Don't snub the President's science adviser
WHEN George Bush moves into the Oval Office in late January, he will find that Ronald Reagan has left him a $130 billion trade deficit and stagnating US exports. The new chief executive will dutifully summon the Treasury secretary, the commerce secretary, and the US trade representative to devise a plan of action. But if precedent holds, the President's science adviser will not be invited.
With the United States and the world in the midst of the most important technological revolution since the 18th century, pigeonholing the science adviser would be a grievous error. For, in the years ahead, it will be science and technology policy, not monetary and fiscal policy, that is likely to have the greatest influence on the long-term health of the American economy and the international competitiveness of American industry. The next president will disregard these developments at the economy's risk.
In the late 1980s, technological innovation in manufacturing has shifted into overdrive. Computers are being married to multipurpose machine tools and robots. These technologies permit large production runs made up of small numbers of separate products - so-called flexible manufacturing.
A failure to appreciate the policy implications of this technology led the Reagan administration to badly underestimate the ability of the Japanese economy to adapt to the recent rapid appreciation of the yen. As the yen halved in value, Japanese companies outspent US companies 2 to 1 in automation, cutting their production costs even faster than the slumping dollar. As a result, while the dollar was worth 127 yen in late October, Matsushita Electric Company (which owns the Panasonic label) estimates it can operate profitably anywhere above 57 yen to the dollar; Hitachi Ltd. says its break-even point is 93 yen to the dollar; NEC Corporation's is 110.
Since no one has ever suggested allowing the dollar to slide to those lows, in the future flexible techniques may limit the effectiveness of exchange-rate changes in redressing trade imbalances.
In the years ahead, flexible manufacturing may also bestow similar trade benefits on the US. In the early 1990s, for example, component fabrication in electronics manufacturing, which is 25 percent automated today, is expected to be 80 percent automated. At that level of automation, there will be little need for US electronics manufacturers to seek out low-cost overseas labor. And much of their production may return to the US to reduce transportation costs and management problems. Protectionist policies formulated today, with no vision of how manufacturing technology could reverse trade flows in the future, could well limit future US export potential.
To avert such problems, the next president must integrate new developments in science and technology into the making of economic policy. To date, only 11 percent of machine tools used in American manufacturing are computer controlled, while more than 40 percent of Japanese machine tools are automated. To close that gap, Commerce Department efforts to encourage manufacturers to adopt advanced manufacturing processes should be beefed up.
The now extinct investment tax credit, which stimulated an estimated $80 billion in automation investments, should be resurrected, and, in the interest of revenue saving, targeted solely on investments to enhance productivity.
Reform of accounting procedures, antitrust regulations, and so forth would encourage investment in new technologies and cooperation among those who develop and use new manufacturing techniques.
In the future, politically inevitable protection for key industries such as autos, steel, and textiles should have a price - adjustment through adoption of advanced manufacturing technologies.
Beyond specific policies, the president will also need to project a vision in all that he does that reflects an understanding that the future will not be like the past.
This may be the toughest challenge of all, both politically and bureaucratically. Policymaking is easiest when there are few discontinuities with what went before. And few leaders have gone wrong basing their policies and betting their political futures on traditional thinking.
Unless, of course, they were the political leaders of the mid-18th century, many of whom cast their fate with agriculture rather than the newfangled spinning looms and steam engines. They might advise including that science adviser in economic policy meetings.