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U.S.: Is Country Losing Competitive Edge In Technology Industry?

Washington, 25 February 2005 (RFE/RL) -- For years, the United States has led the world's technology industry, in part because of its sheer size and its culture of innovation and entrepreneurial spirit. But that dominance is waning, according to a report by the Washington-based American Electronics Association (AEA), a nationwide trade association for the technology industry.

Matthew Kazmierczak, the author of the AEA report, says that within the past 15 years, nearly half of the world has entered a free-market system or is at least undertaking free-market reforms.

Kazmierczak said this is both good news and bad news for the United States. It presents new markets and other commercial opportunities for American and other Western companies. But it also means new competitors.

According to Kazmierczak, AEA research found that the U.S. government is slow to recognize that these new market economies are using the American business model: that wealth creation and job creation is built on technological innovations.

The AEA report also says the U.S. government is lax in protecting its intellectual property, particularly from China. It cites estimates that in 2003, 92 percent of the software in China is pirated, at a cost to the industry of $3.8 billion.

Kazmierczak concedes there is little that Washington can do to change China's behavior. But what will certainly work, he said, is the theft of the intellectual property that China is certain to develop in the coming years.

"I believe this is already happening to some degree. I mean, there are Chinese companies that are making new innovations, they are putting money into new research, and when [the value of the research's results] actually hits home to them, that's when I.P. [intellectual-property] protection becomes a much stronger reality," Kazmierczak said.

The report proposes a variety of remedies. They include improving the technical education of American students, easing immigration restrictions to attract skilled workers, increased government funding of research and development, and convoking a national summit of businesspeople, educators, workers, and government policymakers to discuss ways the United States can rekindle the country's competitive spirit.

Of these, Kazmierczak said improved education is by far the most important because the people at the heart of the technology industry are its intellectual capital.

"Without a domestic workforce that has the skills needed to get the job done, you then have to import high-skilled workers, you may force jobs to go abroad. Education feeds into everything. It feeds into the workforce, it feeds into the skill sets that the workforce has, it feeds into the research and development that are done at universities, it feeds into the ideas which then allow companies to come up with the products," Kazmierczak said.

James Gattuso agrees that the United States faces competitive challenges, particularly in Asia, but he questions some of the solutions proposed by the AEA. Gattuso served as an economic adviser to Vice President Dan Quayle a decade ago and now is a research fellow at the Heritage Foundation, a Washington think tank.

In particular, Gattuso takes issue with the AEA's contention that federal funding of research and development has declined since 1989. "You have to take those numbers with not just a grain of salt, but huge rocks of salt," he said. "You can cut and slice the research-and-development funding a lot of different ways. Overall, the figures I've seen are that science funding and research funding has gone up substantially in recent years."

Besides, Gattuso said, competitiveness and entrepreneurship are not nourished with government money, but with a government that frees businesses from impediments such as taxes and regulations. To do so not only would save money for industry, he said, but it also would stimulate innovation.

Although Gattuso disagrees with some of the AEA's proposed remedies, he agrees with much of the organization's conclusions about the competitive challenges the United States faces. Specifically, he cites the rise of China and India as true rivals to Western industrial nations.

But Gattuso also wonders how effectively China can compete in the long run. "Chinese culture historically has been very entrepreneurial, and Chinese people have been probably among the most entrepreneurial of any in history," he said. "But you have a culture that's inclined to entrepreneurialism that in mainland China has been constrained by political factors. The big question is whether those political factors will change. If they do, then the U.S. has a very serious competitor on its hands."

Similarly, Gattuso said, the U.S. government could end up being just as restrictive as China is now if it decides to maintain what he called stifling regulations and taxes on American entrepreneurs.