Federal Triangle: Creating Industrial Policy
An interesting study by Gregory Tassey, Senior Economist at National Institute of Standards and Technology, is titled "Methods for Assessing the Economic Impacts of Government R&D." An enormously complex topic to evaluate, this analysis is as honest as can be documented but is silent on subjects of whether government should be in the R&D business, its role in distorting market forces through R&D intervention, its competence to assign value to social outcomes, and facts regarding loss to the economy for this government "surcharge" in taking jobs from the private, tax paying sector. This report offers a legitimate exploration, as the title expresses, but is a justification also for what government has usurped from the U.S. industrial economy and academia.
The U.S. gross domestic product has grown 121% in real terms over the past 25 years (1977 - 2002), during which time industrial R&D grew 159%, non-defense R&D by government grew slightly less and at NIST increased only 92%. Over the past decade federal R&D sponsoring agencies have grappled with the nature and quantification of economic inputs, outputs and outcomes of R&D processes and striven to accompany budget requests with impact projections. It has been the policy of both Clinton and Bush Administrations to support budget decision-making via strategic planning and systematic analyses, now done through retrospective and prospective studies. A dicey study element is defining a rationale for government intervention in private markets by assessing the degree of public good achieved. Does the phrase "a hokey deal" come to mind?
Federal agencies doing R&D have succumbed to macroeconomic assessment techniques in the past, such as by using "multiplier effects"; NASA employed Chase Econometrics in 1975 to show large impacts produced by R&D on aggregate total factor productivity. Recently, NIST has assessed its Advanced Technology Program impacts (ATP) on national GDP and employment enhancement in, how do we say this nicely, "very favorable terms." Prospective assessment of ATP software development programs predict that between 2001 and 2004, the metrics and results in Table I will be achieved, where we are defining net present value (NPV) or discounted cash flow as inflation adjusted net benefits over the four years discounted to 2000. Benefit-cost ratio (BCR) relates present value of real benefits to present real costs. These analyses also account for internal rate of return (IRR) as the discount rate that makes net present value equal zero.
NIST has evaluated thirty infra-technology research programs over the 1992 to 2002 period; table II shows results for selected industrial program sectors.
There are many factors to consider, since federal government is entrenched in the R&D business, because these analyses represent a trend, whether accurate or not. Further, be frank about it and understand that many companies look at federal R&D projects as their foundation and way of life. NIST metrics (inputs, outputs and outcomes) are presented as objective, simple, consistent and both technology and industry independent. Input covers direct and indirect government costs, industry research cost, commercialization cost; how a bureaucrat can divine real numbers in these categories is more than a mystery, other than they can be skewed to make a desired answer appear. Output covers value, intellectual property and acceptance by target industries that assimilate generic technology. Outcome accounts for positive industry R&D investment decisions, market access improvement, time to market and market penetration and related transactions.
All the above is important to readers because taxes fund the R&D activities and these assessment. Studies drive federal budget decisions and lead to defining national industrial policy, a concept, which has failed throughout the world whenever tried. We can credit Mr. Tassey with good work and good intentions, but also misguided results. Your job is to see that using this methodology does not get out of hand and ruin your industry's future. Does the idea of calling your Congressman come to mind?