Thinking about knowledge intensive economic goods and services

From Science and Engineering Indicators Digest 2012:

D. HIGH-TECHNOLOGY MANUFACTURING
The United States, the EU, and China generate most of the value in the world’s high-technology manufacturing output. The worldwide recession changed trends in high-technology output growth around the world. U.S. growth nearly halted, and the EU, Japan, and Asia-8 experienced contraction in 2008 and 2009. Only China’s output continued to grow rapidly, albeit at a somewhat slower pace than its previous double-digit growth.
E. HIGH-TECHNOLOGY EXPORTS
Exports of high-technology manufactured goods (excluding intra-EU and China-Hong Kong trade) expanded from $761 billion in 1996 to $2.14 trillion in 2010, amid major shifts in countries’ export positions, including a 10% recession-induced drop in 2009. The 2010 recovery was 6% above 2008 peak levels. The combined China and Asia-8 exports amounted to half the world’s total, with Asia-8 exports including substantial intermediate goods trade with China and other Asian economies. The United States and EU each accounted for about 15% of world high-technology exports.

The Science and Engineering Indicators 2012 Report also includes a category for Commercial Knowledge Intensive Services, an area in which the United States appears to be doing better than in high technology manufacturing, not surprising since the U.S. economy is so service intensive.

It occurs to me that the meaning of "high" technology changes with time. Once steam engines and telegraph were high technology, perhaps 150 years ago, but no longer. When I was a young engineer 50 years ago, computers were high technology but a computer of comparable power to those of my youth, if still produced, would be a toy. Personal computers are now produced as commodities for a mass consumer market.

Of course this presents a problem for the National Science Foundation and other organizations seeking to record and present statistics describing the evolution of technology markets. It is important to use definitions that remain the same so that the data are comparable but as technology diffuses the very idea of "high technology" changes.

The introduction of computers, semiconductors, and integrated circuits has led to a massive increase in the manufacturing of information technology, and the introduction of lasers, fiber optics and satellite communications led to a massive increase in the manufacturing of communications technology. Over time there developed large consumer markets for ICT devices, while there also remains a market for high tech ICT devices such as super computers. The United States has depended on a leadership in knowledge intensive services and high technology for exports in increasingly globalized markets, and ICT exports have been an important part of that knowledge intensive production, but consumer ICT manufacturing and exports have largely moved to Asia.

The key competitive advantage for which the United States economy searches come from disruptive sources of innovations, such as those which led to the Information Revolution in the mid part of the 20th century (or steam engines and mechanical devices that led to the industrial revolution, or to electrical machinery and internal combustion engines that led to a second industrial revolution around the turn of the 20th century). Where are we to find those disruptive innovations?

Where will the next disruptive source of innovations arise? That question is important, because the answer suggests an area in which the Government should be focusing its support for fundamental research and development.

Perhaps that source is biotechnology, which should be leading to increasingly rapid rates of innovation in medical, agricultural and materials processing technologies. However, one questions whether those will be disruptive or merely incremental innovations.

Author of this graph was Wgsimon

Examining the graph of Moore's famous law on the transistor count per microprocessor (doubling every two years), one can see that the long term improvement of the technology was based on a large number of incremental innovations. It may well be that biotechnology will lead to many incremental innovations in crop cultivars, in treatments for medical problems and in industrial processes, rather than transformational innovations such as the first integrated microprocessor. Alternatively, it may lead to transformational innovations with respect to the treatment of individual diseases, but with limited economic importance if those diseases are of relatively low incidence.

Many nations are investing in fundamental research and development on nanotechnology, not only in the production of smaller and smaller semiconductor devices, but also in the production of other applications of materials produced on the nano scale. It seems likely that this is an area that will be increasingly important economically, but we will have to wait to see just how important.

My bet is that we will see disruptive technologies coming out of cognitive science and neurobiology. Some of them will be medical, allowing better diagnosis and treatment of mental diseases and problems. Some will be educational, leading to improved learning. Some may be simply improving the intellectual performance of people. Recall that the Flynn Effect has been known for many years (according to one study, U.S. average IQ scores increased by 20 points from 1932 to 1997). The products of such innovations may not be financial, but they would be hugely important. However, a smarter work force might also be a powerful element in global competition.

Will we find other disruptive social technologies derived from knowledge obtained from the social sciences? Perhaps! I would love to see political institutions work better than they are in the United States, not to mention may other countries. Perhaps those political institutions could come up with better approaches to avoiding the periodic recessions and depressions that afflict the economy. Perhaps they could lead to a society with more opportunity and less prejudice.