HOW TO REVIVE U.S. HIGH TECH Can anything be done about America's slipping technological lead? You bet, says Simon Ramo, the scientist-turned-entrepreneur who founded two FORTUNE 500 companies.
By Simon Ramo Excerpted from The Business of Science, copyright (c) 1988 by Simon Ramo, to be published by Farrar Straus & Giroux/Hill & Wang.

(FORTUNE Magazine) – Simon Ramo -- the Ramo in Bunker-Ramo, a computer venture, and the ''R'' in TRW, the giant defense electronics company -- has advised Presidents and served on the boards of corporations and universities. Throughout a long and productive career that began in 1936 at General Electric, Ramo, who will be 75 in May, has followed closely the development of American technology and of the industries that depend on it. From that perspective, he concludes that the U.S. is losing the clear technological lead it enjoyed two decades ago and therefore faces an uncertain future. In the second of two excerpts from his book The Business of Science: Winning and Losing in the High-Tech Age, to be published in June, Ramo considers why the U.S. position in technology has weakened and suggests how a new emphasis on entrepreneurship -- a quality that the Japanese, for example, value less than Americans do -- could help strengthen it.

IN THE DECADES JUST AHEAD, we will probably win more medals in the world technology Olympics than any other country. That is because we have the fortunate combination of a strong economy, a broadly developed infrastructure, and considerable natural resources. The competition to consider, however, is not from any single nation but from the totality of them. It seems safe to predict that America will have a decreasing fraction of the world's engineers and that other nations on average will back up their engineers with resources comparable with those we can make available. By the year 2000 four out of five technological breakthroughs are likely to originate outside the U.S. The challenge may be not how to keep our leading technology from other countries, but how to acquire theirs. How could this have happened? How could the U.S. have changed so quickly from being preeminent in technology to being a country with diminished future prospects? Is our system, from goal setting to implementation, which has never been perfect, no longer suited to the nature of an ever more technological society? Does free enterprise lack strength or applicability? Could the government do more to improve the competitive position of the U.S.? Are Americans so poorly informed that they fail to demand changes they should realize are needed? There is plenty of blame to go around. Parents? The parents of American schoolchildren have spent billions on computer games (useful, aside from entertainment, only for developing quick eye-hand coordination, not for learning either mathematics or computer science), but they have steadily voted down taxes to provide more funds to pay math and science teachers. The federal government? In 1981 the Reagan Administration suggested that the Department of Education should be abolished. Industry? In the 1980s, the largest American technological corporations conspicuously lowered their interest in striving for major breakthroughs through high-risk research and development projects. Instead, they spent to acquire nontechnological operations such as financial services companies. The free market should automatically correct some of our shortcomings, given time, and nothing could be easier than to let that happen. If America has too few math teachers or too few computer scientists, then salaries will rise in those fields. The news of these opportunities will get around, and young people and their parents will sacrifice to prepare to fill the openings. Technological corporations, finding they are losing out to foreign competitors, will eventually cut dividends and increase R&D budgets in order to improve their products and manufacturing technology and win back the markets they have lost. If there are too few college graduates in the most important fields, industry will ultimately find ways to help the universities produce more of them. By themselves, however, these forces will be utterly inadequate. The free market may produce more computer scientists in a decade, but five decades may pass before the market persuades us to pay high school math teachers enough to ensure an adequate supply. In our country the citizens have to perceive the seriousness of an important problem before the government will take action. For strong public pressure to form, the situation must become so bad that it is widely seen as intolerable. Hence, the pragmatic American formula for progress is that things have to get much worse before they can get better. Facetious as it may sound, we can be optimistic about our eventual success leading to a superior technological society, because things are now deteriorating so rapidly. Take education in math as one example. Our inferiority in the teaching of math to our youngsters has finally started to hit the front pages. The problem has become that bad. Parents are learning for the first time from newspaper headlines that, in standard (identical) exams given to children in most non-Communist nations, U.S. elementary and high school students scored among the lowest of the industrialized nations. These astounding results are not merely news reports. They are the subject of serious editorial commentary. While the media were parading these results, I found occasion, as a member of the governing board of the National Science Foundation, to bring up the subject frequently with Senators and Representatives in Washington. They, too, were becoming aware of our outrageously low math scores and were amazed that this could have happened without our noticing and taking action. They pledged to look favorably on appropriate federal government activity designed to change the situation. This new congressional attitude, and the growing public appreciation of the problem on which that attitude is based, has enabled the National Science Foundation to get Administration approval for innovative programs in primary and secondary education. Congressional funding has begun to follow. New programs costing tens of millions of dollars per year are now slated to rise to the $100 million level. Things have become so unacceptable that we are finally moving. Industry is awakening as well. For example, David Packard, chairman of Hewlett-Packard, has led White House-sponsored studies of shortcomings in our university education. Those studies have influenced the projects and budgets of the National Science Foundation, leading to joint government-industry programs to substantially improve facilities and equipment used in undergraduate education. How can the United States prosper as future success becomes ever more dependent on technological superiority? How can we win in a world in which so many nations are competing on a highly sophisticated level? Assuming that we preserve our national security, how do we also preserve, and preferably enhance, our standard of living? As a nation, we can't raise our average personal income by shifting a constant total of assets around among our own people. Nor can we count on discovering huge deposits of gold, oil, or diamonds on our land. The sure way for the U.S. to raise its living standards is to excel in technology. Technology can be applied to increase the resources of a nation, to generate wealth that would not exist if the technology were not employed. TECHNOLOGY IS A TOOL that can multiply the effectiveness and hence the worth of time and work. Technology makes it possible to manufacture for our needs with less effort and less dissipation of valuable natural resources. (A pound of glass fiber-optic cable, made mainly of sand, can carry as much information as a ton of copper. A $10 computer chip, its raw materials constituting about 1% of its cost, can make calculations in a few minutes that would require thousands of hours of effort by a human calculator.) Technological breakthroughs can lead to substitutes for resources that are in diminishing supply and to novel products that merit the investment required to develop them. Is there a natural strategy for the United States to achieve technological superiority? I am certain there is. It is to foster technological entrepreneurship. We produce business entrepreneurs at an enormous rate, but only a small fraction are involved with technology. Yet technological entrepreneuring has been the main force behind our industrial development from the beginning. It is not today at its full potential. We can and should magnify it. In Japan, it is rare for an entrepreneurial team to set out to raise venture capital backing to establish a fresh technological corporation. Americans, on the other hand, often leave established organizations to form new companies. Anyone in Japan who quits to start a new company is considered an eccentric, not a hero. The American culture, in contrast, admires such an achievement. ''Japan Inc.,'' a term used by Americans to sum up the Japanese nation's highly integrated planning and the Japanese people's deep feeling for their national interest, does not include the concept of entrepreneurship. The occasional Japanese entrepreneur succeeds not because of encouragement from the system, but despite opposition. Soichiro Honda, for example, built his automobile company even as the government-business establishment, so he told me several times, put severe pressure on him not to; he was virtually directed to stick to motorcycles. Our answer to aggressive competition from Japan or other nations should be to foster entrepreneurship. But what about our existing large technological corporations, which employ most of the engineers in America and produce most of the goods that the nation needs and that can be sold overseas? What is their role in our economic growth and in competitive international trade? Simply put, they will continue to be the core of our technological strength, and we must do nothing to impair their health. Those companies are the result of the entrepreneurship that launched them decades ago. Today's successful new companies will become mature major industrial units in the future. But even if present large companies contribute as much as we can possibly expect them to, that will not guarantee U.S. technological superiority, because certain inherent characteristics of big companies that account for their success also cause them to leave gaps, miss breakthroughs, and move too slowly. A steady, high birthrate of new technological entities is mandatory if the U.S. is to enjoy a competitive edge. America's large technological companies have the capacity to carry on enough R&D to improve and replace their products, diversify to add scope and to maximize return on investment, handle giant projects, and employ enough experts to manufacture and market globally. But these strengths are not enough to guarantee our nation first place in international technology, because they are not unique to America. They are matched by the mammoth technological companies of Japan and Western Europe that are consistently aided by their governments, while the U.S. government helps only occasionally and sometimes hinders. Furthermore, for every strength of a large company, there is a weakness. The negatives of big organizations, I am convinced, are natural, hence extremely difficult to counter. It is harder to spur and exploit high creativity in an old and large organization than in a new, small one. A long-established unit almost certainly will have developed a substantial bureaucracy, and bureaucracy is the natural enemy of creativity. Sometimes a big company, seeking to relieve its best innovators of the burdens of the company's own red tape, will set up a team outside its regular bureaucracy and allow it to innovate in isolation. But this does not make the activity entrepreneurial. It also does not always make it successful. An entrepreneur is one who takes full responsibility for an effort, standing to gain greatly if it succeeds or be penalized severely, financially and otherwise, if it fails. A recent study showed that in the last two decades almost every large technological corporation has tried setting up small startups outside its organizational control system -- and almost all failed. As large corporations become giants, their managements often miss critical trends and technological breakthroughs. General Electric did not notice the beginning of the computer revolution, the most significant electrical- equipment development in the second half of our century. Its efforts to catch up were misguided, and they collapsed. IBM, today the world's foremost computer company, was not even in the electrical business when evidence first began to surface that electronic computers had become practical. Especially astonishing is that every one of IBM's present U.S. competitors in computers was nonexistent or would not have been categorized as an electrical company in the first half of the century. ALMOST THE SAME story applies to semiconductors, the basic building blocks for the computer revolution. Semiconductor products (such as the transistor and, more recently, the extremely large-scale integrated circuit on a chip) now are being produced by many companies. With the exception of AT&T, in whose Bell Laboratories the transistor was invented, all of today's major U.S. semiconductor producers were not yet in business or were not players in the electrical arena when the semiconductor era began. Regulatory restriction made it necessary for AT&T to offer its semiconductor technology to everyone for a modest license fee. This helped many new companies spring up, some of them headed by leading researchers who left Bell Laboratories to become entrepreneurs. There are occasional exceptions, large technological corporations that have not missed opportunities in their fields, that have steadily shunned unrelated diversifications and acquisitions. Such companies -- Hewlett-Packard, Boeing, Digital Equipment Corp., and TRW are examples -- have consistently maintained high research and development budgets and applied their positive cash flow to develop new products and extend their activities within their fields of expertise. (If my including TRW appears self-serving, let it be noted that it is only in the past decade that TRW reached the size when its leadership might have been expected to follow the usual pattern of becoming an investment manager while simultaneously losing technological superiority. This was after the retirement of those of us who had originally assembled TRW and set its initial objectives and mode of operation. Credit accordingly belongs to TRW's present leadership.) Granted that entrepreneurship and the advance of technology are natural partners, what are the mechanisms for success? It is not enough to foster R&D and sit back, expecting technological breakthroughs and new companies to exploit them. We must help entrepreneurs find sources of capital. However, the anticipated returns on the investments must be competitive with other ways in which the capital might be employed. In technological entrepreneuring, there are an infinite number of ways to lose. Fortunately, it is also possible to win. Most often, failure is due not + to one shortcoming but to a combination. For instance, the product on which the fledgling company is based may have a fatal flaw. It may work but fail to fill any real market demand. Building a better mousetrap will not cause the world to beat a path to your door if there are no mice in the area, or the existing mousetrap is satisfactory and much cheaper, or your sensational trap requires bait which is unavailable. A new product may be excellent in all respects, but a competitor may come up with an even better one. Some new companies fail because their founders assume, incorrectly, that a sure way to arrive at success is to ride this train of connected events: First, unearth a new scientific phenomenon; second, develop novel technology incorporating the new science; third, design a product based on the new technology that will meet a market need that will become apparent. This scenario is often referred to as science or technology push. While building a technologically oriented business sometimes works this way, market pull is a much better bet in laying plans for a new company. There the starting impetus is a need, a market that awaits the entrepreneur who, ahead of others, sees both the market opening and how new technology can meet it. The true essentials for success in launching and operating a new high- technology company are common sense and imagination. Common sense will tell you that you had better do something different from the competition and do it well. The product or the technique for manufacturing or marketing it -- one or two or all three of these -- must entail novel elements. That requires imagination. Every year, numerous textbooks and articles are published that offer formulas for success in technological entrepreneuring. Most I find to be one- third obvious, one-third motherhood, and one-third unproven theories concocted by people who write well but have never started or managed a successful company. They are largely unnecessary for a team that joins originality with practical realism. In the course of several decades spent in forming and operating high- technology ventures, I have been involved personally with many startups. I have observed overly optimistic, inexperienced enthusiasts and wise, skeptical owls, the first group proposing and the second rejecting new business plans. I have seen many successes and as many failures and have participated in both bonanzas and busts. Unfortunately, many proposals are extremely difficult to classify as good or bad. The newer the technology, the more exciting may be the possibilities, yet the harder it may be to obtain useful market information. IF I WERE TO AWAKEN tomorrow morning and discover myself to be far younger than when I went to bed, I would find numerous frontiers of high technology irresistible for another entrepreneurial adventure. Two fields, information technology (computer communications) and biotechnology (microbiology and genetic engineering), probably will lead the list of technology advances likely to stimulate great industrial expansion in the coming decades. What if a significant mating of these two frontier technologies were to occur -- biocomputers? Why should we expect biocomputers to be enormously important? Note first that we have learned how to pack millions of semiconductor devices (similar in function to the neurons of the human brain) on a single silicon chip of fingernail size. These solid, metallic chips have made possible very cheap, reliable, small computers that can multiply two numbers in a billionth of a second, put thousands of names in alphabetical order with ease, switch connections a million times a second, and perform innumerable information processing tasks beyond the capability of Homo sapiens. The human brain, the compact information handling machine -- so uncompetitive with semiconductor chips for some information processing jobs -- is superior to any computer so far built or presently designable for intellectual functions like creative thought, visual pattern recognition, and associative memory. One probable explanation for the difference is this: Each neuronlike device on a semiconductor chip has at most a few connections to adjacent devices. In contrast, the ten billion neurons of the brain are generously interconnected; hundreds and often thousands of connections run from a typical neuron to distant as well as nearby neurons. The interconnections among the brain's neurons doubtless provide the basis for the remarkable thought processes of the brain, which the man-made chips, despite their enormous switching and computing speed, cannot equal. Meanwhile, frontier research in biology and chemistry is giving us the capability to produce complex molecules, both animate and inanimate, that are different from any that appear in nature. It is becoming possible to engineer matter to order at a molecular level. This will create a degree of microminiaturization in design that reaches far smaller dimensions than the , elements of even the densest, very large-scale integrated circuits on a semiconductor chip. The existence of the human brain proves that if the right biochemical molecules are formed with the right connections among them, the combination can provide the memory, logic, sorting, inferring, recognition, association, invention, learning, and other intellectual capabilities that our brains possess. Hence, some future computers will quite possibly be biochemical. When we attain the ability to create complex biochemical molecules interlinked in a pattern of our choosing, we will have opened up the potential of engineering a synthetic brain that might combine the best properties of the human brain with those of the largest, fastest semiconductor digital computer. The field is not properly labeled artificial intelligence, but rather superintelligence. LET US SHIFT AND EXAMINE a factor in world technology competition critical to the U.S.: manufacturing productivity. Against Japan quite generally, and in specific manufacturing fields in Germany and elsewhere, the U.S. is firmly entrenched in second or third place in manufacturing technology. This applies, for example, in two frontier fields, robotics and computer-controlled production. Our standard of living will go down if other countries win all the manufacturing technology races. We will not maintain our economic strength, even if we lead in scientific discoveries, if our business and citizenry are occupied mainly with selling each other insurance or shares of stock, taking in each other's laundry, suing each other, or repairing each other's foreign- made autos and appliances. We must bring advances in technology onto the factory floor. The manufacturing technology field, I believe, can be particularly responsive to American entrepreneurship. Automation, whether handling production-scheduling information or the processing and movement of materials, requires a detailed understanding of the product, the process of manufacture, and the human components -- the workers -- involved. Quality control in manufacturing is attained both by designing for quality in the first place and by providing economical yet meticulous factory testing and inspection, much of it performed automatically by devices rather than people. To design and combine skillfully all the elements of a truly modern production activity is a challenging engineering task. Much analysis and invention is needed. The engineers employed by manufacturers to develop superior production technology ( will hold the keys to victory in our nation's bid to close the gap and excel again over other nations in manufacturing. If controls, measurement devices, computers, fabrication machinery, and other hardware and software are worked out for one factory, they are generally useful elsewhere. Companies that improve their manufacturing skills are essentially uninterested, however, in providing their systems to others. If some of the engineers responsible for the advances possess the entrepreneurial spirit and put together a proper team, they will be able to obtain financial backing to start new corporations whose mission will be to offer production technology to a wide range of customers. If we do alter America's pattern of decision-making, improve the way we determine priorities and goals, build the stature of our technology, probe the scientific frontiers aggressively, put the results to work quickly and efficiently, and even achieve world preeminence again in science and technology, will that solve all our problems? Unfortunately, the answer is no. THE BUSINESS OF SCIENCE and technology is to discover the secrets of the universe and apply scientific and engineering skill to yield us security, prosperity, and health. Yet science and technology can never be more than tools. Poverty, disease, starvation, crime, overpopulation, ignorance, wars, and impairment of the environment cannot be cured by science and technology alone. That requires parallel social advance. The world's most serious unresolved issues are not science-technology ones; they are social, economic, and political. But those issues intersect, and science and technology are right plunk in the middle of every intersection -- sometimes causing or exacerbating the problems, often offering possibilities for solution, and frequently providing opportunities that, if grasped, would enable civilization to rise to new, higher levels of achievement, satisfaction, and tranquillity. Whatever we ultimately are able to do to elevate the society will occur earlier and with greater success if our scientific and technological tools are many, sharp, versatile, and effective. Wise application of those tools should offer us a life that is steadily better as we progress, more slowly than we would like, toward one that is best.