The entrance to the headquarters of Sema-tech, the research consortium of chip manufacturers based in Austin, Tex., exudes a remotely military air. Vehicles entering the area must stop at a security gate, and once inside the main structure visitors must attach ID tags to their lapel while awaiting an escort to the building's inner sanctums. Such precautions reflect the seriousness of an enterprise touted as essential to the nation's security; it is chips, after all, that power the information economy.  Incorporated in 1987 as a U.S. experiment in industrial policy, the venture was conceived to help stem semiconductor makers' precipitous loss of market share to the Japanese. The plan was to pool the industry's resources to refine the complex chip-manufacturing processes-an area of traditional American weakness. A clear bid to save a declining industry, the notion seemed radical partly because it arose amid the free-market rhetoric of the Reagan administration-and especially because it called for matching funds from the federal government. But the idea gained high ground when a report from the Department of Defense outlined an alarming future of relying on foreign sources for the brains of its high-tech weapons. President Reagan signed the bill authorizing $100 million in annual funding for Sematech that year.

Nearly a decade later, many have judged the experiment a success: the U.S. semiconductor industry now holds a slightly larger share than its Japanese rivals and, more importantly, is seen as a long-term world-class player. While even Sematech boosters do not claim the consortium deserves full credit for this turnaround, observers such as Michael Borrus, codirector of the University of California's Berkeley Roundtable on the International Economy, say it has clearly played a role by "convincing traditional rivals to cooperate." The industry's change in fortune recently prompted Sematech members to decline further federal funding.