy is that 80 percent of their engineers come from the top 50 engineering schools in the country, of which only two existed in that southeastern

part of the United States.

Well, immediately you look around and you see lots of good state universities, but you also see the

black colleges and there they are. So where do they come in? At least in surrounds of NASA, money

was being spent at black colleges.

And then I realized, if we're going to cut back in our budgets, you begin to see a kind of snowball

here. One other person said, and how about training people who are already in the market but have to be retrained. And then somebody said, what about the underclass. Are they invisible totally to this?

I think that if a company like Motorola will hire 80 percent from those kinds of schools they will have

to consider those students to be coming with a need for a lot of remediation. They haven't had

internships. They haven't had laboratories in their universities.

You can almost see the writing on the wall. I was talking to Mary Good about this earlier. And she

said, at some point, society cannot tolerate that we would have this rather large underclass that aren't even in school, let alone, the black colleges that have been aspiring and have been supported by Federal

monies that might be cut. We won't be able to tolerate that.

But as we talked optimistically about all of the wonderful things that can happen, we have to realize that right now, that does not include the possibility of a very large segment of our population. This is a problem that will fester and will cause us a lot of trouble and always has to be part of the agenda of

something like this.

89
DR. PRABHAKAR: That comes back to some of the themes we struck earlier in the day. I am going

to turn over the mike now to John Yochelson who has very bravely agreed to summarize the

discussion.

MR. YOCHELSON: This is a very rich and interesting discussion. I can't possibly do it justice. Arati

and I put our heads together. There were three or four themes that stuck out and some defining

observations that were made.

The first, made this morning by Dr. Hermann, is that technology is just one component of U.S.

leadership, and should not be viewed as the entire solution to all the challenges we face at home or

internationally.

The second defining point was made by Dr. Everhart when he observed that we are shifting from a resource driven to a knowledge driven economy, which then put much of the focus on human resources and on whether human resources were adequate. Here today's discussion highlighted a paradox in the

relationship between technological leadership and its economic payoff. On the one hand we said that the United States has the wherewithal to lead the technology revolution on a world wide basis. And

yet, as Rudy Oswald, Lynn Williams and Gary Burtless' discussion pointed out, somehow this leadership in technology has not delivered the gain in wages and incomes all of us would like to have

seen. We seemed to conclude that the investment we are making as a society is enough to enable us to lead in technology, but it is insufficient to address the dislocations in income and employment that we

are finding along the way.

In the afternoon, we talked mostly about some of the constraints on U.S. technology leadership. Dr.

Colwell and Ms. MacArthur talked about some financial constraints. They talked about human

resources constraints to the U.S. situation.

And then Bob Galvin turned the thing around by arguing that much of what we have been worried

about, financial constraints in terms of federal support, may be less and less relevant if the private

sector does indeed grow as he foresees.

And Mr. Galvin brought us back to where Dr. Hermann started the day by arguing that the heart of

resolving and building a position of strength in the United States lies in capturing the global markets

and global opportunities. In effect, there is no conflict between the national interest and the

international strategies of our most important companies.

90
Appendix C:

Biographies of Speakers

Dr. Robert J. Hermann

Senior Vice President, Science and Technology

United Technologies Corporation

Degrees: Bachelor of Science, Master of Science, and Ph.D. in electrical engineering from

Iowa State University

Dr. Robert J. Hermann was elected senior vice president, science and technology at United

Technologies Corporation in July 1992. In this position, Dr. Hermann is responsible for assuring the

development of the company's technical resources and the full exploitation of science and technology

by the corporation. He also has responsibility for the United Technologies Research Center. Dr.

Hermann joined the company in 1982 as vice president, systems technology in the Electronics sector and later served in a series of assignments in the Defense and Space Systems groups prior to being

named vice president, science and technology at United Technologies Corporation in March 1987.

Dr. Hermann served 20 years with the National Security Agency with assignments in research and

development, operations and NATO. In 1977, he was appointed principal Deputy Assistant Secretary

of Defense for Communications, Command, Control, and Intelligence. In 1979, he was named

Assistant Secretary of the Air Force for research, development and logistics and in parallel was

Director of the National Reconnaissance Office. In 1981, he was named special assistant for

intelligence to the Under Secretary of Defense for Research and Engineering.

Dr. Hermann is a member of the President's Foreign Intelligence Advisory Board; the Defense Science

Board; the National Academy of Engineering; the Visiting Committee on Advanced Technology of the

National Institute of Standards and Technology; the National Research Council Commission on Physical

Sciences, Mathematics and Applications; and the National Society of Professional Engineers Industry

Advisory Group. He is a member of the Board of Directors for Draper Laboratories, and the American

National Standards Institute; Board of Trustees for the Hartford Graduate Center.

91
Thomas E. Everhart

President

California Institute of Technology

Degrees: A.B. degree in physics in 1953 from Harvard University, Ph.D. degree from the

University of California at Los Angeles in 1955, Ph.D. in engineering from

Cambridge University, Cambridge, England, in 1958.

Dr. Everhart is also a Professor of Electrical Engineering and Applied Physics. He is a Magna cum

laude graduate of Harvard University.

Dr. Everhart joined the University of California at Berkeley in 1958, where he served in the

Department of Electrical Engineering and Computer Science for more than 20 years. In addition to teaching and research, he also served as chairman of the department during 1972 to 1977. In January

1979, he became dean of the College of Engineering at Cornell University, Ithaca, New York. In August 1984 he left Cornell to assume the chancellorship at the Urbana-Champaign campus of the

university of Illinois where he remained until accepting the presidency at the California Institute of

Technology in September 1987.

Dr. Everhart is a national spokesman on science and technology. He has served on the National

Academy of Engineering Council and Executive Committee, and is on the Board of Directors of the

Corporation for National Research Initiatives. He has previously chaired the Secretary of Energy

Advisory Board, General Motors Science Advisory Committee, the National Academy of Engineering

Committee on Membership, and the Lawrence Berkeley Laboratory Scientific and Educational

Advisory Committee. He has served as Chairman of the Council of Presidents, Universities Research

Association, and currently serves on its Board of Trustees.

His main areas of interest and expertise have been in the research and development of scanning electron

microscopes, electron beams as applied to semiconductor analysis and fabrication, and basic science

and engineering related to these subjects. In 1984, the Institute of Electrical and Electronics Engineers

honored him with its Centennial Medal, which recognizes outstanding achievements in electrical and

electronics engineering. In 1989 he received the Benjamin Carver Lamme Award from the American

Society for Engineering Education. The University of California at Berkeley awarded him the Clark

Kerr Award recognizing his contributions to the advancement of higher education in May of 1992 and

the Founder's Award in April of 1995 from the Energy and Resources Group at Berkeley.

Throughout his academic career. Dr. Everhart has maintained a close relationship with industry. He is a member of the Board of Directors for General Motors, Hewlett-Packard, Reveo, and KCET. He has

been a member of the R. R. Donnelley Technical Advisory Council, a consultant to such firms as Ampex Research and Development Laboratories, Bell Laboratories, Hughes Research Laboratories,

IBM Research Laboratory, Watkins-Johnson Company, and Westinghouse Research Laboratories. He

presently serves as Vice President and as a member of the Executive Committee of the Council on

Competitiveness.

Dr. Everhart has strong international ties. He was a Marshall Scholar at Cambridge University,

England, while pursuing his doctorate, and has been a visiting professor or fellow at the Institut fuer

Angewandte Physik, Tubingen, West Germany; Waseda University, Tokyo; Osaka University; and

Clare Hall, Cambridge. He has served on review committees for RIKEN in Japan and for the
Australian National University.

He is a member of many scholarly and honorary societies including Phi Beta Kappa, Sigma Xi,

American Association for the Advancement of Science, National Academy of Engineering, Bohmische

Physikalische Gesellschaft, Institute of Electrical and Electronics Engineers, and the Electron

Microscopy Society of America. He has held a Guggenheim Fellowship and a National Science

Foundation Senior Postdoctoral Fellowship. He was elected a Fellow of the American Association for the Advancement of Science, a Fellow of the American Academy of Arts and Sciences, and a Foreign

Member of The Royal Academy of Engineering (Great Britain). He has three honorary doctorates.

Dr. Everhart and his wife, Doris Arleen (Wentz), have four children—Janet Sue, Nancy Jean, David

William, and John Thomas—and four grandchildren. Office address: Office of the President,

California Institute of Technology, Parsons-Gates Hall of Administration, Room 204, Pasadena,

California, 91125.

93
Gary Burtless

Brookings Institute

Degree: Graduated from Yale College in 1972, Ph.D. in economics from Massachusetts

Institute of Technology in 1977.

Gary Burtless is a Senior Fellow in the Economics Studies program at the Brookings Institution in Washington, DC. He does research on issues connected with public finance, aging, saving, labor

markets, income distribution, social insurance, and the behavioral effects of government tax and

transfer policy. He is coauthor of Five Years After: The Long Term Effects of Welfare-to-Work

Programs (Russell Sage, 1995), Growth with Equity: Economic Policymaking for the Next Century

(Brookings, 1993), and Can America Afford to Grow Old? Paying for Social Security (1989), editor

and contributor to A Future ofLousy Jobs? The Changing Structure of U.S. Wages (1990) and Work,

Health and Income Among the Elderly (1987), and the author of numerous articles on the effects of

Social Security, welfare, unemployment insurance, and taxes. His recent research has focused on

sources of growing wage and income inequality in the United States, the influence of international trade on income inequality, the job market prospects of public aid recipients, and reform of social insurance

in developing countries and formerly Communist economics.

Before coming to Brookings in 1981, he served as an economist in the Office of the Secretary of Labor

and the U.S. Department of Health, Education, and Welfare. In 1993 he was Visiting Professor of

Public Affairs at the University of Maryland, College Park.

94
Diana MacArthur

Dynamac Corporation

Mrs. MacArthur is the Chair, Chief Executive Officer, and Co-founder of Dynamac Corporation, a firm providing integrated environmental services: environmental health and sciences consulting, natural resources management, and hazardous waste engineering. She has 35 years of experience in public

policy and program development, spanning industry, the Federal Government, nongovernmental

organizations, and academia. Previously, she was President of a Dynamac subsidiary (merged in 1980)

engaged in technology transfer, training and education, public outreach, and communications in areas of the environment, health, and safety.

Earlier in her career, Mrs. MacArthur was the manager of the prevention arm of a multimillion dollar

national clearinghouse for health information and education, operated by General Electric under a Federal Government contract. In early days of the Peace Corps, she served as Director of its Office of

Private and International Organizations. And she was Vice President and Director of the Washington

office of the Thomas J. Deegan Company, a public relations firm in the InterPublic group.

Mrs. MacArthur is active in public affairs. Currently, she serves the Federal Government in two

capacities. Appointed by President Clinton, she is a member of the President's Committee of Advisors on Science and Technology (PCAST). She is a member of the Environmental Technologies Trade

Advisory Committee of the U.S. Department of Commerce. In the past, she was a member of the

Citizens Advisory Board to the President's Council on Youth Oppormnity.

In the realm of nongovernmental organizations, Mrs. MacArthur is on the Advisory Board to the

Center for Strategic and International Studies (CSIS), where she served on the Strengthening of

America Commission and on the National Laboratories Steering Committee, a group that studied ways

to enhance cooperation between the Department of Energy national laboratories and industry to commercialize technology critical to American economic growth and competitiveness. At present, she

is a member of the CSIS Senior Policy Group on National Grand Challenges, a new project to identify

the R&D priorities for the first quarter of the 21st century. Mrs. MacArthur is a Director of the

Atlantic Council. She is also a member of the Advisory Council to the Committee for the National

Institute for the Environment, and is an associate of the North American Institute, a think tank that deals with such issues as the North American Free Trade Agreement and the establishment of a North

American Environmental Council. Since 1970, she has been a trustee of the Menninger Foundation.

In the academic arena, Mrs. MacArthur is a member of the Board of Visitors of the University of

Maryland Biotechnology Instimte and serves on the Chancellor's Advisory Council of the University of

Maryland System. In addition, she is a member of the Board of the University of Maryland

Foundation, Inc.

Mrs. MacArthur holds a B.A. in Economics from Vassar College, where she was elected to Phi Beta

Kappa. She is the recipient of the 1993 KPMG Peat Marwick High Tech Entrepreneur Award, which

honors individuals who have made significant contributions to the community and to the advancement

of the high technology industry.

95
Rita R. Colwell

President

University of Maryland

Biotechnology Institute

Birthplace: Beverly, Massachusetts

Degrees: Bachelor of Science, Bacteriology, Purdue University; Master of Science,

Genetics, Purdue University; Ph.D., Marine Microbiology, University of

Washington

Microbiologist and marine scientist, active in national and international research and teaching. Has

focused much of her research on marine biotechnology and the molecular genetics of marine and

estuarine bacteria, and on the microbiology of the Chesapeake Bay, coastal recreational waters, and the

deep ocean. Presidential appointee to the National Science Board of the United States. Professor of

Microbiology, University of Maryland at College Park, under whose leadership the University's Sea

Grant Program was designated a National Sea Grant College in 1983. Currently President of the

University of Maryland Biotechnology Institute, a major research unit/campus of the University of

Maryland system. Past President of the International Union of Microbiological Societies. Author or coauthor of 16 books and more than 450 scientific publications. Consultant to the Government,

universities and industry, and invited participant in many international symposia. Awarded Honorary

Doctor of Science by Heriot-Watt University (Edinburgh, Scotland) in 1987, by Hood College,

Maryland, in 1991 and by Purdue University in 1983, D.LLD by Notre Dame College of Maryland in 1994, and the Andrew White Medal by Loyola College in 1994. Made Honorary Professor, The

University of Queensland (Queensland, Australia), 1988. Member, Alumni Advisory Committee,

School of Science, Purdue University, 1993-1996. Chairman, Waterman Committee, National Science

Board, National Science Foundation, 1993-1994. Served as President of the Sigma Xi National Science

Honorary Society and is currently Chairman of the Board of Governors of the American Academy of

Microbiology and Chairman of the Biological Sciences Section of the American Association for the

Advancement of Science, as well as Fellow and President, AAAS; Leadership Maryland 1995.

96
Robert W. Galvin

Chairman of the Executive Committee

Motorola, Inc.

Bob Galvin started his career at Motorola in 1940. He held the senior officership position in the

company from 1959 until January 11, 1990, when he became Chairman of the Executive Committee.

He continues to serve as a full time officer of Motorola.

He attended the University of Notre Dame and the University of Chicago, and is currently a member

and was the recent chairman of the Board of Trustees of Illinois Institute of Technology.

Bob Galvin has been awarded honorary degrees and other recognitions, including election to the

National Business Hall of Fame and the presentation of the National Medal of Technology in 1991.

Motorola is the first large company-wide winner of the Malcolm Baldrige National Quality Award

presented by President Ronald Reagan at a White House ceremony in November 1988.

97
Appendix D:

List

William Archey

President

American Electronics Association

James Auerbach

Vice President

National Planning Association

Gary Bachula

Deputy Under Secretary for Technology

Department of Commerce

David J. Barram

Deputy Secretary

Department of Commerce

Wilmer R. Bottoms

Senior Vice President

Patricoff & Company

Philip Brodsky

Director, Corp. Res. & Envir. Tech.

Monsanto Company

Gary Burtless (speaker)

Senior Fellow

Brookings Instimtion

Charles F. Carter

Vice President, Technology

Association for Manufacturing Technology

Robert L. Cattoi

Technical Consultant to the Office of the

Chairman

Rockwell International

Lawrence Chimerine

Managing Director and Chief Economist

Economic Strategy Institute

Joseph F. Coates

President

Coates & Jarratt, Inc.

Attendees

Rita Colwell (speaker)

President

American Association for the Advancement of

Science

Thomas Everhart (speaker)

President

California Institute of Technology

Robert Galvin (speaker)

Chairman of the Executive Committee

Motorola, Inc.

Jacques Gansler

Executive Vice President

TASC

David Godfrey

General Manager

Manufacturing Resources, Inc.

Mary L. Good

Under Secretary for Technology

Department of Commerce

Victoria F. Haynes

Vice President, Research & Development

The BE Goodrich Company

L. Louis Hegedus

Vice President, Research Division

W.R. Grace and Company

Robert J. Hermann (speaker)

Senior Vice President, Science and Technology

United Technologies

Fred Kittler

Vice President

J. P. Morgan

Charles Larson

Executive Director

Industrial Research Institute

98
Diana MacArthur (speaker)

Chair and CEO

Dynamac Corporation

Gregory Tassey

Senior Economist

NIST

Mary McCain

Executive Vice President

American Society for Training and

Development

James Van Erden

Senior Vice President

National Alliance of Business

Graham R. Mitchell

Assistant Secretary for Technology Policy

Department of Commerce

Albert R.C. Westwood

Vice President, Research & Exploratory

Technology

Sandia National Laboratories

Bill Morin

Director, Technology Policy

National Association of Manufacturers

Lynn Williams

President (ret.) United Steelworkers of America

Van Doom Ooms

Senior Vice President, Director of Research

Committee for Economic Development

John Yochelson (co-chair)

President

Council on Competitiveness

Rudolph Oswald

Director of Research

AFL-CIO

Rusty Patterson

Industry President and CEO

Agility Forum

Gordon Pavy

Industrial Union Department

AFL-CIO

Curtis E. Plott President

American Society for Training and Development

Arati Prabhakar (co-chair)

Director

NIST

Howard Rosen

Executive Director

Competitiveness Policy Council

Robert J. Saldich

President and CEO

Raychem Corporation

99
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