More Government Means Less Manufacturing

More Government Means Less Manufacturing

March 23, 2010
Originally published in The Washington Times

When it comes to our economy, where are we going, and why are we in this handbasket? That's a question worth answering before Congress reauthorizes legislation to boost government investment in science and technology and, in turn, manufacturing.

Indeed, we want to make stuff in the United States and create jobs. But when we're mired in recession, what really is the national government's role in "manufacturing" a more robust manufacturing economy?

First, we must avoid fostering a "declaration of dependence" on federal dollars on the part of America's most crucial frontier industries. Second, we must avoid having government steer while the market rows. Worthy knowledge and ideas are too widely dispersed for officials in Washington to know the right direction for American industries.

The need to deregulate this economy shouts at us: It's on fire and Rollerblading naked through the Capitol, but Congress doesn't seem to see it. Basically, you don't need to tell the grass to grow; you just take the rock off of it.

One big rock on a growing American economy is politically driven research and development (R&D).

Federal science fosters too many conflicts: over public access to data; over the merits of basic versus applied research, government versus industry science; over assignment of intellectual property; and more. For another, politics has trouble balancing trade-offs: When to subsidize nanotechnology? Or biotech? Or fuel cells and the hydrogen economy? Or robotics? Or bioengineered gills so we can live in the oceans? Congress can't fund them all.

Meanwhile, the science not created by the political reassignment of taxpayer resources remains unseen. It wasn't the power of tax and dispense that made the United States leapfrog the world's economies in 100 years.
So a warning: Subsidies can mean "subprime" technology policy for many reasons:

(1) Government "steering" can create artificial tech booms.

(2) Government funding comes with regulatory strings attached.

(3) Politicians can't choose projects rationally.

(4) The latest conceit is the Federal Communications Commission's new "National Broadband Plan," a form of "cap and trade" for telecom.

(5) Taxpayer funding sometimes wrongly fosters a view of technology as a zero-sum global race; moreover, subsidies don't alter the ratio of gross domestic product spent on R&D, anyway.

(6) Taxpayer funding of "science education" can create a glut of the wrong kind of technology graduates.

(7) Taxpayer funding creates pressures for poor intellectual property outcomes like compulsory licensing.

(8) Taxpayer funding can undermine safety. "Undiscovery" of even the riskiest science is unlikely. So better market disciplines like liability and insurance need to evolve alongside technology; subsidies can propel risky technologies ahead of our ability to properly assimilate them.

"Doing something" about manufacturing doldrums is about more than spending money. Legislation like the bipartisan America Competes Act might scrounge a few scarce billion dollars. But so what? The real gains can come only if we "liberate to stimulate," if we separate state and economics. Here's how:

  • Rather than trying to improve speeds by picking the particular R&D horses to run on the racetrack, improve the business and regulatory track so everyone can go faster, and let jockeys keep more of their earnings.
  • Allow freer trade in skilled labor: Bright foreign workers want to stay and create U.S. jobs after graduating here. That's a better way to address global competition.
  • Avoid safety regulation that makes us less safe: Many frontier technologies like nanotech can make our environment cleaner. Exaggerating risks overlooks hazards of stagnation.
  • Liberalize capital markets: Capitalism ranks among the world's great democratizing forces, but post-Enron Sabanes-Oxley regulation has severely distressed smaller companies. So, exempt firms with small market capitalizations (for starters).
  • Privatize: During the 1990s, it was proposed that commercial aspects of federal labs be offered to the industries they benefit, or to allow research employee buyouts. Do that.
  • Award "prizes" rather than grants as one element of a transition to private funding.
  • Relax predatory and anti-consumer antitrust activism: Markets emphasize competition, but sometimes "collusion" is merely a "partial merger" instead of a full one. Constraining productive firms in ways the market never intended hobbles entire industry sectors, and undermines the wealth creation process itself.
  • Reduce overregulation generally: More than 60 agencies issue 4,000 regulations a year within some 70,000 Federal Register pages. Congress should get busy implementing a bipartisan "regulatory reduction commission"; sunsetting old rules and putting an expiration date on new ones; requiring fast-track congressional approval for controversial agency rules; adding flexibility for smaller business; requiring supermajority points of order for unfunded mandates; and creating a basic regulatory report card to accompany the federal budget.

There's a way to stimulate the economy from the halls of Congress but it is not enacting wonderful new programs. It is acting to get government out of the way.