Are we losing our tech advantage?

While the report has something of a Chicken Little feel to it, we side with the institute’s recommended actions as being sensible next steps in the evolution of the industry: ‘Relieve disproportionate regulatory burdens’ on telco and cable TV operations and forget about ‘manufacturing competition.’

A recent report from the Economic Strategy Institute in Washington, D.C., titled America’s Technology Future at Risk, argues that the writing is on the wall.

The telecommunications industry has been responsible for many core technology developments, including the telegraph, telephone, transistor and semiconductor, the report says, but key indicators signal we are in danger of losing the ability to come up with the next big thing.

Sign one, it says, is a trade deficit in high-tech products and services. In 1997 the United States had a trade surplus in telecom equipment of $5 billion, which had slumped into a deficit of $26 billion by 2004 “as production shifted rapidly to Asia.” That’s a bit alarmist because shifting manufacturing offshore doesn’t affect top-line sales for U.S. businesses, it just improves profitability. But it does cost domestic jobs.

The second indicator is broadband deployment. The report says the United States led in broadband as recently as 2000, but we have since fallen to 16th, with only 11 out of 100 inhabitants subscribing to broadband services. South Korea leads the list, with 25 out of 100.

This argument isn’t very compelling since no country has reached a broadband critical mass. The risk, of course, is that commerce won’t emerge to capitalize on the infrastructure until the infrastructure is there. The United States is gambling on the market, hobbled as it is by regulation, to perform that balancing act, whereas other countries are trying to get a jump by actively encouraging broadband deployment.

The same thing is happening with 3G cell networks, the report argues. Here again, we’ve let the market decide.

The final indicator of our impending doom is trends in R&D spending. The report mistakenly views the R&D boom/bust cycle around the dot-com bubble as being historically relevant, but it does make a troubling point about total R&D spending as a percentage of GDP.

“While the U.S. spends far more on R&D than any other country in absolute dollar amounts, its spending as a percentage of GDP is only 2.7%, well below the 3% level at which it stood in 1960. It is also below the current 3% to 4% spent by Japan, Korea, Sweden, Finland and Singapore.”

While the report has something of a Chicken Little feel to it, we side with the institute’s recommended actions as being sensible next steps in the evolution of the industry: “Relieve disproportionate regulatory burdens” on telco and cable TV operations and forget about “manufacturing competition.” And rethink the FCC’s role “to be more that of a developmental agency” focused on maximizing “deployment of broadband access and the adoption of other advanced communications technology.”

If it takes a little chicken to get us there, so be it.