The Future of the Commerce Department

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INTRODUCTION

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 this department shouldbe transferred to other departments;
  • Second, agencies and offices performing functions notappropriate for government either should be shut immediately orphased out, with special attention given to technology policy,and;
  • Third, these are necessary steps if this country is to restorea system of limited government, rule of law, and free markets,avoiding the regime crises now facing other industrialized,democratic countries.

I. WHAT TO KEEP

Two functions of the Commerce Department are allowed to thefederal government by the U.S. Constitution and thus there is aprima facie case for retaining a federal role.

The Census.

The census function is necessary to determine votingeligibility, that is, to determine how many citizens of voting agereside in which states and congressional districts. But the currentquestions on census forms and the means by which the census isconducted are open to question. The massive, intrusive set ofquestions that goes to some citizens are more to satisfy thedesires of meddlesome policymakers seeking excuses to yield powerin the name of helping the public, and private businesses who wantthe government to gather market survey data for them free ofcharge, than to make certain that congressional districts arecorrectly proportioned.

Patent Protection.

The federal government has a Constitutional role in theprotection of intellectual property by granting patents, thoughmuch can be done to streamline this function. These two CommerceDepartment functions should be retained in some form, thoughpreferably in other agencies.

II. WHAT TO ELIMINATE

There are a number of Commerce functions that either should beeliminated immediately or phased out.

Export subsidies and trade restrictions.

The federal government currently preforms three distinct tradefunctions, viz, removing foreign trade barriers; subsidizing trade,and restricting trade.

Removing trade barriers. First, it attempts to open marketsthrough negotiations, for example, under the General Agreement onTariffs and Trade or by establishing free trade areas. This issound policy and this function is performed mainly by the U.S.Trade Representative's (USTR) office.

Subsidizing exports. Second, it promotes trade through varioushandouts to businesses, export subsidies trade shows and the like.The International Trade Administration (ITA) at Commerce performssome of these functions, as does the Export-Import Bank, theOverseas Private Investment Corporation among others. Another namefor these activities is corporate pork. They should be ended.

Restricting imports. Third, the federal government restrictstrade, through tariffs, handled by the U.S. Customs Service, andother import restrictions, for example, on textiles, handled by theCommerce Department, and through antidumping and other trade laws,handled both by the ITA in the Commerce Department and theInternational Trade Commission. Export restrictions also areimposed for security reasons.

Import restrictions are not desirable. I call special attentionto America's antidumping laws. These are barely disguisedprotectionist measures that are without any valid economicfoundation or principle whatsoever. Ideally these restrictions andlaws should be repealed. If not, the enforcing operations should bedefunded as a way to achieve the same end.

If these functions are retained, as I fear they will be, I wantto offer a note of caution concerning a reorganization plan thathas been discussed for some years, that is, combining the USTR andCommerce trade functions in one agency or department. Having thesame official both negotiating market openings with other countriesand administering America's many trade restrictions poses a clearconflict. Providing one focus for America's protectionist interestscould seriously undermine the countries ability to negotiate futuremarket openings.

Guideline to Dismantling.

I want to endorse a policy of dismantling the CommerceDepartment piece by piece, and warn against a form ofreorganization that would leave the federal government with manyfunctions that should cease. It would be legislative slight-of-handto retain most of the Commerce Department's activities andfunctions by transferring them piecemeal to other departments,perhaps cutting back on some overhead and a few of the more clearlyexpendable offices. I note that starting around 1986 the Mexicangovernment claimed to be following a policy of privatization whilein many cases only reorganizing bureaus and changing the titles onthe office doors. Those of us who followed events in that countrysaw through this sham. While Mexico went on to pursue genuineprivatization, the sort of tricks they occasionally played are wellknown and we will be watching for them as Congress considersgenuine downsizing of government.

With this in mind, a number of offices at Commerce can be shutdown entirely.

U.S. Travel and Tourism Office

This office should be eliminated. Every major hotel, amusementpark, airline and state government in the country floods the worldwith information about the advantages of visiting America. This isnot the federal government's business in any case.

Economic Development Administration

This office should be eliminated. This 1965 Great Societyprogram simply redistributes taxpayers' dollars to various parts ofthe country in wasteful public works and other projects.

Minority Business Development Agency

This agency should be eliminated. Its activities contributelittle help to minority businesses. In any case, the governmentshould not engage in race-based discrimination. The best way tohelp small enterprises, minority or otherwise, is to keep taxes lowand regulations minimal.

National Telecommunications and InformationAdministration (NTIA)

The Federal Communications Commission (FCC), and independentagency, currently has the responsibility of overseeing spectrumuse. It has been auctioning off parts of the spectrum for use, andgradually liberalizing the uses to which bandwidths can be put.

Ideally, the electromagnetic spectrum should be sold off asprivate property. The current Commerce role in telecommunicationsis unnecessary. If coordination functions are needed, they shouldbe performed by the FCC. NTIA should be eliminated. Any legitimatedefense-related activities that it currently performs should betransferred to the Defense Department.

National Oceanic and Atmospheric Administration(NOAA)

Most of the weather forecasting information collection anddistribution activities of NOAA can be performed by private sectorproviders. NOAA might best be phased out, perhaps with morecontracting out of functions during an interim period if privatesector services are inadequate.

National Institute of Standards and Technology(NIST)

Turning now to technology policy, NIST provides services thatcan and should be handled by the private sector, and handouts servespecial interests. NIST and its functions should be eliminated. ButI want to focus in some detail on the reasons for eliminating theAdvanced Technology Program (ATP) and the Manufacturing ExtensionPartnership (MEP) .

These have been the fastest growing parts of Commerce. TheClinton administration originally sought $491 million for FY 1996for the ATP, up from the $431 million in projected FY 1995spending. Further, the administration sought $147 million for thefor FY 1996, up from some $91 million. The House proposes to zeroout these programs.

These programs also are examples of the many government effortsto advance science and technology by passing out taxpayers'dollars. I submit that most of these efforts are ill- founded andthat this discussion of the Commerce Department should open thegeneral question 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 to retainfederal handouts of taxpayers' funds or intervene in the economy,not on those who want cuts.

    As Congress and the Administration consider ways to cutspending, it should be assumed that ATP and similar handouts inother parts of the government will be eliminated.

  2. Commerce handouts are justified by the fallacy of focusing onthe 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 of wealth.If these are the only arguments in favor of a particular governmentexpenditure, including the ATP and MEP, they are notsufficient.

  3. The market works well without government handouts.

    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 acorporatist or socialist system--works is that if there is aprospect for a profit, entrepreneurs will risk investing in orderto reap profits. For example, the cost of bringing a newpharmaceutical product to market is now on average $390 million.Yet drug companies make such investments. If there is a profit tobe made, entrepreneurs will act with or without governmenthandouts.

  4. Bureaucrats have no special talent for picking winners andlosers.

    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 tonote that bureaucrats tend not to discover the Steve Jobs and theBill Gates of the world.

  5. The government's record of success in subsidizing enterprisesis abysmal.

    Here are offered but a few example of this history.

    • Between 1985 and 1986 Department of Commerce, which overseesATP and MEP, issued $1.23 billion in loans and loan guaranteesthrough various programs. Not even half were paid back. TheAmerican taxpayers lost over $650 million. And those loans stillcarried on the books are of questionable value. For example, theEconomic Development Administration at Commerce, which lent $471million in the 1970s but has recovered only $60 million to date,recently sought congressional approval to sell off some of its badloans for less than ten cents on the dollar.
    • On the more focused issue of advanced technology, recall thatthe Supersonic Transport (SST) plane in the 1960s was considered a"crucial" commercial technology and gobbled up $920 million intaxpayer dollars. The result: Congress mercifully put the projectout of its misery in 1973. The benefit to the public: None. Bycontrast, the governments of France and Britain continued to fundtheir SST. Now they operate a few of these planes at a huge lossand have not even come close to covering the costs ofdevelopment.
    • High Definition Television (HDTV) is one of the clearestfailures of the government's targeted handouts. Japanesebusinesses, with subsidies that totaled $1 billion from theirgovernment, in the late 1980s sought to develop HDTV using existinganalog technology. Thomson Consumer Electronics of France, asubsidiary 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 Small BusinessAdministration (SBA): wasteful and counterproductive.

    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 of corporate welfareagainst which the Clinton administration inveighs.

    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 five years to developfilm technologies to replace aircraft paint;
    • BP Chemicals received $5.2 million over four years to developdual-purpose ceramic membranes;
    • Caterpillar Inc. received $3 million over three years todevelop engineered surfaces for rolling and sliding contacts;
    • Texas Instruments received $2.2 million over 28 months for asingle-chip receiverfront-end with integrated filters, and $2million over three years for ultra-low k dielectric materials forhigh-performance interconnects;
    • DuPont Fibers received $9.6 million over five years forthermoplastic composites for structural applications;
    • IBM received $1.9 million over three years for a framework forenhancing computer-integrated manufacturing;
    • Xerox Corporation received $1.8 million over three years forreusable performance- critical software components.

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

  8. The funding decisions for these handouts are often based onpolitical concerns.

    The list above of large corporations receiving funds is enoughto suggest that political influence plays a part in distributinglargess. Here I call attention to the National Aeronautics andSpace Administration (NASA), not only as a wasteful agency, and onethat is an obstacle to space enterprise, but also as a highlypoliticized agency. In the early 1970s, as NASA saw Moon landingscurtailed, it sought to preserve big budgets and staffs. Thebig-ticket Space Shuttle was sold to policymakers as a reusable,cheaper way to orbit payloads than expendable launch vehicles.

    It turned out to be more expensive than expendable launchvehicles. But many of the large contractors lobbied hard for theproject. As NASA developed and flew early Shuttle missions, it hadto fend off private competitors. In the late 1970s and early 1980sfederal agencies were forbidden to contract with the infant privatelaunch industry to put government payloads in orbit.

    In the early 1980s, as the Shuttle was seen as a costly whiteelephant, NASA needed a mission to justify the Shuttle's continuedexistence. Aside from any commercial or scientific benefits, anorbiting space station served his purpose. Again, large contractorsled the lobbying for this project. Most space scientists see thestation as wasteful. A special Presidential Advisory Commission,chaired by Martin Marietta Corporation CEO Norman Augustine, in1991 stated that "We do not believe that the space station ... canbe justified solely on the basis of the (non-biological) science itcan perform, much of which can be conducted on Earth or by unmannedrobots."

  9. Some businessmen do realize that corporate welfare in the endonly 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 attitudetowardstechnology policy.

  • The U.S. Constitution does not allow for government subsidiesof 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.

  • III. ROLLING BACK THE WELFARE, CORPORATISTSTATE

    I want to place this call for eliminating corporate welfare in abroader context, one far more important than the effects of suchcuts on the budget deficit, one that effects the future survivaland prosperity of our regime.

    Western Europe, Japan, and the other industrialized democracies,including the United States, are experiencing a slow motion versionof what happened in the communist world. The contradictions of thewelfare, corporatist state have produced economic, social, andpolitical crises that can no longer be mitigated by the same kindsof government policies that caused them to begin with. The problemswith America's political regime can best be understood by examiningthe problem of corruption.

    Classical Corruption. Policymakers often associate governmentcorruption with less developed countries. This kind of corruptionoccurs when a bureaucrat or public official exchanges a favor, forexample, expediting a license or offering lenient regulatorytreatment for one enterprise, or penalizing a competitor, for cashor some other material benefit. In other words, the arbitrary useof power governs rather than the rule of law.

    Institutional corruption. But more destructive of civilsocieties is a form of corruption that is inherent in the welfarestates in the West. By its nature, a welfare state breaks down theseparation between government and the private sector and thusbetween political and economic power. Government is expected to actdirectly to help this industry or that sector. The public goodbecomes, in fact, simply interest group driven. This means thatpolicies are often arbitrary, often contradictory. In essence, therule of law gradually gives way to the rule of particular men andparticular powerful interest groups. Politicians and electedofficials trade favors not simply for cash but for other coins ofthe realm: for political power, for political influence, forprestige. And the buying and selling of favors, at leasttechnically in the West and in the United States, isinstitutionalized and legal.

    In other words, limited government is replaced with a governmentwith almost unlimited power to effect the economy, the rule of lawis replaced by the arbitrary rule of interest groups andpolicymakers.

    The reason it is necessary to bring up this regime problem inthe midst of discussing government handouts is that the corporatestate is not manifest in some master plan but, rather, in eachCongressional committee room and each administration budget. Andbecause each committee is charged with only overseeing a small partof the government, their members assume that the bigger questionswill be discussed elsewhere. That is why these hearings on thefuture of the Commerce Department are so important. They allow

    Committee on Commerce, Science and Transportation
    United States Senate