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 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
 [phone]

 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.