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Washington Flirting With Federal Industrial Policy : The Clinton Administration embarks on an important experiment

November 07, 1994

None dare call it that, but the Clinton Administration is moving to establish an American industrial policy. Republicans have vowed to kill it if they gain control of Congress. So it is worth examining the Administration's efforts to redirect American technology in the post-Cold War era.

The instrument of this policy is a once-obscure agency that has suddenly become the fastest-growing agency in the federal government, the National Institute of Standards and Technology (NIST) in Gaithersburg, Md. With hundreds of millions of dollars, it has the ambitious task of boosting American international competitiveness by making large grants to private companies exploring "high-risk, enabling" technologies and then actively promoting joint ventures and "alliances."

Some argue that the government has little expertise in such matters and that trying to pick winners and losers in the marketplace is not the responsibility of the taxpayer. But given competition from European and Japanese countries where governments have long subsidized technological companies, the new American approach is valid. Certain safeguards are needed, however, to protect the taxpayer and prevent the program from becoming one more piece of political pork.

NIST, formerly the dowdy National Bureau of Standards, is an arm of the Commerce Department. It has seen its budget skyrocket from $145 million in 1988 to $855 million this year; it is proposed to grow to $1.4 billion by 1997.

NIST's most potent tool is its advanced technology program. Since 1990 that program has awarded 130 grants to companies and consortiums totaling $407 million. According to the NIST director, Arati Prabhakar, the money is meant not to support direct product development but to help companies overcome major technological hurdles that could open broad avenues of commercial possibilities. "This is technology policy, which is much narrower than industrial policy," she says.

Each company must match the funds, but intellectual property rights belong to the company. Thus, for example, $2 million goes to GenPharm International Inc. of Mountain View, Calif., to help develop animal models with human gene segments for testing of treatments for Alzheimer's and other human diseases. Recipients also include such major companies as IBM, General Motors and Du Pont.

Why should the government do this at a time of fiscal strain? Cannot these companies support their own research and development? Why doesn't the government get royalties from any products? Those are questions being asked by several members of Congress, particularly Rep. Robert S. Walker of Pennsylvania, ranking Republican on the House Science, Space, and Technology Committee.

Jon McQuitty, chief executive officer of GenPharm, which is only five years old and employs 90 people, says that the difficulty such young biotech companies have raising venture capital makes it too risky to do the kind of cutting-edge work supported by NIST.

It is naive to think the United States has never had an industrial policy. For half a century the Defense Department subsidized aerospace and military industries, fueling the Southern California boom. Does the government have a role now that the national mission is less focused? We think so, but the current program is too loosely drawn. The money is theoretically meant only for American companies, but that is very hard to define in this global economy. And we worry that Commerce Secretary Ronald H. Brown could use the program to reward political friends.

Most important, the taxpayers should recoup their investment and perhaps even get royalties should some company hit pay dirt with federal money. Legislation to do that has been passed in the House but so far thwarted by Ernest Hollings (D-S.C.) in the Senate.

The Administration has embarked on an important experiment. It is too early to say if it has worked, but it is worth trying.

Growing Budget:

Budget appropriations for National Institute of Standards and Technology

In millions of dollars

(proposed) '96: $1 billion

(proposed) '97: $1.4 billion

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