STATEMENT OF HON. ED ZSCHAU, U.S. REPRESENTATIVE, STATE OF CALIFORNIA

Congressman ZSCHAU. Good morning, Mr. Chairman, Senator Heinz. I appreciate the opportunity to appear before this distinguished subcommittee to talk about my views on the proper role for the Federal Government in promoting high technology and to comment specifically, on Senate bills S. 738, S. 1194, and S. 1195. I have prepared a statement that I would like to submit for the record. Also, I brought with me a statement from my colleague from Pennsylvania, Congressman Don Ritter, who serves as vice chairman of the Republican Task Force on High Technology Initiatives, which I have the privilege of chairing. I would like permission to submit both statements for the record.

Senator DANFORTH. They will be made a part of the record. Thank you.

[The prepared statements of Congressmen Zschau and Ritter follow:]

TESTIMONY OF

CONGRESSMAN ED ZSCHAU

regarding

S. 738, S.1194, S.1195, and

"Proper Government Policy to Promote High Technology"

Mr. Chairman, I appreciate the opportunity to appear before this distinguished subcommittee to present my views about proper government policy to promote high technology. This issue is particularly important to me since I represent the part of Northern California that has become known worldwide as Silicon Valley. There are more than 700 high technology companies, many of them small, start-up firms, in and around my congressional district.

On January 25, 1983 President Ronald Reagan in his State of the Union message announced that "This Administration is committed to keeping America the technological leader of the world now and into the 21st century." These were welcome words indeed to those of us who have long believed that American technological leadership is perhaps our most valuable national resource.

American Technology's Achievements and Challenges

Over that past several years, a variety of studies have documented the importance of technological innovation on our economic growth, productivity, job opportunities, and trade competitiveness. A study by the Massachusetts Institute of Technology estimated that 80 percent of the growth in GNP of the United States between 1909 and 1949 was due to technical

change. Further, a recent Brookings Institution study determined that more than one-half of the productivity increases in the United States between 1948 and 1969 were the direct result of technological innovation. In recent years, while the overall export performance of the United States has been mediocre, exports of research and development-intensive products have shown excellent growth. From 1960 to 1979, these industries increased their export surplus from $5.9 billion to $29.3 billion. During the same period, the trade balance of industries without technological bases declined from near zero to a negative $16.5 billion. It is clear that our technological leadership in the past has enabled the United States to create many new jobs to employ our growing work force.

The President's commitment to spur technology may have come just in the nick of time. Despite its importance to our economy, U.S. technological leadership has eroded in recent years. It hasn't been squandered like some other resources through overuse and waste. It's been frittered

away through neglect.

Over the past 20 years, research-and-development expenditures as a percent of GNP have declined in the United States. During the same period, our two most aggressive

With the decreasing intensity of our research efforts, it is not surprising that our leadership in technical contributions has fallen as well. In the 1950's, the United States was credited with 80 percent of the major inventions made during that period. During the 1970's, our share of major inventions dropped to 60 percent. In addition, from 1974 to 1979, the U.S. patents granted to U.S. citizens rather than to foreign inventors dropped from 88 percent to 62 percent.

Government's Alternative Approaches to High Technology Due to the outstanding performance of America's high technology industries in job creation, productivity improvements, and exports, plus the recognition that our leadership in technology is being challenged by foreign competitors, high technology has recently begun to receive considerable attention in the United States Congress. the first months of 1983, more than one hundred bills have been introduced to promote high technology.

In

It is reassuring that a resource so valuable is finally getting proper attention, but all this attention may be a mixed blessing. Some of those who have jumped on the high technology bandwagon appear to be exaggerating its capabilities for restoring our economic growth. They

suggest that high technology can create enough jobs to

replace all those that are being lost in our so-called "smokestack" industries. They argue we should redirect our resources towards technology and give up on the "tired old industries" that have formed our industrial base in the past. Although such predictions sound plausible, the numbers don't add up, at least in the short term. High technology alone cannot create enough new jobs. We must not abandon our more mature industries. Instead we must make them more competitive. High technology should play a role in refurbishing our "smokestack" industries as well as spuring economic growth by creating new ones.

In our enthusiasm to help high technology, we must also avoid the temptation of legislating direct government involvement into technology and industry development. For example, it has been suggested that we should have some sort of Technology Planning Board which would identify those technologies and industries that have the most promise and subsidize them. I believe such a scheme would be doomed to failure. Government commissions are not the best groups to distinguish between opportunities and deadends. Those decisions are difficult even for those experienced investors or managers who are on the firing line and who have much to gain or lose personally. Even the most successful venture capital investors say that they expect only one or two real successes out of every ten investments. Government planning is not the answer.