THE ROLE OF PHOTONICS AND OTHER ENABLING TECHNOLOGIES IN DRIVING FUTURE ECONOMIC GROWTH
National Institute of Standards and Technology
October 23, 1997
Technology is driving growth at every level of our economy. For example, most economists now agree that three ingredients are essential to economic growth: capital, labor, and technology. Raw materials have become less significant. When we think of large modern economies, we think of the U.S., of Japan, and of Germany. Although the U.S. still has appreciable stocks of raw materials, the others do not. If we agree that three key ingredients of economic growth are capital, labor, and technology, we are forced to a sobering conclusion: All of these are highly mobile. We have no lock on economic leadership. We must continue to develop world class workers and world class technology if we hope to remain a world class economy.
Of these three components, technology is the most important. Leading economists estimate that technical progress has accounted for as much as one half of economic growth in the United States over the past 50 years. Of course, technology improves the productivity of labor. But, leading economists who have analyzed the role of technical progress in the postwar period found a greater influence on the productivity of capital. This is an area in which the U.S. has a natural advantage. Since the Second World War, the U.S. has invested heavily in its research infrastructure. Today we have world leading universities, government laboratories, and industrial laboratories. For example, just last week Bill Phillips of my institution, NIST, was one of the three awarded the Nobel prize in Physics for his pioneering work on laser cooling of atoms, work in the area of photonics that is important for future measurement science and important to physics today.
This year the Federal government is investing about $25 to $30 billion in the research that fuels this emerging technology. The funding is distributed among the National Science Foundation, the Departments of Defense and Energy, NASA, and, of course, the Department of Commerce that includes both NOAA and NIST. This is the Federal funding that provides some support to government and university research facilities. We need to protect and to find ways to expand this investment as it pays huge dividends for our economy.
We see the growth-inducing power of technology at the industry level. Our research-intensive industries--aerospace, chemicals, communications, computers, pharmaceuticals, scientific instruments, semiconductors, and software--have been growing at about twice the rate of the economy as a whole in the past two decades.
We also see technology's growth-inducing power at the level of the individual firm. A recent Commerce Department analysis shows that firms using advanced technologies are more productive and profitable, pay higher wages, and increase employment more rapidly than firms that do not. Specifically, in the study, employment at plants that used eight or more advanced technologies grew 14.4 percent more than plants that used no advanced technologies, and production workers' wages were more than 14 percent higher.
The evidence is mounting. At the macroeconomic level, the industry level, and the firm level, technology is the engine of economic growth.
In the realm of technology, so-called enabling technologies are the most important factors in this economic growth equation. Throughout this century, enabling technologies- -such as mass production, machine numerical control, and the transistor--have been powerful engines of growth. The integrated circuit is, perhaps, the defining enabling technology of the 20th century. Since its invention 40 years ago, it has enabled a whole range of new products and industries--from the computer to satellite communications--and it has had a profound impact on existing products and processes from automobiles, consumer electronics, and home appliances, to a broad range of advanced industrial systems. I would bet that, today, integrated circuits are involved as components or in the manufacture or delivery of nearly every product and service in a modern economy. The integrated circuit sowed seeds for the knowledge-based economy and the Information Age that are rapidly unfolding.
Today, we see vast opportunities in a range of new enabling technologies--advanced materials, digital imaging, high- performance computing, flexible manufacturing, biotechnology, and, of course, photonics. These technologies are improving U.S. competitiveness in world markets through new product introductions and improvements in the cost, quality, and performance of existing products. They are critical to our national defense. They are making strong contributions to health, human welfare, and the environment. And they underpin many other technologies, with strong linkages to many segments of the economy. The great economic potential these technologies hold has been recognized around the world and many nations have targeted them for development.
This last point was brought home to me very clearly during a recent visit to Japan. NTT has set itself a goal of making fiber optic communication systems available to every home, office, and factory in Japan for a price that does not exceed the cost of a copper wire connection. This decision, whether you choose to characterize it as enlightened foresight by a private company or inappropriate meddling in the market by the government, has had two effects. The first is immediate. Photonics research and development are booming. They have set a price goal, a performance goal, and a deadline and they are working mightily to develop the technology needed to meet those goals. The second and likely more important effect is that they are stimulating the development of electronic commerce. They plan to make sufficient bandwidth available that the degree of electronic commerce that we speculate about today will be possible. This infrastructure may make both new ways of doing business and new businesses possible.
Photonics. The advanced products and services driving the Information Age are enabled by photonic technologies. I remember over 30 years ago when I was in college my professors advising me to pay attention to electro-optics because AT&T had just announced its commitment to an optical fiber telephone system. Today's $60 billion global photonics market spans applications in consumer electronics and computers, communications, automotive, defense and aerospace, health care, entertainment, and industrial fields. And the market is expected to grow substantially in the years ahead. My professors were right.
The United States has been a world leader in photonics research. Yet, that excellence in the laboratory does not always get translated into broad leadership in the marketplace. Reasons include challenges presented by an enabling technology's investment and technology management dynamics. I recall that I was at a display conference in Hiroshima, Japan, several years ago. An executive from a display company was reminiscing about how they gained a dominant world share of the active matrix liquid crystal display market. He acknowledged that they began with the very rudimentary displays invented in the U.S. They believed that these devices could really be important but they needed manufacturing experience and a revenue stream to allow continuous product improvement. Their key insight was that digital watches could provide the market they needed for continuous improvement and manufacturing experience. Today they manufacture lap top displays -- a market that did not exist when they started. This story, whether true or not, underscores a couple of points about technology development.
First, it is very expensive to develop and commercialize an enabling technology. Second, an enabling technology's multiple applications can exceed the product portfolios of most firms; an individual firm may not be able to justify the costly investment in R&D based on its segment of the technology's potential market -- unless it is smart enough to make cheap watches. That means that several different applications--often in different industries--need to be developed simultaneously. For example, the development of a new optoelectronic sensor for two end uses vs. 10 or 20 end uses can make a big difference in one's ability to make over the ROI hurdle.
Third, many enabling technologies--particularly in advanced electronics--are characterized by short life cycles. To stay competitive, a company may have to fund and manage many generations of technology simultaneously: some in full scale production, some in pilot production, and some in manufacturing process design and development. This could be a company budget buster. It is also a challenge to company management to make the right technology decisions for competing technologies and product lines.
Fourth, enabling technologies are complex and multidisciplinary in nature. Bringing products and processes based upon them to market may require simultaneous advances and coordinated efforts in multiple R&D tracks, design, manufacturing, and marketing. Many scientific and technological disciplines may have to be mobilized.
In short, the cost and complexity of developing enabling technologies and bringing them to market may exceed the technical capabilities and financial resources individual firms can muster. Let me add that the money and the technical resources must come together under the increasing time pressures caused by global competition and rapid technological change. If you miss a technology change, you may never be able to regain market share. Moreover, as market share declines, the ability to muster the resources to catch up is diminished.
I don't want to paint too bleak a picture. The problems may be monstrous, but solutions do exist. We are proud to be part of such a solution today.
The characteristics of high technology businesses place a premium on cooperation between the developers of enabling technologies and potential users, particularly users in high- volume applications. The electronics industries in Japan and Korea have been particularly well structured for managing the innovation process in advanced electronics through such partnerships. And their worldwide marketshare reflects their success. In the U.S., such cooperation is developing. This Center is a focal point for cooperation where the best in the university and in industry can come together to convert technology into commerce. Cooperative Research and Development Agreements allow industry and government laboratories to address problems of common interest. And in my own agency, the Advanced Technology Program allows industry and government to co-fund the development of advanced technology expected to have wide economic benefit and cannot otherwise be funded.
The importance of photonic technologies to our increasingly digital economy and our national security demands that the United States meet the challenge of converting R&D into market success. For if we do not generate market revenues, we will lose the flow of funds needed to maintain our technical leadership -- we need to make the equivalent of digital watches that will give us 21st century leadership.
With the scale-up of the digital economy, the photonics industry stands at a critical juncture. What can we do? What can we do to foster partnerships between technology developers and users? And, what can we do to encourage investment in product development and high-volume manufacturing?
I believe the industry is taking some very good steps--for example, in the development of the Optoelectronic Technology Roadmap catalyzed by the Optoelectronics Industry Development Association. For an enabling technology, each player may see that their piece of the business has the potential for growth and profits. But their success may depend on a larger framework, a constellation of firms and institutions that must bring a spectrum of abilities to bear on a market opportunity. Roadmaps can help establish that larger framework that clarifies where individual company efforts fit in exploiting a technology or market opportunity. This reduces uncertainty which, in turn, reduces an individual company's risk. Roadmaps can also reduce duplication of effort and make more effective use of R&D dollars. I must admit that roadmaps also make NIST's planning easier, particularly for our Measurements and Standards program. The better we understand how the industry thinks that it will evolve, the better we understand what measurement capability will be required and on what time scale.
Close interaction between the developers of photonic technologies and potential users is also needed. Such cooperation helps identify markets earlier, helps drive innovation processes toward market goals, and moves products to market faster as technology developers and end users work on a concurrent basis.
There are situations where it is appropriate for government to partner with industry, especially in the development of high-risk technologies that promise significant commercial payoffs and widespread benefits. This is the role of the Commerce Department's Advanced Technology Program.
By sharing R&D costs with industry at the precompetitive stage of technology development, ATP helps advance enabling technologies that are essential to the development of new products, processes, and services across diverse application areas. Close to half of all ATP awards have involved electronics, computing, information, and communications technologies.
For example, ATP has supported many projects advancing technologies for flat panel displays and their manufacture, and for optoelectronic components and systems. Just last week, the ATP program announced a new round of awards. Among them was an award to the Physical Optics Corporation to develop an optoelectronic verification technology to reduce counterfeiting of brand name products.
Let me also mention that ATP has been very successful in catalyzing cooperation between technology developers and users, and that may be one of the program's most valuable outcomes.
The Commerce Department, also through the National Institute of Standards and Technology, works with industry to develop critical measurements and standards for optoelectronics.
Let me speak more broadly for a moment. Experience has shown us that much more than technology is needed for commercial success and technology-based economic growth. That is why Federal technology policy must address issues beyond R&D.
First, the Federal government must help create an environment in which private sector innovative can flourish. For the advanced electronics industry, this ranges from investment incentives such as the R&E tax credit, to the recent telecommunications reforms that promise to expand the markets for your products. The Administration's recently released Framework for Global Electronic Commerce, applauded by industry, carefully considers the appropriate role of government, while ensuring that industry remains in the driver's seat. It, too, sets forth principles that should spur markets for photonic products.
Of course, we must pursue the growing overseas markets for photonic products and not ignore rapidly strengthening foreign competitors in the field. We must ensure that markets for high- tech products are open and unencumbered; the cost of R&D and production facilities in high-tech industries is often prohibitive unless markets are captured globally to generate a sufficient return on those investments.
We have made substantial progress in opening markets, and in other key issues such as intellectual property protection through mechanisms such as GATT, NAFTA, and the Information Technology Agreement. Now we must work to ensure that emerging economies embrace the principles embodied in these agreements.
A modern infrastructure strongly enables innovation and growth. The United States is rapidly putting in place an infrastructure for the knowledge-based economy through efforts in both the public and private sector to develop and deploy the National Information Infrastructure.
Other key elements of our infrastructure, ones near and dear to my heart, are the measurements, standards, evaluated data, and test methods that are indispensable to a nation's industrial foundation. My organization, NIST, works closely with industry in this regard, and we are making significant efforts to ensure that we carry out our work in a way that is most supportive of U.S. industry and keeps pace with technological change.
Finally, no company in the advanced electronics business, or most businesses for that matter, is going to make it without a highly-skilled workforce. Today, our technology-driven economy is creating many high skill jobs. For example, over half the new jobs created in the last three years require higher-level skills and training beyond what a high school diploma affords. Even many factory workers require knowledge and skills beyond what one leaves high school with. They are often required to use sophisticated technology and statistics-based systems of quality control, and to assume a range of duties such as production scheduling, materials management, safety and environmental compliance, and workplace communications.
Today we meet in a building on a university campus that houses a key experiment in maintaining the U.S. competitive lead. It is designed to make the strengths of a first rate university available to developing business. And I'm sure that they would accept appropriate Federal funding and technical support. This experiment, if successful, will produce students with the technical and business skills needed to succeed in tomorrow's global market. We will be watching this program with great interest. The United States needs new effective mechanisms to remain competitive in the global markets of tomorrow.