Will Uncle Sam Be Dragged Kicking And Screaming Into The Lab?

The debate in Congress was fierce. Many lawmakers wanted the government to take its meddlesome fingers out of the nation's business. "To leave industry to itself is the soundest as well as the simplest policy," one argued. But it's unrealistic, countered the Treasury Secretary. Since other nations are supporting their key industries, he insisted, the U. S. can't depend on the free market's invisible hand. "The public purse must supply the deficiency of private resource," he wrote. "In what can it be more useful than in promoting and improving the efforts of industry?"

The more things change . . . . Two hundred years after Treasury Secretary Alexander Hamilton helped set America on its path to greatness, the nation is still embroiled in a battle over government's proper role in nurturing the country's industrial might. In one corner is the Bush Administration, led by White House Chief of Staff John H. Sununu, arguing that the market should decide everything, from the survival of specific industries to winners and losers among technologies.

SETTING SUN. Across the ring is a group of lawmakers, technopundits, and high-tech chief executives. Unless Uncle Sam invests more in the technologies of the future, they warn, America's decline is as inevitable as the sunset. "While the White House is debating ideology, other countries are eating our lunch," fumes Senator Jeff Bingaman (D-N. M.).

In fact, industry after U. S. industry, from autos to semiconductors, is being beaten in world markets. And now, according to the industry-funded Council on Competitiveness, among others, there's sobering evidence of a decline in U. S. living standards. Even the Bush Administration admits to worry over the future. "By the best measure of competitiveness--income per capita--the U. S. is still on top," says John B. Taylor, a member of Bush's Council of Economic Advisers. "But we may not be growing fast enough to provide for our children."

That's why CEOs and lawmakers are turning up the heat. In reports, new bills, and testimony before Congress, they're asking the federal government to help the U. S. compete with Japan and Europe. Recommendations vary, depending on who's doing the asking. A new Republican bill offers tax incentives to stimulate research and development and long-term investments. But Democrats and many high-tech CEOs, such as Motorola Inc.'s George M. C. Fisher, chairman of the Council on Competitiveness, want more. They'd like a big shift in federal spending toward commercially important R&D. They want the President to use his bully pulpit to push competitiveness. And now that chief free-marketer Sununu has been weakened by scandal over his travels--just as the 1992 budget battle looms--they are hoping for fast action.

The dispute isn't over how much the federal government spends on science and technology. The figure is now $70 billion a year, up from $30 billion in 1980. The crux of the battle is how Uncle Sam should dole out the largess.

This fight has stark ironies. The Administration gets bashed for supposedly letting high-tech industries go down the tube. On the other hand, it boosts funding for R&D and science education year after year. Indeed, many top officials, such as Budget Director Richard G. Darman, are sci-tech junkies who would rather spend billions on smashing atoms or going to Mars than on what they consider ineffective social-welfare programs. "Even before the President was elected, he made it clear that investments in science and technology are the best investments we can make in the future," says D. Allan Bromley, Bush's science adviser.

But the Bush team's gee-whiz fascination with science is schizophrenic, critics charge. The Administration defends some of its biggest-ticket items by citing their huge--though secondary--benefits for industry. In a June 14 speech at the California Institute of Technology, Bush argued that the $40 billion space station will push back the frontiers of knowledge--and create "whole new industries on earth." Same for the $8 billion Superconducting Supercollider. Supporters say that it will probe the mysteries of particle physics--and improve the magnets used in medical imaging. Washington could save a bundle by funding such imaging research directly, but that would be viewed as a step on the slippery slope to dreaded industrial policy.

This conflict, which leads to indirect funding of technology important to industry--but not direct funding unless the magic words `national interest' are invoked--has existed throughout the modern history of U. S. technology policy. For decades, government program managers have picked winners and losers in the process of rocketing to the moon or building smart weapons. In so doing, they laid the foundations of many of today's most productive industries, from computers to aerospace. "Recombinant DNA and the biotechnology industry it has spawned are the result of 40 years of subsidy from the government and the people," observes molecular biologist Russell F. Doolittle of the University of California at San Diego.

SERENDIPITY. So why not continue down this successful path? The U. S. could keep pouring R&D money into space projects, basic science, and defense and let the spin-offs fall where they may. One argument for this is that the advances are often unanticipated--so it would be impossible to shortcut the process.

But this strategy may not be as effective as it once was. Spin-offs--except perhaps in biomedicine--are fewer, because the Pentagon and NASA, despite hefty funding, are falling behind civilian research, especially in the electronics markets. "There used to be substantial spin-offs from the military," says Bromley. "Now, the military draws more and more from the consumer side."

And other countries don't follow the same rules. Japanese and some European governments put a higher share of their gross national product into civilian R&D than does the U. S. "The President should increase dramatically the percentage of federal R&D expenditures allocated to support for critical generic technologies," says the latest Council on Competitiveness report, Gaining New Ground.

Don't hold your breath. Bush and his minions won't give up easily on the space station and other tickets to high adventure. Neither will Washington pattern itself after Japan Inc. It's clear even to industry observers that throwing more federal R&D dollars at critical technologies won't halt the U. S. decline by itself. "Funding generic technology may help," says Joseph G. Morone, associate director of the Center for Science Policy at Rensselaer Polytechnic Institute. "But firms have to have the wherewithal, commitment, and stay-ing power to takethe technology tomarket."

In case after case, from flat panel displays and cars to semiconductors and laptops, U. S. companies have failed this test. "Unless American firms improve their ability to reach out and bring technology to market rapidly, U. S. competitiveness will continue to erode--no matter how ambitious or far-reaching government technology policy is," the Council on Competitiveness warns.

In fact, projects such as JESSI, Europe's disappointing semiconductor consortium, suggest that big government investments aren't necessarily the answer. "Europe has thrown a lot of money at key technologies--and has proven that dollars alone don't work," says Kenneth R. Kay, executive director of the Computer Systems Policy Project, a group of computer-company CEOs. When it comes to goading industry to improve production methods, says Christopher T. Hill, director of the National Academy of Sciences' Manufacturing Forum, the most effective government strategy may be the Malcolm Baldrige National Quality Award, which has helped spread the quality gospel to hundreds of U. S. companies. "It costs nothing," notes Hill, "but it has a high leverage."

Still, technopundits insist that federal R&D dollars, especially if matched by industry funds, can nurture technologies that may lead to future products. Despite its rhetoric, the Bush Administration has been dipping its toes into these waters. In March, 1990, for instance, Bush emphasized supporting "generic and precompetitive technologies"--such as superconductivity--that could have widespread industrial applications but are years from getting to market.

GOING BEGGING. Ever since, nearly every high-tech industry has been trying to convince the Administration that its "critical" technologies fit the bill. One sideshow in the upcoming 1992 budget extravaganza is how much money will be devoted to this kind of R&D. So far, either prodded by Congress or under its own initiative, the Administration has put its R&D money on high-performance computing and networks, an industry-led electric-car-battery consortium, high-definition-TV systems, and a $36 million Commerce Dept. program to support a range of technologies. More is on the way. And some Administration officials are talking about dedicating a fixed percentage of the R&D budget to such commercially important technologies. Advocates inside and outside the government are "learning how to do the things that are compatible with the principles of the Administration," says Robert M. White, Commerce Under Secretary for technology and a supporter of a stronger government role in funding research.

Bush probably won't take drastic action. "If your party has been in charge for 12 years, it isn't good politics to say that America's competitive problems are real--and getting worse," says Senator Bingaman. The larger question is whether "critical technologies" programs--even if they grow beyond mere drops in the $70 billion R&D pool--can slow the industrial slide. It may well be that tax policies, environmental regulation, health care costs, the value of the dollar, and industry's own resolve will determine U. S. competitiveness--no matter who wins the great industrial policy war.



Despite budget cutbacks, the Administration is proposing a big hike in research and development spending. The agenda includes:

Boosting overall federal R&D 13%, to $75.6 billion, in fiscal year

1992, including:

-- $8 billion for civilian basic research, an 8% increase

-- $2 billion for NASA's space station

-- $534 million for the Superconducting Supercollider

-- $43 billion for defense R&D

Funding "generic and precompetitive" technologies, such as:

-- $638 million for high-performance computing

-- $900 million for energy technologies, such as alternative fuels,

more efficient auto engines, and cleaner power plants

Encouraging better manufacturing through the Malcolm Baldrige National Quality Award


High-tech companies are leading the charge for new policies to boost U.S. competitiveness. Their recommendations include:

-- Shifting federal R&D spending away from defense and

NASA's $40 billion space station to so-called critical technologies, such as superconductivity, computing, and materials

-- Changing the mission of the national laboratories from defense to industrial technologies

-- Urging the President to make competitiveness a top policy priority--and stump for it publicly

-- Encouraging more cooperation between companies, governments, and industries in targeting key technologies and conducting joint research

-- Increasing efforts to spread advanced manufacturing methods to companies


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