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What led to the change of heart was the speed with which some of America's most vaunted industries -- computers, semiconductors and commercial aircraft -- have lost domestic and worldwide market share to Japanese and European rivals. America's technological edge -- its insurance policy against economic decline -- has been narrowing. Flush with cash, Japan has outspent the U.S. on investment and research, devoting nearly 3% of economic spending to nondefense research, while American R. and D. spending remained under 2%. Four Japanese companies -- Hitachi, Toshiba, Canon and Fuji -- each captured more American patents in 1989 than any single U.S. firm. Predicts William Archey, senior vice president for policy at the U.S. Chamber of Commerce: "We haven't even begun to see the products of that investment."
In the fiscal-1992 budget he submitted last February, Bush boosted spending for basic research 13%, but most federal R. and D. dollars still go into weapons development, which yields few mass-market spin-offs. In the past year, the warnings about that imbalance have grown starker. As the Office of Technology Assessment stated in a blunt report in October, "If there are no major changes in government policies of developed nations, we expect U.S. manufacturing competitiveness to continue to sink, compared with Japan."
Nor is Japan the only contender. Last month McDonnell Douglas agreed to sell 40% of its commercial-jet manufacturing operations to a company owned partly by the government of Taiwan. In doing so, McDonnell Douglas cited competition from Airbus, the subsidized European aircraft consortium. Once it's rolling, the deal could cloud one of the few bright spots in America's economic picture: the $16 billion trade surplus in commercial aircraft. "It's a classic example of what's wrong," said New Mexico's Democratic Senator Jeff Bingaman. "Much of the technology that McDonnell Douglas is selling was developed with American taxpayer dollars. Our government won't support the company, so it has to look to the government of Taiwan."
Bingaman and others on Capitol Hill have urged the White House to identify critical technologies and invest prudently in each one. The problem for the Administration has been how to change tack without appearing to double back on the Reaganaut course. After repeated nudges from his friends in business, Bush groped his way toward a middle-ground policy in which the government would join with private industry to help "precompetitive, generic technology." By restricting federal financing to investment in broad technologies in the early stages of development, rather than products ready for commercial exploitation, the White House insists that it can refrain from "picking winners and losers" among specific companies.
At a largely unnoticed South Lawn ceremony in October, Bush quietly welcomed industrial policy back to the White House. Flanked by representatives from Detroit's Big Three automakers, the nation's electrical utilities and officials from the Energy Department, Bush signed an agreement committing the government to a three-year, $260 million collaborative search for a small, lightweight battery to power electric cars. Calling the consortium "an idea whose time has come," Bush added, "Electric vehicles represent the next technology milestone in the auto industry, and we intend to beat our competitors to that milestone."