Bush vs. Clinton: Can Technology Revive the Economy? : The presidential candidates, including Perot, have differing positions on the oft-discussed but poorly understood concept of growth policy

The end of the Cold War has diminished the significance of military might in defining what makes a superpower these days. It is technological and manufacturing clout that will count for more and more. The United States, long unchallenged as the world’s military and economic superpower but now struggling economically, finds itself at a crossroad in this presidential election. For starters, it must rethink its technology policy.

Global competition is heating up as the nation struggles to improve worker productivity. The challenge for the next President is to enhance U.S. competitiveness and to set a future course. Poorly trained workers and a lopsided dependence on low-paying service jobs to soak up labor pools are hardly prescriptions for continued growth and prosperity, even if trade booms. The problem requires new initiatives.

Software More Than Hardware Drives Top End of World Economy

The world is poised for a technological explosion that will put a premium on brainpower and knowledge-based industries. New ideas, research and products will be crucial to spawning new businesses and jobs. They will be equally important to the continuing telecommunications revolution, spreading in the form of fiber optic networks now starting to interconnect homes and businesses.

The three candidates all agree that technological innovation is crucial to sustained economic growth. Countries that innovate will emerge as the most successful competitors in the global economy. The candidates differ greatly on the extent to which government ought to be involved in guiding the country into the Information and Technological Age. President Bush would follow a laissez faire free market approach. Gov. Bill Clinton and Ross Perot advocate a more hands-on role for government.

Industrial Policy: An Old Bugaboo Term but a Newly Fashionable Idea

In some, the very term industrial policy triggers fears of Big Brother meddling in free markets. The Bush Administration has cast the concept in this negative context, arguing that the government should not be in the business of trying to pick winners and losers or favoring one or another category of business with tax breaks and other help.

By contrast, others promote the concept of industrial policy as government implementation of programs designed to encourage industries to develop critical technologies and to nurture an environment for growth. That kind of effort would include aggressive government programs for better schools, job training and infrastructure.

Germany and Japan take just such an aggressive tack in these areas. Though both Clinton and Perot try to avoid the IP term, they maintain that the United States must adopt policies that will keep it competitive with Japan and Germany, which work cooperatively with their private sectors.

It’s true that the United States has intermittently pushed de facto government growth policies to give certain businesses a leg up: Government help greatly benefited the development of railroads; tax policy greatly stimulated the real estate industry. But now, industrial policy advocates say, the nation needs a high-profile strategy to stimulate growth and jobs.

Research and Development Are Engines of Innovation and Progress

In our view government must play some sort of significant role in nurturing research and development; the percentage of U.S. spending in these areas lags behind Japanese and German rates and is concentrated in defense. Japan allocates 3% of its gross domestic product to research and development, Germany 2.9% and the United States 2.7%. More than half of the U.S. expenditure is dedicated to defense-related R&D.; In contrast, Germany and Japan plant their R&D; dollars mainly into commercial, private-sector projects.

Over the years the U.S. private sector traditionally committed huge resources to R&D.; No more. In August the National Science Board reported that scientific research by U.S. business was in a dangerous state of stagnation. The policy-making arm of the National Science Foundation urged the government to create a plan to help industry compete against foreign rivals. Noting that cutbacks in private research were putting the computer, factory automation, auto, metals and electronics industries at risk, the board recommended increasing funds for federal research--spending more on civilian research, less on defense--and changing tax, fiscal and monetary policies to promote scientific investment.

The Candidates Approach Growth Policy Gingerly and Carefully

Although Bush says he abhors the very thought of industrial policy, he too backs the idea of providing increased federal funds for emerging new technologies, such as high-speed computing, biotechnology and batteries for electric cars. He has supported Sematech, the joint government-business venture, to improve computer chip-making equipment. Whatever one calls it, this in fact is a form of industrial, or at least growth, policy. The energy bill newly signed by Bush contains some industrial-policy components to promote alternative and renewable fuels.

Clinton wants to split research funds 50-50 between defense and civilian use. He wants to create a civilian version of the highly successful Defense Advanced Research Projects Agency that converted obscure technology into state-of-the-art weapons. A civilian DARPA would invest in advanced manufacturing technologies and support private-sector-driven consortiums similar to Sematech. The idea makes sense, but the danger is that the effort could wind up creating yet another crushing bureaucracy. Why do that? A better approach would be simply to expand the existing defense-oriented DARPA to research and develop civilian-sector projects.

Perot has not gone public with his views on government spending on research. He does, however, favor targeting very specific plans for would-be growth industries. This could prove heavy-handed.

All three candidates agree that a permanent R&D; credit would help to funnel private funds into research and development. But none has questioned the wisdom of mammoth, multibillion-dollar science projects, such as the superconducting super collider and the space station. This is understandable in an election year, considering that the candidates are vying for votes in Texas, home of the super collider. But after the election, the next President will need to reignite the debate about these big-science projects.

How to Develop New Products--and Manufacture Them Better

Over the years the United States has been the undisputed leader in new technology, but it has been a dismal failure in commercializing that technology. The Japanese have excelled here, creating entire new industries from U.S. inventions such as the transistor, the fax machine and the videocassette recorder.

The big challenge will be to apply promising new U.S. technologies to consumer and commercial uses--products that can be manufactured in the United States. That could rejuvenate the manufacturing sector.

Tax incentives directed toward investing and toward updating factories would help revive manufacturing. Outdated manufacturing practices have contributed to the decline in U.S. productivity. Clinton proposes to create 170 market-driven manufacturing extension centers over four years to extend technology and best practices to small manufacturers. About seven such centers exist now.

Bush has not outlined a plan for manufacturing. Perot, who calls for maintaining and building the manufacturing base, has been short on specifics, saying mainly that government must develop plans, industry by industry, to strengthen companies. That is too intrusive.

Profound--and sometimes fearsome--competitive pressures in the global market should cause the United States to rethink its reluctance to develop new ways for the government and the private sector to work together. The American tradition has been for government to be the watchdog over business, a relationship that at best is adversarial. Clinton and Perot want a partner-like relationship; Bush, though pro-business, would stay pretty much with the status quo. Clinton and Perot advocate changes in antitrust laws so that American firms can work together to meet international competition. Bush has been silent on the issue. All three back regulatory reform to free business from costly government red tape.

A nation at a crossroads must choose a path. A President with a clearheaded vision for a competitive America in the 21st Century can lead the way. All three candidates clearly understand that technology is key to economic renewal. Bush offers little change, Perot radical intervention. Whether it’s called industrial policy or growth policy, Clinton’s position represents a measured, middle-ground approach to altering course.