Funding at the National Institute of Standards and Technology


Chairwoman Morella and Members of the Committee, thank you forthe invitation to testify about funding at the National Instituteof Standards and Technology. I will use this opportunity to arguefor the abolishment the Advanced Technology Program.

The justification for ATP has no logic, the problems ATP isintended to address may not exist, the ATP solution is unnecessary,and measures of ATP success are do not reflect the objectives ofthe program. ATP can be eliminated with no damage done to theeconomy of the country, with tax savings, and with the potentialfor more private investment in R&D.

What Problems Does ATP Address?

Dr. Mary Good appeared before this subcommittee to argue forincreased funding for ATP. [1] She saidthat "The technological infrastructure we have built over the past50 years--spanning industry, academia and government--has generatedenormous dividends to our Nation." Those fifty years have seen thefederal government intrude ever deeper into the country's economy,but they have not seen any magic in increased dividends. In hisexcellent book The Economic Laws of Scientific Research,[2] Terence Kealey demonstrates that thegreatly increased Federal expenditures for science and technologyafter World War II had no impact on the growth of GDP. GDP haschugged along at a growth rate of about 1.6 percent per year since1820. [3] The infrastructure for thatprogress predated major Federal involvement in R&D, and thatinvolvement has had no discernible effect on economic growth.

Dr. Good makes many references to developments in othercountries as justification for ATM, and, by extension, asjustification for increased Federal involvement in R&D. Othercountries are "rapidly expanding their scientific and technologicalcapabilities, establishing a sophisticated array of technologypolicies, and expanding their investments in R&D..." Thisstatement is intended to indicate that we risk falling behind. Itdoes nothing of the sort, and comparison of this country's progresswith others argues that the government should stay out of researchand development especially at the level of product developmentfunded by ATP.

First, we can be thankful whenever any country expands itsscientific and technologic capacities. Dr. Good says that the restof the world now spends nearly a third more on R&D than doesthe U.S. If that estimate is correct, we are responsible for about43 percent of the world's R&D. Is that the right percentage fora country that has 5 percent of the world's population? Is it toolittle? Is it, perhaps, too much?

There is no answer to the question of what is the correctamount, but we benefit from and should not fear other countries'spending on R&D. Scientists and engineers engaged in civilianR&D don't keep secrets very well. Their professionalsatisfaction and reputations depend on publishing their results,making them available to other scientists. One of the wonders ofscience is the great importance that priority of discoveryhas in establishing a scientist's reputation. [4] Priority depends on publishing the newdiscovery, making research products public goods, available to allwho read and listen, to be used in furthering science, in improvingtechnology, and in producing products for commerce.

Dr. Good presented three cautionary tales from the"globalization of technology." The U.S. NIH funds a lot offundamental biological research, but it was Scottish scientists whocloned Dolly. Yhe U.S. leads the world in superconductivityresearch, but Japanese scientists developed a method to manufacturesuperconducting tape for use in superconductors. Two U.S.scientists and one from the U.K. first synthesized buckyballs(geodesic-dome like structures of 60 carbon atoms), but Japanesescientists have synthesized nanotubes--elongated buckyballs--thatmay be of great value in making new composite materials. Sheworries that America will fail to capitalize on its investments infundamental research and that other countries will.

The three stories demonstrate the flow of ideas and techniquesfrom the U.S. to other countries. The other countries' researchershave made "value-added" contributions to the U.S. discoveries. Sowhat? Are U.S. scientists so enfeebled that they are incapable tobringing back the information from Scotland or Japan and developingit farther? Are the guys up at NIH throwing their hands in the airand saying, "Woe is us. The Scots--working in a laboratory that issupported entirely by private funds--have gotten ahead of us, andwe've fallen behind, and we're doomed to doing second- orthird-class science from now on and our country is so far behind inthe technology race that Scotland will be the economic envy of theworld"? I doubt it, but that's where Dr. Good's testimony leads

Dr. Good says, approvingly I think, that companies around theworld now seek out the best the world has to offer in product,process, and technology and brings it home. Why then does ATP's ownevaluation point with pride to a project that involved GM andChrysler (both of which enjoy very large profits) as well as somesmaller firms in the development of tools and techniques to controlcloseness of fit in assembly of automobile bodies? [5] Such methods were already in use in Japan.Who gained because GM and Chrysler didn't simply go buy thetechnology?

Central Planning Mischief

I worry when I hear words such as "a sophisticated array oftechnology policies" strung together. They suggest all kinds ofcentral planning mischief. Let other countries erect those arrays.Let us refrain.

Ten years ago, witnesses paraded before Congress to extol thevirtues of government planning of research and development and ofcooperative efforts between government and industry to pick winnersand back them with increased funding. The model was MITI, theJapanese technology planning agency that was destined to lead toJapan's dominating the world wide markets, in autos, biotechnology,high-definition TV, you name it. MITI flopped and Japan lost itslead in autos, never got a foothold in biotechnology, andsquandered a billion dollars on analog TV technology. U.S.manufacturers, responding to competitive pressures and pursuingapproaches to problems without government direction, flourished.Currently, all the European countries but one are faced withunemployment at least twice that of the U.S. and stagnanteconomies. Those are the very countries that have or are erecting a"sophisticated array of technology policies." Perhaps they would dobetter to look westward to the United Kingdom that is reducing therole of government in the economy and that has unemploymentcomparable to the U.S. and a thriving economy.

If any evidence is needed that ATP is industrial planning, lookat its descriptions of "ATP Focused Program Areas." [6] These eleven areas were identified through aseries of white papers from industry and academia, and theyrepresent the areas that ATP will try to develop portfolios ofresearch projects. The choice of the 11 program areas is also achoice about which part of the country will receive ATP funds."Component-Based Software" development, "Heavy Manufacturing," and"Motor Vehicle Manufacturing Technology" are not scatteredwilly-nilly around the U.S. The choice of these favored R&Dareas means that federal tax money will go to some parts of thecountry and not others.

It might be a source of great satisfaction to someone in theprivate sector to learn that her research is in one of the 11favored areas. I expect that some of those who aren't in thefavored sectors may consider complaining to ATP and trying to getthemselves a favored slot, but most of them will ignore the wholething and get on with their own efforts.

The last few lines of the "Tools for DNA Diagnostics" sectionilluminate the confusion that marks the ATP.

At the moment, companies that are well positioned to develop DNAdiagnostic tools are often hesitant to push forward withoutadditional government support because any of a number of competinganalytical methodologies could turn out to be the most suitable....Betting on one technology, which is all that most companies couldhope to do, is too much of a gamble. The ATP Tools for DNADiagnostics program both reduces and dilutes that risk. [7]

Surely ATP does not look to support each of the competingmethodologies. Therefore, it's willing to give a leg up tocompanies that are developing methods it chooses and to handicapother companies. This is wrong in principle, and it squanderspublic money on the chosen few. Who has more knowledge to decidewhich DNA diagnostics will pan out? The R&D managers in thehundreds of biotechnology companies and the venture capitalists whoinvest in those companies have more knowledge than ATP can evermuster. Moreover, they have more interest because it's their ownmoney that's at risk.

But before we ask whether a technology policy might work, weneed to ask if we need it. Yes, says Dr. Good. Foreign competitionhas forced U.S. firms to focus their R&D on short term projectsproducing an "innovation gap" between research and technologydevelopment. Supposedly, those technologies languish in U.S. firmsbecause of the high costs and high risks involved in theirdevelopment. And, supposedly, foreign companies have theintelligence and resources to close their "innovation gaps." Thereis no history to support this dire view, but more to the point, whyis taxing citizens and companies and to fund government spending onprivate enterprise the solution?

I assume that the people who manage manufacturing and technologyfirms know the economic literature that documents that companiesthat spend more on research have greater productivity growth.[8] If they don't know that literature,they are remiss. If they do know it and ignore it, that's theirchoice. If their companies lose out in the competition for markets,they contributed to their own failure. The companies thatout-competed them must have managed their affairs better. I have agreat deal of confidence that most of the winners in these contestswill be U.S. firms. In any case, the Constitution has no wordsabout taking care of failed commercial enterprises.

According to a report from the Office of Technology Policy, highrisk is the most frequently cited reason for seeking federalsupport. Indeed. Why would a company take a risk with its ownmoney, why would anyone, if the government will provide thecash?

Despite the information in the Office of Technology Policyreport about risk, many of the applicants for ATP money havesubmitted their ideas to other potential funders. Those applicantswere not convinced that their ideas were so risky that no one butATP would examine them. According to a GAO survey, half of theprojects that didn't receive ATP funding were continued with othersources of funding. [9] Furthermore,because 63 percent of the 123 applicants for ATP funding in 1990through 1993 did not submit their applications to any otherpotential funder; we do not know how many would have been funded byother organizations if ATP didn't exist.

Risky research means research unlikely to succeed. Some riskyprojects don't deserve funding. ATP pictures itself as a backstopfor risky projects that other organizations have failed to pick up.Perhaps a better analogy is with the picked-over fruit at the endof a market day.

There's also the question of whether the companies that receiveATP funds can support research from their our resources. Are thecompanies that receive awards hard-strapped for money? No, ofcourse not. 3M Company, AT&T Bell Laboratories, AT&TCorporation, Air Products and Chemicals, Inc., and Alcoa TechnicalCenter appear in the first column of listing of the participants inthe ATP. [10]

Perhaps a stronger case can be made to support other companiesin the list that are smaller and have fewer resources. But the caseis not a strong one. More than half of all start-up companies don'tsurvive. Everyone of those companies that went under would havehung on longer if it had received a government grant. For some ofthem, a government grant could have been the difference betweensurviving and going under. But the taxpayer should not beresponsible for the success or failure of those companies.

Taxpayers who want to be involved in high risk research can findways to invest their money. The government should not take moneyfrom taxpayers who don't want to take those risks or who have toolittle money to invest and invest it in endeavors that professionalresearch managers, private sector risk takers, and venturecapitalists spread throughout the economy in hundreds of firms haveturned down.

According to the National Science Board, [11] total expenditures on research anddevelopment in 1993 amounted to 2.5 percent of GDP. Since the GDPis roughly $6 trillion, private and public spending on R&D wasabout $150 billion. It is nothing but silly to think that ATP'sexpenditure of $70 million in that year would have made anydifference at all. This year ATP's funding increased to $300million, which is about one-fifth of one percent of total R&Dfunding. If the economic vitality of the country depended on ATP,the amount spent on it might be far too small. Since the economicvitality doesn't depend on ATP, it should receive no funding.

ATP Measures of Success

There's no convincing evidence of a need for ATP. What has itaccomplished? Not much, according to the GAO, [12] and perhaps nothing of value that would nothave happened in its absence. In 1995, GAO reported that ATP's ownevaluations exaggerated the impact of the program and that itsclaims of increased high-risk research and new industrialrelationships were not supported by evidence. A year later, GAOreported that half of the "near-winners" of ATP funding continuedtheir research with other funds and that 63 percent of theapplicants didn't look at other sources of funding.

ATP's goals include encouraging joint-ventures and funding"risky" or "precompetitive" applications. GAO says that ATP wassuccessful in these two endeavors. Three-fourths of thejoint-venture applicants to ATP came together only to compete forthe ATP grant, and half of the applicants who sought ATP funds hadbeen turned down by other funders because their projects wereconsidered risky or precompetitive. Even these two triumphs witherupon examination. It is entirely possible that the joint ventureswould have been formed to compete for other funding if ATP did notexist. Why are we to think that ATP is better at picking R&Dwinners than other organizations? Surely some risky ATP-fundedventures will not pan out--perhaps most will not. In those casesthe judgment of the non-ATP professionals who turned them down wasbetter than ATP's. Alternatively, ATP surely funds projects thatwould be funded elsewhere.

ATP's attempts at measurement of its success have involvedprocess measurements: Have organizations come together to competefor ATP grants? Has ATP funded projects turned down by others? Theanswers to those questions are, of course, yes. Money attractsapplicants, and any funding program attracts applicants that havebeen turned down elsewhere. The question is do these processchanges make any difference? We don't know and never will know. Wewill never know because we don't have a world that didn't have ATPsince 1990. We cannot know what would have happened in itsabsence.

We are told by ATP and GAO that it's still too early to judgeATP's successes. That assessment can be repeated for years to comeand probably will be But when a single project that has received apenny's funding from ATP hits it big, we can expect that ATP andits champions will claim as much of the credit as they possiblycan. They will skip over the private contributions that weren'ttied to cost-sharing with ATP and the money that ATP spent onprojects that still cannot be evaluated or that failed.

Dr. Love also mentioned the importance of ATP in bringing aboutcollaboration between industry and academia. ATP won't have muchimpact there because there's already plenty of collaboration. Fully35 percent of all R&D papers published in technical journals inthe U.S. now have authors from both industry and academe. Thepercentage of jointly authored papers varies with discipline, froma high of 49 percent of mathematics papers jointly industry-academeauthored to a low of 24 percent of chemistry papers. [13] Given the huge investment in R&D fromall other sources, ATP cannot be expected to affect thosepercentages.

ATP's efforts to evaluate its projects are flawed and willremain so. According to its goals statement, ATP is not supposed tofund projects that result in products. It is supposed to fundprojects earlier in the R&D process. Nevertheless, inspectionof ATP's claimed successes from the GM/Chrysler metal fittingproject to Optex Communications development of a high-speed datastorage system reveals that products are part of the evaluation. Ofcourse they are. What else is industrial R&D about if notproducts? ATP's claimed successes point out the discrepancy betweenthe programs goals and measures of its success. At a morefundamental level, the discrepancy illuminates the absence of logicin the program's foundations and the lack of a reason for itsexistence.

ATP's Self-Fulfilling Prophecies of ItsSuccess

A year and a half ago, my colleague at Cato, Dr. Edward Hudgins,testified about the Department of Commerce before the SenateCommittee on Commerce, Science, and Transportation. [14] I have appended part of his testimony tomine, and I will borrow some of the points he made in arguing forshutting down essentially all functions of the Department,including ATP:

1. The burden of proof for continuing the programs must beshifted to those who want to continue the handouts and away fromthose who want cuts.

2. Department of Commerce programs, and this is apparent in theATP's reports about its progress, focus on the happiness of therecipients of its largess to justify its programs. This is aself-fulfilling prophecy.

3. The market works well without government handouts.

4. Bureaucrats at ATP and elsewhere have no special talent forpicking winners and losers. People who are good at it can findriches in the private sector.

5. Governments have an abysmal record in choosing enterprisesfor subsidy.

6. ATP is corporate welfare. 3M, BP Chemicals, Caterpillar,Inc., Texas Instruments, DuPont Fibers, IBM, and Xerox among manyothers have received ATP money.

7. Funding is influenced by politics. The white papers that ATPused to pick its 11 focus areas are an example.

8. The U.S. Constitution does not allow for government subsidiesof private commercial endeavors, and when the government providesthem it discriminates against all competitors who don't receivethem and taxes everyone to pay for them.

The entire ATP program has no reason to exist. It tries to pickwinners and losers, and it lavishes taxpayer money on the winners.The elaborate review systems for picking winners and losers arenecessary only because public money is involved. [15] The money spent on review is not availablefor productive purposes, including the private support of R&D.Even the costs of flying the Secretary of Commerce around thecountry to make announcements of the ATP awards takes away from theresources for science.

Testimony from individuals and organizations that benefit fromATP are no measure of the program's success. That something goodhappened with ATP money is no indication that it wouldn't havehappened if ATP didn't exist. Something like 99.8 percent ofR&D is financed by sources other than ATP; meritorious projectscan find other funding.

The Importance of Technology Is No Argument for FederalIntervention

Dr. Good, in her testimony about the value of ATP, cited theoften repeated estimate that technology accounts for as much as 50percent of the country's economic growth. That's a simplification.Changes in capital and labor account for about 50 percent of theeconomy's growth. The "residual," the other factors that accountfor the other half of growth are called technology and otherunknown factors. [16]

Without doubt, technology is important the economy but howimportant isn't known. In any case, saying that technology isimportant is no justification for federal government planning. Theconclusion that 50 percent of economic growth is from technologyand other unknown factors was derived from study of the years 1929through 1956, when whatever else it was, the federal government wassmaller. That percentage has remained about the same. Importantly,as already mentioned, the great increase in government R&Dexpenditures after World War II did not cause an upward bounce inthe growth of GDP, and it also didn't cause a shift in the amountof economic growth derived from technology and other unknownfactors.

Kealey has ranked the scientific output of 22 countries andcompared that output to GDP per capita in each country. There is avery strong correlation. Richer countries do more science than poorcountries, which is to be expected. As he says,

In advanced countries, companies spend increasing amounts ofmoney on research to develop new products. If a company is situatedin a country where taxes are low, like Japan or Switzerland, itsimply invests its own money. If it is in a country like France orGermany, with high taxes, then it lobbies hard for its governmentto fund science. [17]

If Congress wants to favor R&D, it can do it more directlyand with greater chance of success by paying attention to taxingand regulation.

A Real Test of Taxpayers' Support for ATP

If the Department of Commerce believes in the worth of ATP, itcould compete with private organizations for taxpayers' money.Currently, taxpayers can deduct some of the money they invest inIRAs from their income. The money in the IRAs is expected to betranslated into increased capital for the good of the country, justas money spent on ATP is supposed to produce increased capital. Butthe taxpayer, herself, gains if her IRA pays off. Let thegovernment give taxpayers who want to invest in ATP a deductionfrom their income, and let it arrange a system so that those whocontribute to ATP can share in any profits that flow from it.That's what taxpayers get from private investments. It's not whatthey get from ATP when it takes tax money, calls it public money,and invests it in private enterprise.

The World Without ATP

What will the world look like if ATP continues. Every year therewill be a request for more money, with trumpeting of successes thatmight have happened in the absence of ATP, and after a few yearsthere will be legislation to increase the bureaucratic standing ofATP. How does the Department of Industrial Planning sound?

What would the world be like without ATP? A few governmentemployees would be shifted to other jobs. It's possible that a fewjoint ventures that were cobbled together only to try for ATP fundswould disappear. There would be complaints. In a year or two, noone would notice. But every Congressman who votes against ATP canmake a strong argument that he opposes corporate welfare and thathe encourages R&D by reducing the tax burden on citizens and byallowing the market to work.

Excerpts from the TESTIMONY ofDr. Edward L. Hudgins, Director ofRegulatory Studies, Cato Institute beforethe U.S. Senate, Committee on Commerce,Science and Transportation

"The Future of the Commerce Department"

August 1, 1995


I want to thank the committee for the opportunity to testifytoday on the future of the Commerce Department. I believe thatCommerce should be shut down. I maintain that:

*First, the few legitimate functions of thisdepartment should be transferred to other departments;

*Second, agencies and offices performingfunctions not appropriate for government either should be shutimmediately or phased out, with special attention given totechnology policy, and;

*Third, these are necessary steps if thiscountry is to restore a system of limited government, rule of law,and free markets, avoiding the regime crises now facing otherindustrialized, democratic countries....

National Institute of Standards and Technology(NIST)

NIST and its functions should be eliminated. But I want to focusin some detail on the reasons for eliminating the AdvancedTechnology Program (ATP) and the Manufacturing ExtensionPartnership (MEP). These have been the fastest growing parts ofCommerce.

These programs are examples of the many government efforts toadvance science and technology by passing out taxpayers' dollars. Isubmit that most of these efforts are ill-founded and that thisdiscussion of the Commerce Department should open the generalquestion of the government's proper role in science andtechnology.

These expenditures are examples of unneeded corporate welfare,wasted in a market that already produces world-class technology. Itis of such expenditures that budget deficits measured in thehundreds of billions of dollars are made.

I frame the discussion and offer reasons for shutting down theseprograms as follows:

1) The burden of proof should be on those who want toretain federal handouts of taxpayers' funds or intervene in theeconomy, not on those who want cuts.

2) Commerce handouts are justified by the fallacy offocusing on the recipients.

Bureaucrats handing out other people's money often justify theirprograms based on two facts: First, that the recipients of thefunds approve of the handouts; and second, that the recipientsspend that money on something of which most people approve. And Isuspect much of the testimony that you will hear in favor of theATP and MEP will be based on--I would say bogged down in--these twofacts.

But these facts are true almost by definition for every federalgovernment handout. Most individuals receiving free goods arepleased to have them and would like the handouts to continue. Ifone dropped money from a plane over Washington and traced eachdollar, one would find first that everyone picking up the money washappy to have it, and, second, that most individuals spend themoney in ways we approve, for example, to purchase food or shoes,or to invest in a small business. But this would not be good publicpolicy. And third, the government would take credit for theprosperity of any individuals who picked up a few dollars, ignoringthe fact that in nearly all cases, individuals, like businesses,prosper through their own efforts, not through transfers ofwealth.

If these are the only arguments in favor of a particulargovernment expenditure, including the ATP and MEP, they are notsufficient.

3) The market works well without governmenthandouts.

The private sector is the principal engine of this country'smulti-trillion dollar economy, not government handouts. In the areaof advanced commercial technologies, that is, the high-techrevolution of the past 15 years, the private sector already does aworld-class job in developing new products and technologies. Thus,ATP is unnecessary.

The way a market system--as opposed to a corporatist orsocialist system--works is that if there is a prospect for aprofit, entrepreneurs will risk investing in order to reap profits.For example, the cost of bringing a new pharmaceutical product tomarket is now on average $390 million. Yet drug companies make suchinvestments. If there is a profit to be made, entrepreneurs willact with or without government handouts.

4) Bureaucrats have no special talent for pickingwinners and losers.

Federal bureaucrats have no unique abilities, better than thoseof private investors and entrepreneurs, to pick winning companiesand technologies. It is not by virtue of their keen abilities tospot future market needs or their creative talents for inventingnew products or services that bureaucrats acquire power to disburseinvestment funds. It is by virtue of their ability to function wellin a rule-bound organization that is insulated from market forces,or their ability to secure a political appointment. If anything,one should suspect that the capacities that make for successfulbureaucrats and politicians would make dull, incompetententrepreneurs.

To put it bluntly, if bureaucrats and political appointees didhave special abilities to pick winners and losers, they wouldbecome entrepreneurs or work for entrepreneurs, and actuallyproduce the new products for which they claim consumers clamor.They would put their own money, not taxpayers', and theircreativity and energy, where their mouths are.

It is important to note that bureaucrats tend not to discoverthe Steve Jobs and the Bill Gates of the world.

5) The government's record of success in subsidizingenterprises is abysmal.

Here are offered but a few example of this history.

*Between 1985 and 1986 Department of Commerce,which oversees ATP and MEP, issued $1.23 billion in loans and loanguarantees through various programs. Not even half were paid back.The American taxpayers lost over $650 million. And those loansstill carried on the books are of questionable value. For example,the Economic Development Administration at Commerce, which lent$471 million in the 1970s but has recovered only $60 million todate, recently sought congressional approval to sell off some ofits bad loans for less than ten cents on the dollar.

*On the more focused issue of advancedtechnology, recall that the Supersonic Transport (SST) plane in the1960s was considered a "crucial" commercial technology and gobbledup $920 million in taxpayer dollars. The result: Congressmercifully put the project out of its misery in 1973. The benefitto the public: None. By contrast, the governments of France andBritain continued to fund their SST. Now they operate a few ofthese planes at a huge loss and have not even come close tocovering the costs of development.

*High Definition Television (HDTV) is one ofthe clearest failures of the government's targeted handouts.Japanese businesses, with subsidies that totaled $1 billion fromtheir government, in the late 1980s sought to develop HDTV usingexisting analog technology. Thomson Consumer Electronics of France,a subsidiary of that country's state-owned Thomson S.A., receivedaround $1 billion to develop a similar system. American firmssought, but were denied by the Bush administration, $1.2 billion insubsidies to compete with these foreign rivals. The U.S. governmentin the end probably spent $200 million for miscellaneous researchand feasibility studies. As a result of being denied massivesubsidies, American companies were forced to develop an evenbetter, more efficient form of HDTV.

*Zenith and American Telephone and Telegraph invented a fullydigital system that made the analog Japanese and European systemsobsolete before they even went into production. Japan has announcedthat it will abandon its system, losing its $1 billion ingovernment funds and private investment, and adopt the Americansystem. The French firm also lost over $1 billion. If the Bushadministration had listened to those seeking subsidies, allcountries would be working with inferior technologies, and Americanfirms would be just a few among the many mediocre.

6) The ATP is indeed a high-tech version of the SmallBusiness Administration (SBA): wasteful andcounterproductive.

The ATP has been called a high-tech version of the SBA. This isa good analogy because SBA has an abysmal record, with a defaultrate of around 20 percent. Some 99.8 percent of American smallbusinesses do not receive SBA assistance. As long ago as 1963 Lifemagazine described SBA as "an almost brand-new device for soakingup money and getting rid of it."

7) The proposed ATP expenditures are the kind ofcorporate welfare against which the Clinton administrationinveighs.

Even when an investment does promise to pay off and there arewilling private investors, businesses often are still willing todefray expenses by accepting handouts taken from taxpayers; and thefederal government is willing to transfer such funds so thatpoliticos can curry favor with recipients and claim to be friendsof business. Labor Secretary Robert Reich correctly denounces suchhandouts as corporate welfare. Yet the Clinton administration stillwants such welfare with ATP. Among the 1994 recipients of corporatewelfare:

*3M-3M Center received 6.1 million over fiveyears to develop film technologies to replace aircraft paint;

*BP Chemicals received $5.2 million over fouryears to develop dual-purpose ceramic membranes;

*Caterpillar Inc. received $3 million overthree years to develop engineered surfaces for rolling and slidingcontacts;

*Texas Instruments received $2.2 million over28 months for a single-chip receiver front-end with integratedfilters, and $2 million over three years for ultra-low k dielectricmaterials for high-performance interconnects;

*DuPont Fibers received $9.6 million over fiveyears for thermoplastic composites for structural applications;

*IBM received $1.9 million over three years fora framework for enhancing computer-integrated manufacturing;

*Xerox Corporation received $1.8 million overthree years for reusable performance-critical softwarecomponents.

These are hardly new, poverty-stricken, desperately strugglingbusinesses that cannot fend for themselves without corporatewelfare.

8) The funding decisions for these handouts are oftenbased on political concerns.

The list above of large corporations receiving funds is enoughto suggest that political influence plays a part in distributinglargess....

9) Some businessmen do realize that corporate welfare inthe end only harms them and the economy.

On March 25, 1993 Dr. T.J. Rodgers. President and CEO of CypressSemiconductor Corp. testified before the House Committee onScience, Space and Technology, Subcommittee on Technology,Environment and Aviation on government subsidies for high-techinnovations. After showing several of his company's products,Rodgers observed that "we would benefit greatly if billions oftaxpayer dollars were showered on the various technology projectsfavored by the Clinton administration." He then made his mainpoint:

But I am here to say that such subsidies will hurt my companyand our industry. Why? Because they represent tax-and-spendeconomics--a brand of economics that is a known failure. I do notwant handouts. The men and women of our company do not wanthandouts. And if Congress wants to help American high technology,handouts are the wrong way to go.

Congress and business should take this attitude towardstechnology policy.

10) The U.S. Constitution does not allow for governmentsubsidies of private commercial endeavors.

I realize that to bring up the U.S. Constitution in the U.S.Congress is a bit of an anachronism. But I believe that if we areto reestablish a republic of limited government in this country, wemust refer to the law upon which it was and should be based.

Article I, section 8, [3] of the Constitution gives Congress thepower "To regulate Commerce ... among the several States..." Thiswas meant to allow the federal government to remove trade barriersbetween states. In this century the federal government has used--Ishould say misused--this power to regulate the way entrepreneursactually run their enterprises. But it is an unreasonable stretchto maintain that this paragraph implies that the governmentregulates by passing out taxpayer dollars to favorite industries.And Article I, section 8, gives Congress the power "To promote theProgress of Science and useful Arts, by securing for limited Timesto Authors and Inventors the exclusive Right to their respectiveWritings and Discoveries." This quite clearly refers to protectionof intellectual property rights, not to passing out checks tofavored industries.


[1] Mary Lowe Good,Under Secretary for Technology, Department of Commerce, Testimonybefore the House Science Committee, Subcommittee on Technology,March 19, 1997.

[2] Terence Kealey,Economic Laws of Scientific Research (London: MacMillianPress, 1996). see also Terence Kealey, "You've All Got It Wrong,"New Scientist, 29 June 1996, pp. 22-26.

[3] W. Michael Cox andBeverly J. Fox, "What's Happening to Americans' Income?" TheSouthwest Economy, Issue 2, 1995 (Dallas, TX: Federal ReserveBank of Dallas, 1995), pp. 3-6.

[4] Paula E. Stephan,"The Economics of Science," Journal of Economic LiteratureXXXIV (1996):1199-1235 @ p. 1201 (emphasis in original).

[5] National Instituteof Standards and Technology, "The Advanced Technology Program: AProgress Report on the Impacts of an Industry-Government TechnologyPartnership," (Gaithersburg, MD: NIST, 1966) [NIST-ATP-96-2], p.8.

[6] Ibid., pp.22-33.

[7] Ibid., pp.32-33.

[8] Zvi Griliches,"R&D and Productivity: Measurement Issues and EconometricResults," Science (1987):31-35.

[9]General AccountingOffice, Letter to the Honorable George E. Brown, Jr., January 11,1996, @ p. 2.

[10] NationalInstitute of Standards and Technology, 1996, p. 35.

[11] National ScienceBoard, Science and Engineering Indicators--1993,Washington, DC: U.S. Government Printing Office, 1993, p. 333.

[12] GeneralAccounting Office, Letter to the Honorable George E. Brown, Jr.,January 15, 1995, and GAO 1996.

[13] Data from theNational Science Board, reported in Stephan, 1996, @ p. 1210.

[14] Edward L.Hudgins, Cato Institute, Testimony before the Senate Committee onCommerce, Science, and Transportation, August 1, 1995.

[15] Joseph P.Martino, Science Funding: Politics and Porkbarrel (NewBrunswick, NJ: Transaction Publishers, 1992), p. 64.

[16] Charles L.Schultze, Memos to the President (Washington, DC:Brookings Institute, 1992), pp. 227-235.

[17] Kealey, NewScientist, p. 24.

Subcommittee on Technology
Committee on Science
United States House of Representatives