The last time a government spent billions of taxpayer dollars to pick a winning new high-tech industry, Japan produced a dog--analog HDTV. The Clinton Administration is now proposing to start a sui generis flat-panel-display industry in America, and the temptation is to damn its efforts as well.

That would be a mistake. There are compelling reasons to back this particular initiative in industrial policy--as long as Congress refrains from turning high tech into local pork.

The Pentagon makes a good case for itself in proposing to spend nearly $600 million over the next five years to encourage U.S. companies to build flat-screen factories. The cold war may be over, but the world is still a dangerous place, and the U.S. armed forces need the most advanced equipment. That means thousands of flat screens for fighter cockpits, command-and-control centers, and, increasingly, field weapons.

The Pentagon claims that Japanese companies, which dominate the $5 billion industry, have shown no interest in doing specialized, small-batch runs of screens for the Defense Dept. So the Pentagon either has to build extremely expensive plants to make the flat panels itself or help create a commercially viable American industry. The generals figure that it's cheaper to provide financial incentives to such companies as IBM, Xerox, Motorola, and AT&t, and they're probably right.

Instead of taking the disastrous Synfuels route and building its own factories, this time Defense is offering a modest amount of research and development money over many years to companies that commit to putting up flat-screen-production facilities. Companies or consortiums that win a competition would receive research grants amounting to about 30% of the cost of the factory. While the Defense Dept. will guarantee a small level of demand, the private companies will have to compete against the Japanese in global markets. Over the next decade, the flat-panel display market is expected to explode to $20 billion worldwide.

The Clinton Administration is making big efforts to spend more of the government's $70 billion R&d budget on commercially viable technologies. It is correct in its general approach--sprinkling small amounts of money over many promising precompetitive technologies. The flat-screen initiative goes further in encouraging actual manufacturing and barely skirts serious violation of international trade law. But the Pentagon has no choice, and it has structured its incentives to private industry wisely.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE