End of Cold War cuts technological advances

USA Today (Society for the Advancement of Education), June, 1995

There was a silver lining to the Cold War: The free world got cheaper and better products as a result of U.S. taxpayer support of research into technologies that might be used to fight the "Evil Empire." Now that the war is over, American economic competitiveness often is touted as the reason for Federal research, but it lacks the political urgency of the old national security mission, maintain economists Roger Noll of Stanford University and Linda Cohen of the University of California-Irvine. "Our conclusion is that the United States has not yet found a politically workable and economically attractive means of encouraging technological progress." As a result, Federal government support of research and development can be expected to continue the decline that began in the late 1980s.

Research and development are the engines of economic growth, but who pays for it and who benefits from it are questions that remain problematic for American politicians. "Competitiveness is not a politically powerful substitute for the Cold War in forging a durable, bipartisan coalition for supporting R&D." In addition, political problems in implementing these competitiveness-based programs "are likely to undermine the economic performance of the programs. Eventually, that will further reduce political support for [them]."

The Japanese sustained a massive research effort without a Cold War enemy to motivate them, Noll and Cohen concede, but that won't work for the U.S. "The key lesson from the experience of Japan is that although policies providing extremely high financial incentives for private investment [in research] will produce rapid economic growth, the economic benefits of that growth will not be widely shared."

By keeping out foreign competition and facilitating the formation of domestic industrial cartels, the Japanese government "produced a system that ranks first in the world in its fraction of gross domestic product invested in R&D. It has a higher rate of sustained growth than any other advanced, industrial economy, and it has consistently low unemployment. The other side of Japan's remarkable performance is that the ordinary Japanese citizen has a standard of living far below that of citizens in other nations with approximately the same per capita gross domestic product. Although on average Japanese employees work substantially more hours per year than American workers, the real purchasing power of the average annual take-home pay in Japan is only about 75% of that in [the U.S.] - a noteworthy fact considering the real value of wages for average American workers has not increased for 20 years."

In the U.S., new government R&D programs encourage the creation of research consortia, including government-subsidized joint ventures between universities and American companies. Collaborative research can be beneficial if it expands the technological base of an industry, but allows companies to develop its own products and production methods in competition with each other, Noll and Cohen note. it is just as likely, however, to encourage cartels, which leads to monopoly pricing - a threat to the average citizen's standard of living.

Adjusted for inflation, the government's R&D spending has fallen seven percent since 1988, and no longer is keeping pace with the economy. The political will to continue R&D support is likely to be eroded further unless a more broadly appealing rationale can be articulated.

The relationship between economic growth and technological progress has been "exhaustively" examined by leading economists. "The main conclusions from their work are that more than half of the historical growth in per capita income in the United States is attributable to advances in technology, and that the total economic return on investment in R&D is several times as high as that for other forms of investment."

The consensus among economists has been that the average U.S. citizen has benefited from subsidizing R&D because, under the system put in place during the Cold War, "most of the benefits of innovation accrue not to innovators, but to consumers through products that are better or less expensive, or both." Since the benefits are shared broadly, individual companies may lack the financial incentives to improve technologies as much as socially desirable. The government needs to provide either incentives or direct research and development investment, Noll and Cohen insist.

Political liberals and conservatives disagree only on the specifics of how the government should increase investment. Conservatives prefer to strengthen innovators' intellectual property rights - legal protections such as patents and copyrights - that allow the innovating companies to make higher profits from their innovations. Liberals rather would have taxpayers pay for R&D through targeted programs.

In the past, a political consensus for Federal-supported R&D was achieved by using both liberal and conservative strategies. Business was expected to fund research in areas where it could create strong intellectual property rights, and government supported work in targeted areas considered to be in the national interest. Even so, much of the defense-related research was disseminated broadly and commercially adopted, such as with computers, microelectronics, and telecommunications.