THE ROLE OF PHOTONICS AND OTHER ENABLING TECHNOLOGIES IN DRIVING
FUTURE ECONOMIC GROWTH
Robert Hebner
Acting Director
National Institute of Standards and Technology
October 23, 1997
Boston University
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.