Funding at the National Institute of Standards and Technology

April 10, 1997 • Testimony

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

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

What Problems Does ATP Address?

Dr. Mary Good appeared before this subcommittee to argue for increased funding for ATP. [1] She said that “The technological infrastructure we have built over the past 50 years–spanning industry, academia and government–has generated enormous dividends to our Nation.” Those fifty years have seen the federal government intrude ever deeper into the country’s economy, but they have not seen any magic in increased dividends. In his excellent book The Economic Laws of Scientific Research, [2] Terence Kealey demonstrates that the greatly increased Federal expenditures for science and technology after World War II had no impact on the growth of GDP. GDP has chugged along at a growth rate of about 1.6 percent per year since 1820. [3] The infrastructure for that progress predated major Federal involvement in R&D, and that involvement has had no discernible effect on economic growth.

Dr. Good makes many references to developments in other countries as justification for ATM, and, by extension, as justification for increased Federal involvement in R&D. Other countries are “rapidly expanding their scientific and technological capabilities, establishing a sophisticated array of technology policies, and expanding their investments in R&D…” This statement is intended to indicate that we risk falling behind. It does nothing of the sort, and comparison of this country’s progress with others argues that the government should stay out of research and development especially at the level of product development funded by ATP.

First, we can be thankful whenever any country expands its scientific and technologic capacities. Dr. Good says that the rest of the world now spends nearly a third more on R&D than does the U.S. If that estimate is correct, we are responsible for about 43 percent of the world’s R&D. Is that the right percentage for a country that has 5 percent of the world’s population? Is it too little? Is it, perhaps, too much?

There is no answer to the question of what is the correct amount, but we benefit from and should not fear other countries’ spending on R&D. Scientists and engineers engaged in civilian R&D don’t keep secrets very well. Their professional satisfaction and reputations depend on publishing their results, making them available to other scientists. One of the wonders of science is the great importance that priority of discovery has in establishing a scientist’s reputation. [4] Priority depends on publishing the new discovery, making research products public goods, available to all who read and listen, to be used in furthering science, in improving technology, and in producing products for commerce.

Dr. Good presented three cautionary tales from the “globalization of technology.” The U.S. NIH funds a lot of fundamental biological research, but it was Scottish scientists who cloned Dolly. Yhe U.S. leads the world in superconductivity research, but Japanese scientists developed a method to manufacture superconducting 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 Japanese scientists have synthesized nanotubes–elongated buckyballs–that may be of great value in making new composite materials. She worries that America will fail to capitalize on its investments in fundamental research and that other countries will.

The three stories demonstrate the flow of ideas and techniques from the U.S. to other countries. The other countries’ researchers have made “value‐​added” contributions to the U.S. discoveries. So what? Are U.S. scientists so enfeebled that they are incapable to bringing back the information from Scotland or Japan and developing it farther? Are the guys up at NIH throwing their hands in the air and saying, “Woe is us. The Scots–working in a laboratory that is supported entirely by private funds–have gotten ahead of us, and we’ve fallen behind, and we’re doomed to doing second‐ or third‐​class science from now on and our country is so far behind in the technology race that Scotland will be the economic envy of the world”? I doubt it, but that’s where Dr. Good’s testimony leads

Dr. Good says, approvingly I think, that companies around the world now seek out the best the world has to offer in product, process, and technology and brings it home. Why then does ATP’s own evaluation point with pride to a project that involved GM and Chrysler (both of which enjoy very large profits) as well as some smaller firms in the development of tools and techniques to control closeness 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 the technology?

Central Planning Mischief

I worry when I hear words such as “a sophisticated array of technology policies” strung together. They suggest all kinds of central planning mischief. Let other countries erect those arrays. Let us refrain.

Ten years ago, witnesses paraded before Congress to extol the virtues of government planning of research and development and of cooperative efforts between government and industry to pick winners and back them with increased funding. The model was MITI, the Japanese technology planning agency that was destined to lead to Japan’s dominating the world wide markets, in autos, biotechnology, high‐​definition TV, you name it. MITI flopped and Japan lost its lead in autos, never got a foothold in biotechnology, and squandered a billion dollars on analog TV technology. U.S. manufacturers, responding to competitive pressures and pursuing approaches to problems without government direction, flourished. Currently, all the European countries but one are faced with unemployment at least twice that of the U.S. and stagnant economies. Those are the very countries that have or are erecting a “sophisticated array of technology policies.” Perhaps they would do better to look westward to the United Kingdom that is reducing the role of government in the economy and that has unemployment comparable to the U.S. and a thriving economy.

If any evidence is needed that ATP is industrial planning, look at its descriptions of “ATP Focused Program Areas.” [6] These eleven areas were identified through a series of white papers from industry and academia, and they represent the areas that ATP will try to develop portfolios of research projects. The choice of the 11 program areas is also a choice about which part of the country will receive ATP funds. “Component‐​Based Software” development, “Heavy Manufacturing,” and “Motor Vehicle Manufacturing Technology” are not scattered willy‐​nilly around the U.S. The choice of these favored R&D areas means that federal tax money will go to some parts of the country and not others.

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

The last few lines of the “Tools for DNA Diagnostics” section illuminate the confusion that marks the ATP.

At the moment, companies that are well positioned to develop DNA diagnostic tools are often hesitant to push forward without additional government support because any of a number of competing analytical methodologies could turn out to be the most suitable.… Betting on one technology, which is all that most companies could hope to do, is too much of a gamble. The ATP Tools for DNA Diagnostics program both reduces and dilutes that risk. [7]

Surely ATP does not look to support each of the competing methodologies. Therefore, it’s willing to give a leg up to companies that are developing methods it chooses and to handicap other companies. This is wrong in principle, and it squanders public money on the chosen few. Who has more knowledge to decide which DNA diagnostics will pan out? The R&D managers in the hundreds of biotechnology companies and the venture capitalists who invest in those companies have more knowledge than ATP can ever muster. Moreover, they have more interest because it’s their own money that’s at risk.

But before we ask whether a technology policy might work, we need to ask if we need it. Yes, says Dr. Good. Foreign competition has forced U.S. firms to focus their R&D on short term projects producing an “innovation gap” between research and technology development. Supposedly, those technologies languish in U.S. firms because of the high costs and high risks involved in their development. And, supposedly, foreign companies have the intelligence and resources to close their “innovation gaps.” There is no history to support this dire view, but more to the point, why is taxing citizens and companies and to fund government spending on private enterprise the solution?

I assume that the people who manage manufacturing and technology firms know the economic literature that documents that companies that 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 their choice. If their companies lose out in the competition for markets, they contributed to their own failure. The companies that out‐​competed them must have managed their affairs better. I have a great deal of confidence that most of the winners in these contests will be U.S. firms. In any case, the Constitution has no words about taking care of failed commercial enterprises.

According to a report from the Office of Technology Policy, high risk is the most frequently cited reason for seeking federal support. Indeed. Why would a company take a risk with its own money, why would anyone, if the government will provide the cash?

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

Risky research means research unlikely to succeed. Some risky projects don’t deserve funding. ATP pictures itself as a backstop for risky projects that other organizations have failed to pick up. Perhaps a better analogy is with the picked‐​over fruit at the end of a market day.

There’s also the question of whether the companies that receive ATP funds can support research from their our resources. Are the companies that receive awards hard‐​strapped for money? No, of course not. 3M Company, AT&T Bell Laboratories, AT&T Corporation, Air Products and Chemicals, Inc., and Alcoa Technical Center appear in the first column of listing of the participants in the ATP. [10]

Perhaps a stronger case can be made to support other companies in the list that are smaller and have fewer resources. But the case is not a strong one. More than half of all start‐​up companies don’t survive. Everyone of those companies that went under would have hung on longer if it had received a government grant. For some of them, a government grant could have been the difference between surviving and going under. But the taxpayer should not be responsible for the success or failure of those companies.

Taxpayers who want to be involved in high risk research can find ways to invest their money. The government should not take money from taxpayers who don’t want to take those risks or who have too little money to invest and invest it in endeavors that professional research managers, private sector risk takers, and venture capitalists spread throughout the economy in hundreds of firms have turned down.

According to the National Science Board, [11] total expenditures on research and development in 1993 amounted to 2.5 percent of GDP. Since the GDP is roughly $6 trillion, private and public spending on R&D was about $150 billion. It is nothing but silly to think that ATP’s expenditure of $70 million in that year would have made any difference at all. This year ATP’s funding increased to $300 million, which is about one‐​fifth of one percent of total R&D funding. If the economic vitality of the country depended on ATP, the amount spent on it might be far too small. Since the economic vitality 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 it accomplished? Not much, according to the GAO, [12] and perhaps nothing of value that would not have happened in its absence. In 1995, GAO reported that ATP’s own evaluations exaggerated the impact of the program and that its claims of increased high‐​risk research and new industrial relationships were not supported by evidence. A year later, GAO reported that half of the “near‐​winners” of ATP funding continued their research with other funds and that 63 percent of the applicants 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 was successful in these two endeavors. Three‐​fourths of the joint‐​venture applicants to ATP came together only to compete for the ATP grant, and half of the applicants who sought ATP funds had been turned down by other funders because their projects were considered risky or precompetitive. Even these two triumphs wither upon examination. It is entirely possible that the joint ventures would have been formed to compete for other funding if ATP did not exist. Why are we to think that ATP is better at picking R&D winners than other organizations? Surely some risky ATP‐​funded ventures will not pan out–perhaps most will not. In those cases the judgment of the non‐​ATP professionals who turned them down was better than ATP’s. Alternatively, ATP surely funds projects that would be funded elsewhere.

ATP’s attempts at measurement of its success have involved process measurements: Have organizations come together to compete for ATP grants? Has ATP funded projects turned down by others? The answers to those questions are, of course, yes. Money attracts applicants, and any funding program attracts applicants that have been turned down elsewhere. The question is do these process changes make any difference? We don’t know and never will know. We will never know because we don’t have a world that didn’t have ATP since 1990. We cannot know what would have happened in its absence.

We are told by ATP and GAO that it’s still too early to judge ATP’s successes. That assessment can be repeated for years to come and probably will be But when a single project that has received a penny’s funding from ATP hits it big, we can expect that ATP and its champions will claim as much of the credit as they possibly can. They will skip over the private contributions that weren’t tied to cost‐​sharing with ATP and the money that ATP spent on projects that still cannot be evaluated or that failed.

Dr. Love also mentioned the importance of ATP in bringing about collaboration between industry and academia. ATP won’t have much impact there because there’s already plenty of collaboration. Fully 35 percent of all R&D papers published in technical journals in the U.S. now have authors from both industry and academe. The percentage of jointly authored papers varies with discipline, from a high of 49 percent of mathematics papers jointly industry‐​academe authored to a low of 24 percent of chemistry papers. [13] Given the huge investment in R&D from all other sources, ATP cannot be expected to affect those percentages.

ATP’s efforts to evaluate its projects are flawed and will remain so. According to its goals statement, ATP is not supposed to fund projects that result in products. It is supposed to fund projects earlier in the R&D process. Nevertheless, inspection of ATP’s claimed successes from the GM/​Chrysler metal fitting project to Optex Communications development of a high‐​speed data storage system reveals that products are part of the evaluation. Of course they are. What else is industrial R&D about if not products? ATP’s claimed successes point out the discrepancy between the programs goals and measures of its success. At a more fundamental level, the discrepancy illuminates the absence of logic in the program’s foundations and the lack of a reason for its existence.

ATP’s Self‐​Fulfilling Prophecies of Its Success

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

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

2. Department of Commerce programs, and this is apparent in the ATP’s reports about its progress, focus on the happiness of the recipients of its largess to justify its programs. This is a self‐​fulfilling prophecy.

3. The market works well without government handouts.

4. Bureaucrats at ATP and elsewhere have no special talent for picking winners and losers. People who are good at it can find riches in the private sector.

5. Governments have an abysmal record in choosing enterprises for subsidy.

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

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

8. The U.S. Constitution does not allow for government subsidies of private commercial endeavors, and when the government provides them it discriminates against all competitors who don’t receive them and taxes everyone to pay for them.

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

Testimony from individuals and organizations that benefit from ATP are no measure of the program’s success. That something good happened with ATP money is no indication that it wouldn’t have happened if ATP didn’t exist. Something like 99.8 percent of R&D is financed by sources other than ATP; meritorious projects can find other funding.

The Importance of Technology Is No Argument for Federal Intervention

Dr. Good, in her testimony about the value of ATP, cited the often repeated estimate that technology accounts for as much as 50 percent of the country’s economic growth. That’s a simplification. Changes in capital and labor account for about 50 percent of the economy’s growth. The “residual,” the other factors that account for the other half of growth are called technology and other unknown factors. [16]

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

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

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

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

A Real Test of Taxpayers’ Support for ATP

If the Department of Commerce believes in the worth of ATP, it could compete with private organizations for taxpayers’ money. Currently, taxpayers can deduct some of the money they invest in IRAs from their income. The money in the IRAs is expected to be translated into increased capital for the good of the country, just as money spent on ATP is supposed to produce increased capital. But the taxpayer, herself, gains if her IRA pays off. Let the government give taxpayers who want to invest in ATP a deduction from their income, and let it arrange a system so that those who contribute to ATP can share in any profits that flow from it. That’s what taxpayers get from private investments. It’s not what they 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 there will be a request for more money, with trumpeting of successes that might have happened in the absence of ATP, and after a few years there will be legislation to increase the bureaucratic standing of ATP. How does the Department of Industrial Planning sound?

What would the world be like without ATP? A few government employees would be shifted to other jobs. It’s possible that a few joint ventures that were cobbled together only to try for ATP funds would disappear. There would be complaints. In a year or two, no one would notice. But every Congressman who votes against ATP can make a strong argument that he opposes corporate welfare and that he encourages R&D by reducing the tax burden on citizens and by allowing the market to work.

Excerpts from the TESTIMONY of Dr. Edward L. Hudgins, Director of Regulatory Studies, Cato Institute before the 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 testify today on the future of the Commerce Department. I believe that Commerce should be shut down. I maintain that:

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

*Second, agencies and offices performing functions not appropriate for government either should be shut immediately or phased out, with special attention given to technology policy, and;

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

National Institute of Standards and Technology (NIST)

NIST and its functions should be eliminated. But I want to focus in some detail on the reasons for eliminating the Advanced Technology Program (ATP) and the Manufacturing Extension Partnership (MEP). These have been the fastest growing parts of Commerce.

These programs are examples of the many government efforts to advance science and technology by passing out taxpayers’ dollars. I submit that most of these efforts are ill‐​founded and that this discussion of the Commerce Department should open the general question of the government’s proper role in science and technology.

These expenditures are examples of unneeded corporate welfare, wasted in a market that already produces world‐​class technology. It is of such expenditures that budget deficits measured in the hundreds of billions of dollars are made.

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

1) The burden of proof should be on those who want to retain federal handouts of taxpayers’ funds or intervene in the economy, not on those who want cuts.

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

Bureaucrats handing out other people’s money often justify their programs based on two facts: First, that the recipients of the funds approve of the handouts; and second, that the recipients spend that money on something of which most people approve. And I suspect much of the testimony that you will hear in favor of the ATP and MEP will be based on–I would say bogged down in–these two facts.

But these facts are true almost by definition for every federal government handout. Most individuals receiving free goods are pleased to have them and would like the handouts to continue. If one dropped money from a plane over Washington and traced each dollar, one would find first that everyone picking up the money was happy to have it, and, second, that most individuals spend the money in ways we approve, for example, to purchase food or shoes, or to invest in a small business. But this would not be good public policy. And third, the government would take credit for the prosperity of any individuals who picked up a few dollars, ignoring the 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 government expenditure, including the ATP and MEP, they are not sufficient.

3) The market works well without government handouts.

The private sector is the principal engine of this country’s multi‐​trillion dollar economy, not government handouts. In the area of advanced commercial technologies, that is, the high‐​tech revolution of the past 15 years, the private sector already does a world‐​class job in developing new products and technologies. Thus, ATP is unnecessary.

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

4) Bureaucrats have no special talent for picking winners and losers.

Federal bureaucrats have no unique abilities, better than those of private investors and entrepreneurs, to pick winning companies and technologies. It is not by virtue of their keen abilities to spot future market needs or their creative talents for inventing new products or services that bureaucrats acquire power to disburse investment funds. It is by virtue of their ability to function well in 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 successful bureaucrats and politicians would make dull, incompetent entrepreneurs.

To put it bluntly, if bureaucrats and political appointees did have special abilities to pick winners and losers, they would become entrepreneurs or work for entrepreneurs, and actually produce the new products for which they claim consumers clamor. They would put their own money, not taxpayers’, and their creativity and energy, where their mouths are.

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

5) The government’s record of success in subsidizing enterprises 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 loan guarantees through various programs. Not even half were paid back. The American taxpayers lost over $650 million. And those loans still 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 to date, recently sought congressional approval to sell off some of its bad loans for less than ten cents on the dollar.

*On the more focused issue of advanced technology, recall that the Supersonic Transport (SST) plane in the 1960s was considered a “crucial” commercial technology and gobbled up $920 million in taxpayer dollars. The result: Congress mercifully put the project out of its misery in 1973. The benefit to the public: None. By contrast, the governments of France and Britain continued to fund their SST. Now they operate a few of these planes at a huge loss and have not even come close to covering the costs of development.

*High Definition Television (HDTV) is one of the clearest failures of the government’s targeted handouts. Japanese businesses, with subsidies that totaled $1 billion from their government, in the late 1980s sought to develop HDTV using existing analog technology. Thomson Consumer Electronics of France, a subsidiary of that country’s state‐​owned Thomson S.A., received around $1 billion to develop a similar system. American firms sought, but were denied by the Bush administration, $1.2 billion in subsidies to compete with these foreign rivals. The U.S. government in the end probably spent $200 million for miscellaneous research and feasibility studies. As a result of being denied massive subsidies, American companies were forced to develop an even better, more efficient form of HDTV.

*Zenith and American Telephone and Telegraph invented a fully digital system that made the analog Japanese and European systems obsolete before they even went into production. Japan has announced that it will abandon its system, losing its $1 billion in government funds and private investment, and adopt the American system. The French firm also lost over $1 billion. If the Bush administration had listened to those seeking subsidies, all countries would be working with inferior technologies, and American firms would be just a few among the many mediocre.

6) The ATP is indeed a high‐​tech version of the Small Business Administration (SBA): wasteful and counterproductive.

The ATP has been called a high‐​tech version of the SBA. This is a good analogy because SBA has an abysmal record, with a default rate of around 20 percent. Some 99.8 percent of American small businesses do not receive SBA assistance. As long ago as 1963 Life magazine described SBA as “an almost brand‐​new device for soaking up money and getting rid of it.”

7) The proposed ATP expenditures are the kind of corporate welfare against which the Clinton administration inveighs.

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

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

*BP Chemicals received $5.2 million over four years to develop dual‐​purpose ceramic membranes;

*Caterpillar Inc. received $3 million over three years to develop engineered surfaces for rolling and sliding contacts;

*Texas Instruments received $2.2 million over 28 months for a single‐​chip receiver front‐​end with integrated filters, and $2 million over three years for ultra‐​low k dielectric materials for high‐​performance interconnects;

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

*IBM received $1.9 million over three years for a framework for enhancing computer‐​integrated manufacturing;

*Xerox Corporation received $1.8 million over three years for reusable performance‐​critical software components.

These are hardly new, poverty‐​stricken, desperately struggling businesses that cannot fend for themselves without corporate welfare.

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

The list above of large corporations receiving funds is enough to suggest that political influence plays a part in distributing largess.…

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

On March 25, 1993 Dr. T.J. Rodgers. President and CEO of Cypress Semiconductor Corp. testified before the House Committee on Science, Space and Technology, Subcommittee on Technology, Environment and Aviation on government subsidies for high‐​tech innovations. After showing several of his company’s products, Rodgers observed that “we would benefit greatly if billions of taxpayer dollars were showered on the various technology projects favored by the Clinton administration.” He then made his main point:

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

Congress and business should take this attitude towards technology policy.

10) The U.S. Constitution does not allow for government subsidies 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 are to reestablish a republic of limited government in this country, we must refer to the law upon which it was and should be based.

Article I, section 8, [3] of the Constitution gives Congress the power “To regulate Commerce … among the several States…” This was meant to allow the federal government to remove trade barriers between states. In this century the federal government has used–I should say misused–this power to regulate the way entrepreneurs actually run their enterprises. But it is an unreasonable stretch to maintain that this paragraph implies that the government regulates by passing out taxpayer dollars to favorite industries. And Article I, section 8, gives Congress the power “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” This quite clearly refers to protection of intellectual property rights, not to passing out checks to favored industries.


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

[2] Terence Kealey, Economic Laws of Scientific Research (London: MacMillian Press, 1996). see also Terence Kealey, “You’ve All Got It Wrong,” New Scientist, 29 June 1996, pp. 22–26.

[3] W. Michael Cox and Beverly J. Fox, “What’s Happening to Americans’ Income?” The Southwest Economy, Issue 2, 1995 (Dallas, TX: Federal Reserve Bank of Dallas, 1995), pp. 3–6.

[4] Paula E. Stephan, “The Economics of Science,” Journal of Economic Literature XXXIV (1996):1199–1235 @ p. 1201 (emphasis in original).

[5] National Institute of Standards and Technology, “The Advanced Technology Program: A Progress Report on the Impacts of an Industry‐​Government Technology Partnership,” (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 Econometric Results,” Science (1987):31–35.

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

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

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

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

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

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

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

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

[17] Kealey, New Scientist, p. 24.