Forging A Growth Policy For America
Call it the light bulb theory of growth. For some years now, America's most competitive companies have been its brainiest, the ones making the supercomputers and cellular phones, the spreadsheets and the synthetic drugs--the new products that dot our high-tech lives. In the global-growth sweepstakes, these companies lead the pack, and their competitors overseas in similar cutting-edge industries have become formidable opponents. They all rely on ideas--ideas for raw materials, product designs, manufacturing processes, and, ultimately, for commercial products.
In such an environment, knowledge counts for more than capital or labor. The nations that will prosper will be those that create new knowledge best and are able to transform it most effectively into new products and technologies. The end of the cold war with its prospect of big defense cutbacks breathes new life into an old question: Should the U.S. have a policy to promote technology and industry? We say the government must have an important role in spurring the attainment of knowledge and the generation of ideas, including research and development, scientific and technical education, the diffusion of technological knowledge, and help to industry in exporting science- and technology-based products.
America needs a new growth policy for the 1990s, an industrial policy that acknowledges that ideas drive growth. Government should provide a fertile environment for individuals, companies, and industries to pursue new ideas and new techniques, and it should be willing to spend money and even lose money today in order to ensure more vigorous growth tomorrow. Supporting tuition for engineering and science students and making the research and investment tax credits permanent would be good moves. So, too, would reallocating defense r&d spending toward civilian r&d.
And because so many people across so many industries benefit from ideas that serve as building blocks for new technologies and products, it's not right to assume that individuals or individual companies can or even should shoulder all the costs of developing new ideas. Even today, the U.S. government is supporting supercomputing and biotech research. Some basic ideas are, in economists' parlance, public, or at least quasi-public, goods and deserve to receive public financing.
The critics will chorus that government shouldn't interfere with the marketplace. An industrial policy, they argue, puts government in the position of picking winners and losers. An industrial policy costs billions of dollars. An industrial policy smacks of central planning, the critics charge, citing the catastrophic failure of the Soviet command economy.
A coherent, knowledge-based growth policy can avoid the pitfalls the critics worry about. First, policies must be designed in such a way that no particular industries are favored. Parceling out research dollars via a scientific peer-review process and requiring business to make matching investments in some cases should protect the process from being hijacked by political interests. Shifting federal dollars out of other existing programs, such as military r&d spending, is one way to hold down costs. No, America doesn't want a Ministry of International Trade & Industry or a Gosplan. But even in the former Soviet Union, the diversion of good ideas to the defense industry produced some unparalleled high-tech accomplishments, just as in the U.S., the diversion of talent and resources to the defense sector brought new advances. It's clear that when government sets out to achieve something, the returns can be high. In the post-cold-war world of ideas, industry and government can be partners for growth.