Testimony of David C. Nagel, Ph.D. Vice President, Advanced Technology Apple Computer, Inc Government Affairs Office 1550 M Street, N.W., Suite 1000 Washington, D.C. 20005 (202) 872-6260 On Behalf of the Computer Systems Policy Project (CSPP) Before the Science, Technology and Space Subcommittee of the Senate Commerce, Science and Transportation Committee S.272 THE HIGH PERFORMANCE COMPUTING ACT OF 1991 March 5, 1991 Introduction Apple Computer, Inc. and the other members of the Computer Systems Policy Project (CSPP) are very appreciative for the opportunity to appear before this Subcommittee on the issue of high performance computing. As several of us have said in previous appearances before this subcommittee, the health of the U.S. computer industry is inextricably tied to the future health of the nation as a global economic power. Although the U.S. has been for decades preeminent in both the development of the most advanced computer technology in the world and in the capture of the largest share of the global computing systems market, that leadership is being steadily eroded by our global competitors. In purely economic terms, the U.S. computer systems industry plays a vital role in the U.S. economy. In 1989, for example, our industry exported more than $22B in computer equipment alone, or more than 6% of total U.S. exports that year. Our industry employs almost 600,000 workers in the U.S. When we look beyond the immediate economic picture and into the future, few would argue with the belief that the health of the computer systems industry will serve as a bellwether to the overall health and leadership of the U.S. as a global economic and industrial power. It is difficult to think of significant technical advances over the past two decades in any segment of the economy that have not relied on computer systems. The computer systems industry is clearly a building block for other industries. Computer systems products are necessary and critical components of virtually all modem manufacturing and service industries and development and operation of most of the sophisticated weapons systems in the U.S. arsenal would be impossible without computer systems and electronic components. In the fall of 1989, the eleven largest computer systems companies in the U.S. formed the Computer Systems Policy Project to address technology and trade policy from the computer systems industry perspective. As a reflection of the seriousness with which the industry views the future of computer technology in the U.S., the CSPP is an association of the Chief Executives of Apple, Hewlett- Packard, Compaq, Cray, IBM, Control Data, Digital Equipment, NCR, Sun Microsystems, Tandem and Unisys. One of the major goals in forming the CSPP was to provide the industry and policy makers in Washington, D.C. the data and perspective necessary to the development of effective, long-range policies both in the development of technology and in the improvement of our trade position globally. Each of the member companies - including the CEO's, Chief Technologists, and supporting staff - has made a significant commitment to this project over the past year and a half. CSPP began its study more than a year ago with an internal look at the health of our industry including: an assessment of the technologies that are critical to computer systems; an assessment of how the United States is doing with these technologies compared to our foreign competitors; and a prognosis for U.S. industry performance into the future. In summary, the results of this initial analysis were mixed. While the U.S. computer systems industry still today is the strongest in the world (both in terms of technology leadership and overall market share), our lead is diminishing rapidly by almost all the measures we examined. In addition, leading indicators of future health provide little cause for optimism. In 1983, U.S. companies held a 83% share of the world market of computer systems (including software). Between 1983 and 1989, our share of the worldwide market declined from 83% to 61%. During this same period, Japan's share rose from 8% to 22% and Europe's share grew from 10% to 15%. Figure 1 shows a similar decline in our share of the world market for computer hardware. Here the U.S. went from supplying well more than half of the world's supply of computer equipment to supplying less than our primary competitors, the Europeans and Japanese. More troubling, the computer systems industry went from a significantly positive contribution to the U.S. trade balance all throughout the 1980's to a position in 1990 where our imports almost exactly balance our exports (Figure 2). We note that while the U.S.ratio of exports to imports moved steadily downward over the past decade, Japan even more dramatically has increased its export/import ratio from around 2 in 1980 to more than 6 at the end of the 1980's. Finally, in the category of leading indicators, the U.S. is failing significantly in the competition for computer systems patents. Whereas in 1978, the U.S. received over 60% of all computer systems patents, by 1988 we were being granted new U.S. patents only at the rate of 40% of the total. In the aggregate, Japanese industry was awarded nearly as many patents in the U.S. as were domestic manufacturers. Figure 3 illustrates these trends. While these findings are clearly troubling, the members of CSPP recognize that the primary burden for staying competitive in the global marketplace rests squarely with U.S. industry. Thus, to begin our internal assessment, we examined our own investment levels and competitive positions in the key technologies critical to success in our highly competitive and highly technical business. We identified, for example, 16 critical pre-competitive generic technologies, and after significant analysis by the chief technologists of the CSPP, concluded that the U.S. still leads the world in half of these (data-base systems; processor architecture; human interface; visualization; operating systems; software engineering; application technology). Seven of the eight technologies for which the U.S. has a lead worldwide are software intensive. We concluded also that the U.S. lags the world in several critical technologies (displays; hard copy technology; manufacturing technology; semiconductor fabrication; electronic packaging). For the remainder (networks and communication; storage, microelectronics; fiberoptics) a once solid lead is diminishing. In contrast to the technologies for which the U.S. holds a lead, the lagging technologies are mostly capital-intensive. The chief technologists of the CSPP also concluded that the prognosis for leadership in these technologies over the next five years is that, without positive action, the U.S. position will erode further in all 16 technology areas. It is with this perspective that the CSPP began taking a closer look at what might be done to mitigate these negative trends. The CSPP supplemented its technology assessment with a review of the role of government investment in R&D in the U.S. and other countries (Figures 4 through 9) We came to some fundamental conclusions. First, the overall level of R&D spending in the U.S. at $135B in 1989 is substantial by any measure, greater than Japan and the European Community by significant margins (Fig. 5). The overall investment is split almost evenly between industry ($70B) and government ($65.8B). The computer systems industry spends 21% of private sector R&D, or about 10% of the total national investment in R&D (Fig. 6a). The investment of the computer industry in 1989 - more than $18B - is more than that of any other industrial sector and represents a 26% increase over the amount we spent in 1988, during a period when other industrial sectors were reducing their R&D spending. In contrast to the level of investment of private industry, the U.S. government only invested about 2% of its R&D portfolio in generic technologies related directly to the computer industry (Fig. 6b). If we look at the electronics industry as a whole, about 30% of private R&D was spent by the electronics industry while the government invested only 6% of its R&D budget in electronics research. In general, the ratio of private to government R&D spending seems out of proportion relative to other industrial sectors (e.g. aerospace, health care, etc.). While we found that government spending on R&D has increased significantly in absolute levels over the past 25 years, defense- related spending has consumed a greater and greater share, increasing from a historical share of 50% to a high of 70% in 1987. It has remained at about the level of two-thirds of all government R&D spending since that time (Fig. 7). By contrast, the Japanese government allocates only 4% of its R&D budget to defense research (Fig. 8). Selected European countries spend an average of 30% of their government research budgets on defense. Among our principal competitors, only the government of France spends a greater percentage of its GNP on total R&D than does the U.S. government (Fig. 9). In our initial "Critical Technologies Report", the CSPP identified R&D as one of the most significant factors in determining the success of the industry's performance in 15 of 16 critical technologies. It is therefore not surprising that the computer systems industry performs 21% of private sector R&D and 10% of the total national R&D effort. We recognize that this investment is our lifeblood. Computer industry spending on R&D has increased at a much faster rate than government spending over the last two decades, a practice that has been required to keep pace with rapidly changing commercial demands and increasing levels of international competition. How should the government and industry R&D investments be split to maximize the benefits to U.S. industry and the U.S. economy? First, investment in generic, pre-competitive technologies such as electronics, materials and information technologies is important because these are the building blocks for advancements in the computer industry. Our assessment of the existing Federal research effort reveals that the federal R&D investment is contributing disproportionately little to these generic, pre-competitive technology developments. The federal R&D budget is not focused in ways needed to enhance and preserve our economic competitiveness given the rapid pace of innovation and the R&D practices by other countries. We acknowledge that the degrees of success of the various European (ESPRIT, BRITE, EURAM) and Japanese (5th Generation Computer Project, Super-Sigma Project, an advanced telecommunications research institute, etc.) research projects are not necessarily directly related to the absolute amount of government spending. Rather, we believe that the relative success of the Japanese projects (as reflected in the competitive position of Japanese industry) illustrates the benefits of close cooperation between the private and public sectors and of well-managed, focused efforts for advanced technology projects. Moreover, while in the past, defense R&D was a major source of technological advancement in the U.S. and the computer industry in particular benefited from defense research dollars, we believe that today, because of heightened demand for improved commercial products and the accelerating pace of global competition, the private sector is now the primary catalyst for innovation. We have concluded from these analyses that while the total amount of federal R&D spending is probably adequate, it needs to be managed more effectively if the U.S. computer industry is to be made able to compete in the technology areas essential to our future economic health. In short, we believe that federal R&D is not as helpful to the computer industry as it might be. Based on the data and on the strength of our analyses, CSPP has outlined an initial set of technology policy recommendations. We believe that these recommendations provide a strategy for better focusing the federal R&D investment in pre-competitive, generic technologies and that will help the U.S. meet international competitive challenges by increasing industry involvement in federal R&D priority setting. We believe that by working together, industry and government can improve the nation's return on the total R&D investment and can help to meet the international challenges to this country's technological strength. Recommendations for Improvement We believe that the return on public and private investments in R&D can be improved by coordinating research priority setting and by allocating federal research dollars to more closely reflect the private sector's role in developing the general technologies that are key to the nation's economic growth. Increased investment in microelectronics, information technologies, and materials will provide a solid foundation for advancements not only in computer systems but also in aerospace, medical, energy, environmental and virtually every other area of research important to the future of our society. The CSPP believes that government and industry jointly must take the following first steps to improve the effectiveness of R&D spending in the U.S.: - Improve the mechanisms within OMB for reviewing federal R&D spending; - Increase industry input in setting federal R&D priorities to better manage the federal R&D budget; - Work with industry to set federal laboratory priorities to improve the return on the national R&D investment; and - Implement the High Performance Computing Initiative, including a national network capable of bringing the benefits of computing to every institution, household, and school in the nation. CSPP has established three CEO-level working groups to develop specific plans that will improve the economic return on the national R&D investment by: - Improving the industry participation in the federal R&D priority setting and the federal R&D budget review process; - Increasing the degree and effectiveness of interaction between industry and the federal laboratories; and - By implement the High Performance Computing and Communications Initiative. CSPP CEO's, chief technologists, and staff are actively working on development of plans that address these three issues. Once completed, we intend to make the results of these investigations available to policy makers, including members of this Subcommittee. Improving the R&D Budget Review Process CSPP believes that the Administration and Congress must develop a better sense of how its $76B investment is R&D is being spent. To make the distribution of funds more understandable, we urge the Congress and the Administration to develop a comprehensive summary of the federal R&D budget - budget crosscuts - including summaries of agency initiatives related to development of generic technologies. We are pleased that OMB is providing budget summaries in several key areas, including high performance computing, the subject of this bill, and is considering the development of similar information for other important research areas such as materials. We believe that by providing industry perspectives, the effectiveness and usefulness of these budget summaries can be improved. Once such summaries are available, strategies can be more easily developed with industry participation to bolster investments in needed areas or to shift priorities where necessary. This should be done on an ongoing basis. We understand that industry participation in such activities may be problematic because of ethical, regulatory, and legal impediments and have established a CEO-level working group to identify these impediments and to develop recommendations for advisory mechanisms that are consistent with legal and other requirements and that provide the greatest opportunity for industry participation. Increasing Interactions Between Industry and the National Labs The Federal government spends billions each year on R&D in federal labs, three-fifths of which goes to defense programs. CSPP believes that much of that R&D, properly focused, could be substantially more useful to the computer industry than it is today. We believe that the nation's return on the federal lab investment can be enhanced by increasing private sector input into lab activities and by shifting some labs' research priorities to include generic technologies that have commercial potential. CSPP has established a CEO-level working group to recommend ways to improve the federal laboratories' contributions to the national R&D effort, including developing funding mechanisms for joint industry-lab projects of interest to the private sector; by identifying potential and current laboratory research projects and areas that could benefit the computer industry; and by identifying research areas that lend themselves to budget crosscut analysis. The results of this analysis and recommendations will be issued later this year. Implement the High Performance Computing and Communications Initiative Finally, CSPP fully supports and recommends fully funding a national high performance computing and communication R&D program, including implementing, in conjunction with academia and the private sector, a national research and education network. Thus the CSPP strongly supports the goals of S. 272 as well as the Administration's High Performance Computing and Communications (HPCC) Initiative. We believe that these efforts are critical to provide the research infrastructure required to maintain our nation's leadership in basic research and to expand our capability to perform the applied research which leads to commercialization of technology. The CSPP believes that the IIPCC will be instrumental in achievement of national education and work force training goals, an achievement that will be important increasingly to the economic and social health of our nation. CSPP will support this effort through a long-term project to identify possible future applications of a network that will enhance the quality of life and economic competitiveness of the nation. We believe that computer and networking technology can help to solve problems and to realize opportunities in U.S. homes, factories, universities, workplaces, and classrooms. We have established a CEO working group to identify innovative network applications, the technological advances needed to accomplish them, and the best ways to describe the applications benefits to the public. We are working, as well, to acquaint ourselves with the HPCC budget crosscut and with specific agency plans for research and development. Once we complete this survey, we will examine the relevance to the computer industry of the research being conducted as part of the initiative. Later this year, CSPP will provide recommendations to improve federal spending under the initiative. Although we have not yet completed our analyses, CSPP believes that creation of the NREN is an important first step toward realization of what some have termed a national information infrastructure. This national infrastructure would in effect constitute a very high performance electronic highway that will address the needs of business, schools, and individual citizens as well as institutions of research and higher education. With 80 percent of the U.S. economy classified broadly as services-related, the potential user base of such a national infrastructure is immense. We believe that the existence of such an infrastructure would allow the U.S. service economy, including the education component, to operate significantly more efficiently than today. We imagine that users of the national information network will have access to immense digital libraries and databases and that this access will transform both education and commerce. We believe too that health care will be transformed by the existence of a national digital information network. Vast databases encompassing the basic biological sciences (molecular biology, biochemistry, genetics) and applied medical applications such as diagnostic and treatment data will be needed eventually to improve both the quality and efficiency of the U.S. health care delivery system. We recognize and applaud the pioneering role that this subcommittee and its Chairman, Senator Gore, have played in long recognizing the importance of the development of a national information infrastructure, a research and education network, and an effective high performance computing program. The achievement of a true national information infrastructure is an undertaking of very significant complexity. The interim achievement of development of an NREN will allow solutions to be developed to important technical, policy, economic, regulatory, and social problems, solutions that will point the way toward a true national information infrastructure for the nation. Specific Comments About S. 272 In Section 5 of the bill, we especially applaud the provision for a National High Performance Computing Plan and the establishment of a High-Performance Computing Advisory Panel consisting of prominent representatives from industry and academia. These provisions are in keeping with both the spirit and substance of CSPP findings to date and the CSPP stands ready to participate in such an Advisory Panel as needed. We applaud as well the Section 5 provision requiring the Panel to provide the FCCSET with an independent assessment of whether the research and development funded under the High Performance Computing Plan is helping to Maintain United States leadership in computing technology. In Section 6 of the bill, FCCSET is charged with development of the "goals, strategy, and priorities" for an NREN. While we support this provision as an important first step, we believe that some attention should be given as the program progresses to issues which surround development of a true national information infrastructure. For example, agencies could be directed to perform analyses that would identify impediments, regulatory or otherwise, toward achievement of a true national information infrastructure and conduct other studies or research that will lead to solutions to these impediments as experience is gained in the development and operation of NREN. Again, CSPP would welcome the opportunity to contribute to such analyses and otherwise support the achievement of the goals of the High Performance Computing Act of 1991. Conclusions CSPP recognizes that improving U.S. technology policy is a long- term process that cannot be addressed by any one organization, any single set of recommendations, or any given piece of legislation. Improvement of U.S. technology is, nonetheless, an essential process that will require cooperative R&D investments and the partnership of the private sector and the government. Improving U.S. technology requires a long-term commitment and a series of changes by industry and government over time. Whether as independent CEO's or as an industry, the members of the CSPP are committed to and will remain involved in this process. CSPP believes that the high performance computing and communication program will constitute an important cornerstone by improving the harvest of federal R&D investments in computing and other pre-competitive technologies and by enhancing the competitiveness of the U.S. in the increasingly competitive global economy.