Japan increased its productivity by 210 per- 

 cent between 1960-71, compared to about a 39- 

 percent increase in the United States. Produc- 

 tivity gains in manufacturing over the same 

 period were 86 percent for West Germany, 81 

 percent for France, and 50 percent for the United 

 Kingdom. Of course, the United States, which 

 has already reached a high level of productivity, 

 might not be expected to sustain the same high 

 proportional gains as countries starting from a 

 lower productivity base. 



Increases in productivity can translate into 

 lower product cost, providing the productivity 

 gains offset increases in labor costs. Unit labor 

 cost (hourly labor cost divided by output per 

 man-hour) for manufactured products is shown 

 in figure o for the same five countries. It can be 

 seen that productivity gains were sufficient to 

 offset increased labor costs in the United States 

 during the 1960-66 period, but not thereafter. 

 Productivity gains in the other four countries 

 were also exceeded by increases in labor costs, 

 particularly after the mid-sixties. Even in the 

 case of Japan, the large increases in productivity 

 after the middle of the decade were not suffi- 

 cient to offset the growth in labor costs. ^ 



Technological Balance of Payments 



Nations often seek to improve their tech- 

 nological and productive position by purchasing 

 technical "know-how" (e.g., patents, tech- 

 niques, formulas, designs, franchises, and manu- 

 facturing rights) from other countries. Many 

 factors — such as R&D and economic develop- 

 ment policies, ownership and trading arrange- 

 ments, and marketing effectiveness — may in- 

 fluence the actual level and balance of tech- 

 nology transfer between nations. A persisting 

 favorable balance of payments for technical 

 "know-how," however, is an indicator of a 

 strong position in technology. 



Data on payments and receipts for technical 

 "know-how" are available for transactions 

 between multinational companies and their 

 foreign affiliates as well as between independ- 

 ent organizations. The latter data were selected 

 for use here primarily because of the greater ele- 

 ment of valuation implicit in transactions 

 between independent enterprises. It should be 



' A detailed and comprelnensive study of unit labor cost, 

 productivity, and labor compensation is presented in 

 Compelilweneis of U.S. Industries, United States Tariff Commis- 

 sion, TC Publication 473, Washington, D.C, April 1972. 



noted, however, that the omission of trans- 

 actions between corporations and their foreign 

 affiliates results in a substantial understate- 

 ment of the extent of technology transfer. In 

 addition to transactions involving financial ex- 

 changes, a considerable amount of technical 

 "know-how" is transferred informally between 

 multinational firms and their foreign affiliates. 



The technological balance of payments with 

 respect to the United States is presented in 

 figure 10. Included are U.S. receipts from the 

 sale of technical "know-how" to all countries, 

 payments by the United States to all other coun- 

 tries for such "know-how," and the resulting 

 balance of payments (receipts minus payments). 

 The United States had a strong and increasingly 

 positive balance of payments in this area 

 throughout the decade. U.S. receipts from the 

 sale of "know-how" grew exponentially while its 

 payments — which were some four to five times 

 less than receipts — rose linearly. 



The U.S. balance of payments associated with 

 a country or countries is presented in figure 11. 

 This shows that the principal increase in the U.S. 

 balance is attributable to Japan which more than 

 tripled its purchase of technical "know-how" 

 from the United States between 1966-71. 

 Purchases by the United States from Japan, on 

 the other hand, remained at a very low level 

 (only 2 to 4 percent as much as Japan's pur- 

 chases from the United States) throughout the 

 period. Western Europe (mainly the Common 

 Market countries) also contributed to the favor- 

 able U.S. balance; however, purchases by the 

 United States from Western Europe, which were 

 much greater than those from Japan, were some 

 40 percent as large as U.S. receipts from these 

 countries for technical "know-how." 



Balance of Trade 



in Technology-Intensive Products 



A nation's balance of trade depends upon 

 many factors including the relative price of its 

 products, the effectiveness of its marketing, its 

 trading arrangements with other countries, and 

 its relative position in industrial technology. The 

 technology position, in turn, is increasingly 

 dependent upon the use of R&D to improve and 

 develop new industrial products, processes, and 

 services. 



This relationship between industrial tech- 

 nology and R&D provides a basis for dividing 



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