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Better Living Through Government Mandate

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Better Living Through Government Mandate

Smith Article from the Journal of the American Mining Congress

 

Technology—or rather government-favored technology—has gained favor among Washington politicos and activists. Technology, these activists seem to believe, makes it possible to mandate almost anything—recycling, energy efficiency, sustainable development, pollution prevention, industrial safety, mine site restoration, reduced pesticide residues—without worrying about economic or technical feasibility.

Moreover, politicians seem to believe that their role is critical; businessmen are too stupid or short-sighted and routinely overlook readily available technologies that make it possible to do all these "good" things economically—indeed, profitably.

Technology-forcing becomes the necessary policy to overcome the private sector's short-sighted and narrow-minded obsession with profits. To aid this process, politicians also recommend public-private technology partnerships in which government will select, and private firms produce, a wide range of "new technologies."

These new-found Friends of Technology seem convinced that with such policies in place, America will soon be able to regulate itself into prosperity.

However, before investing in Washington's all-gain-no-pain nostrums, we should examine some of the confused arguments that surround the technology-forcing debate. After all, it is not easy to pick the likely economic winners among

mundane sectors of the economy; picking the high-tech winners of the future will be far more difficult. It is also far from easy to translate ideas into practice. What makes anyone believe that political management will undertake this translation task more quickly or smoothly than market forces?

Technology Interaction

Technology-forcing also faces a great difficulty of coordination. Rarely does progress depend upon one technology alone. Generally, technologies interact in complex ways; gains are possible only if a series of technologies advance in parallel.

For example, the great advances in iron and steel technology owed much to parallel advances in the railroad inclustry—and railroads similarly benefited from improved steel alloys. That coordination task is performed reasonably well by markets; it is extremely difficult to coordinate these same activities politically.

Technological change often represents a complex of interrelated advances-all of which reinforce and are reinforced by each other. Knowing whether to promote the chicken or the egg—and being able to determine in advance which chickens relate to which eggs (and vice versa)—is not a task likely to be performed well in a fragmented political world.

Moreover, technology-forcing faces the extremely unpleasant reality that all too many promising technologies fade before reaching the finish line. Their youthful promise is illusory or the older, challenged technology becomes more efficient and regains its dominance.

Rarely does a new technology displace an existing technology easily or without surprise. Yet politicians, having invested time and personal prestige in championing some new approach—electric cars, breeder reactor technology, the SST, mag-lev trains—are unlikely to retreat.

Government Subsidies

Politicians are well known for their willingness to throw good money after bad. National industrial policy argues that government support—subsidies—are required to give the fledgling enterprise a reasonable chance at survival. Unfortunately, experience has demonstrated that infant industries rarely grow up. The high-tech industrial policy variant tends to shift ground somewhat—introducing a "Field of Dreams" argument: if government jump-starts the technology, then private investment and widespread usage will come. Obviously, our skepticism is warranted.

Experience makes it clear that politics often ensures that funds and preferences will go to the older established technologies rather than to the newer, less established approaches. The fact that the national earthquake center is in New York, while major National Aeronautics and Space Administration (NASA) facilities are in Alabama and Texas has more to do with the makeup of the White House and the Senate than to science.

Pork-barrel science has become an increasingly serious problem as the size and extent of political involvement has increased. Joseph Martino's recent book, Science Funding: Politics and Pork Barrel, discusses this point in general.

Politicians respond to political realities. Anti-technology forces (like Jeremy Rikfin) are gaining increasing attention and power. Politically supported technology readily may become hostage to anti-science feelings. This problem exists even in the absence of major federal funding involvement as witnessed by the major regulatory restrictions now being imposed on the highly promising biotechnology field.

Economic Sense

Science and technology have always depended upon entrepreneurial individuals taking the lead, encountering severe disapproval yet eventually prevailing. Politics is concerned with the mood of the populace, not the creative minority. Is it likely that: voting on technological change would ever accelerate human progress?

Those favoring technology-forcing are also too quick to assume that business is short-sighted, that a politically preferred technology makes economic sense.

One common mistake is to assess a specific technology as "profitable" based upon an analysis indicating that the technology would cover its accounting costs. In the environmental field, for example, Senator Max Baucus (D-MT), among others, has stated that "pollution prevention pays" and that reducing waste means increasing efficiency (see page 15).

There is, of course, an element of in all this—but the statement is too simplistic. There are many changes in a modem industrial operation that would cover accounting costs—the question is whether such projects would prove more profitable than other investments.

An old story tells of a farmer be. ing lectured to by an agricultural extension worker about the many new programs that would improve his farm. Finally, the farmer replies: "You know son, I'm not farming half as well as 1 know how to already!"

The farmer understands that the major barriers to productivity improvements are more often shortages of capital and managerial time and talent than knowledge per se. Any technology-forcing policy must consider not only the good done by specific technology maridates, but also the lost benefits that occur because of the diversion of capital and management talent from other promising technological gains. Why should one expect this selection process to proceed more efficiently under a political regime?

Cost of Modernizing

Plants, mines, buildings—all are built at different times and embody different technologies. Generally, newer plants will be more efficient; older plants less efficient. This does not imply, of course, that the older plants should be closed or even modernized.

There are many reasons why "inefficient" plants are highly profitable to operate. Those who would mandate all plants to be as good as the best—a world where everyone would score above average—are living in a "Lake Wobegon" fantasy world. There are many reasons why some plants do better than others: the equipment may be older, the management team may be less proficient, the location may be less advantageous.

To argue that technological gains can be achieved swiftly without cost is to ignore such realities and to act as if the rarest factors in our society—investment capital and competent management—can somehow be legislated into existence.

Politically sponsored technology rarely weighs economic considerations as heavily as does the private sector. Yet, costly technologies are unlikely to find application in the private world.

The space program is but one example of an area of government-sponsored technology that has virtually priced itself out of the market.

Hudson and Giarruso in a recent communique examined an interesting comparison between the prices of space suits and deep sea diving suits. Both are comparable products designed to protect humans operating in environments hostile to human life. Space suits are sold in a political marketplace; diving suits, largely in a private marketplace. The costs indicate this clearly: NASA's latest spacesuit costs $350,000,000, while a high-tech deep ocean diving suit used for undersea exploration costs only $400,000.

Government-sponsored research—even when the results are positive—is all too likely to produce products too costly to find ready acceptance in the private sector.

Market Applications

Markets link human needs to technology and then backwards to science. The process by which basic knowledge becomes useful to our daily lives is complex and not well understood in detail. However, it is clear that much time elapses between the idea and its application, that very small design changes separate an interesting concept from a viable product, and that technologies normally find application in small niche markets before they become useful to the larger world.

A technological breakthrough—the diesel locomotive, the use of electric motors, longwall coal mining—will be introduced somewhere and then gradually diffuse through art industry.

Some innovations, of course, fail or prove successful only in a portion of the industry. Others eventually dominate the industry but only after much time. Many factors dictate the rate and extent to which a new technology will penetrate an industrial sector.

Again, the market system motivates and mobilizes human talent to redress this issue.

Consider safety-motivated technology-forcing regulations. The most basic problem with technology-forcing in the safety area is the confusion over what makes the world work better. To the politician, safety consists of positive actions imposed by government—seat belts, mandatory sprinkling systems, "free" vaccinations and mine ventilation standards.

In fact, much of what has made America so healthy cannot be tracked readily to such direct safety investments but rather to a general increase in wealth. A wealthier populace finds it easier to take positive steps—home ownership in safer neighborhoods, better diets, more frequent trips to doctors, vacations when stress mounts and so forth. Throughout all societies and all wealth levels, public health is improved by greater wealth.

The Real Cost

The impact of this fact is dramatic—all technology-forcing regulations involve costs and thus lower societal wealth. If the safety gains from these regulations are not greater than the reduced health associated with the lower wealth then the regulation will reduce rather than improve societal health!

In effect, all regulations must be evaluated from a risk versus risk framework. People die from poverty—as well as from the lack of a specific technology.

Still another point relates to the tendency of government to claim credit for improvements already underway—and to neglect the greater improvements that might have been possible had the regulations not been imposed.

Generally, technology allows mankind to do better over time. Too often, like the arrogant cock that assumed its crow caused the sun to rise, a government program is given credit for an improvement that would have occurred in any event. A government technology-forcing program is enacted and, later, improvements occur. The program is then credited with the improvement. Yet achievements should be measured against an existing trendline—only an improvement over that level should be viewed as a "gain."

The respect that technology has acquired is welcome but the nature of these new pro-technology policies is troublesome. America's new friends of technology seem woefully unaware of the actual process by which knowledge becomes practice and the incentives needed to make this process work.

The idea that politics can readily create a desirable future is fanciful. Technology-forcing will certainly encounter the pork-barrel politics problems of other government programs. Political support will be accompanied by political regulations that rarely have proved friendly to change of any sort.

Technology has been a great boon to mankind; political technology is all too likely to prove a boon only to the politicians and the politically preferred.