Governmental research funding and economic distortion

Governmental Research Funding and Economic Distortion

Fred Smith

Science and technology are "good" things. Still, there are many good things that should not be done by government and there are many other things that the private sector does far better. Government-funded research and development (R&D) falls into both these categories.

Research funding is big business. In 1998, the Department of Health and Human Services received $13.1 billion, the National Aeronautics & Space Administration $9.3 billion, the Department of Energy $5.6 billion, and the National Science Foundation $2.3 billion 1. Newt Gingrich, still adhering to the Progressive dictum that "government does it better," is now calling for a doubling of current federal research expenditures.

This article will assess the theoretical arguments for government-funded research and examine specific research programs of the Department of En- ergy and the Environmental Protection Agency. Throughout, I will argue that private property rights, the rule of law, and free markets are the great- est incentives to conduct scientific research; under-investment in R&D is due not to market failure but to the failure to have markets.

A Careful Look at the Case for Federal R&D Funding

The intel lectual case for t axpayer f und ing of science is based on the mar- ketfailure argument . Research creates value, bu t that va lue is no t easily captured. It is all too easy, the a r g u m e n t goes, to dupl ica te a d i scovery in an area once someone has ca rved a path. Thus, all part ies will h a n g back, wait- ing for others to spend funds on basic research, and then rush in to enjoy the fruits of the victory. Eve ryone will seek to free ride on the w o r k of others, and therefore no one will take on the scientific and technological research tasks. As a result, the free marke t , it is a rgued , will unde r - inves t in science and technology.

Fred Smith, Jr., is the president and founder of The Competit ive Enterprise Institute, a public interest group active in economic and environmental public policy issues. Located in Washington, D.C., CEI has a web site at ht tp: / /www.cei .org. Mr. Smith has debated free-market approaches to public problems as a guest on MacNeil/Lehrer, Crossfire, and 20/20. This article began as test imony before the Subcommittee on Energy and Environment, House Committee on Science, 25 March 1998.

Knowledge, Technology & Policy, Fall 1998, Vol. 11, No. 3, pp. 27-39.

28 Knowledge, Technology & Policy / Fall 1998

Note, however, that it is difficult to k n o w - - e v e n if we accept this market failure thesis-- the magni tude of the failure. What is the "optimal" amount and mix of research that should be done in our society? Is industry doing enough? Market failure enthusiasts say "no," but what criteria lead them to that conclusion? Should we be spending relatively more on biological research? Relatively less on chemical research? H o w can we ever answer these questions? Market failure enthusiasts do not address such problems.

And, in any event, what evidence suggests that government will succeed where markets have failed? After all, in the very real political arena, research funds are distributed according to political criteria, not objective determinations of need. Before we accept the existence of market failures we must acknowledge the risks inherent in government failure. Lacking any clear objective criteria for selecting specific projects, science funding often becomes just another form of porkbarrel spending. Some regional or interest group constituency has the political clout to extract higher taxes from the public to advance its special interest agenda. The rhetoric of science and technology simply makes it easier to achieve their goals. Renew- able energy research is a good example of this type of program.

The superiori ty of private over political R&D stems largely from the higher probability of government failure. Politicians face the impossible task of assigning priorities to the very large number of "significant" research projects. Not surprisingly, they tend to select those enjoying popu- lar support ("politically correct" science and technology) or those benefiting their local constituency. There is no reason to suspect that the programs favored under these rules are those that would most effectively advance human welfare. In contrast, private innovators are guided by price signals to seek out those research challenges that, if solved, would most reward them. This incentive structure encourages them to explore those options that (directly or indirectly) advance our capacity to meet h u m a n needs.

This fact has often been overlooked. Consider, for example, the energy efficiency and alternative energy research programs of the Depar tment of Energy. DOE funds such research in the belief that markets do not do enough to increase energy efficiency or find other sources of energy. This is a strange notion. If events were ever to require fossil fuel substitutes or greater energy efficiency, then, as Simon Rottenberg has stated: "Producers have the incentive to find inexpensive, attractive, and efficient substitutes for fossil fuels; their earnings will rise if they do. Consumers have an incentive to substitute other fuels; they will reduce their costs if they d o . ''2 We don ' t need government to tell us to save money.

Markets (and the price signals that arise within them) allow society to better target scarce R&D talents and resources to max imum effect. More- over, the entrepreneurs themselves have every reason to exercise due cau- tion in seeking out those projects in which to invest their time and money; their economic welfare is directly affected by their success or failure. Also, unlike the political sector, private firms can gain great rewards by solving significant problems; a Bill Gates, for example, can become the richest person in the world by advancing society's ability to process information. The

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lack of a residual claimant (that is, an individual who can garner such wind- fall returns) means that the political sector will be far more risk adverse and will invest fewer resources in high-value, low-probability projects.

Over time, this greater ability to target R&D resources has major impacts on the rate of technological progress. Empirical evidence abounds that markets are better, for example, at encouraging energy efficiency over time than government . Mikhail Bernstam 3 has shown in comparisons of East and West Germany and North and South Korea that where government intervention is relatively less, energy efficiency is greater. He shows that per dollar of GNP, Socialist economies use nearly three times as much energy as market economies. The former East Germany consumed 40% more energy per person and more than three and a half times as much energy per dollar of GNP as West Germany. North Korea uses 70% more energy per capita than South Korea. Because market economies use resources more efficiently, they meet h u m a n needs with less environmental stress. In contrast, such federal energy projects as Synfuels have been disasters.

The market failure a rgument is perhaps most powerful when used to argue for "basic research." At first, the rents of basic research seem even more difficult to capture that those of applied research--after all, you cannot patent quan tum mechanics. But the rhetorical appeal of this a rgument is not matched by historical fact. The technology record is replete with examples of entrepreneurs investing in hard science. Consider that metal- lurgy was a valuable craft for centuries before electronic imaging and crystallography made it possible to unders tand w h y certain alloys provided certain valuable properties (ductility, conductivity, durability). This uncer- tainty provided incentive for research into these basic scientific principles. This reverse causal linkage the tail of profitable technology wagging the dog of scientific under s t and ing- -was also present in the emergence of seismology. Property owners wanted to know if weal th lay bur ied beneath their land; seismology was the result. Similarly, number theorists engage in seemingly obscure research, but they find ready employment in the en- cryption field. Finally, notwi ths tanding quan tum mechanics, patents do provide great incentives for basic research. New medicines and micropro- cessors can be patented and thus their value captured; even basic genetic research is yielding patentable results.

The market failure thesis also overstates the role of economic incentives in scientific discovery. Many scientists are deeply motivated by an aesthetic search for truth. The passion can be every bit as compelling as the desire for personal weal th or the fulfillment sought by the painter or musician. This is clear in the memoirs of the great scientists--the experience of the discovery of the structure of DNA by Watson and Crick, for example. New- ton was no profit maximizer, nor was Einstein. In a political world, these individuals would have competed in the Grantsmanship Games-- i s it likely that they would have proven as capable in that endeavor? Moreover, economic incentives can have perverse effects--call this the Rossini complex. At the age of thirty-seven, having wri t ten thirty-one operas, Gioacchino Rossini retired from composing. No longer in need of commissions for fi-


nancial support, Rossini l ived a life of hedonism for his remaining thirty- nine years. This suggests that money can depress the creative incentive. Clearly this risk is not restricted to state funding of scientific research, and, if taken to an extreme, such an a rgument could gainsay weal th creation per se as undercut t ing the useful channeling of h u m a n energies. That not every scientist will respond as Rossini did is beside the point; it is sufficient here to demonstrate that the market failure thesis underest imates the moral haz- ard of state intervention.

Another rationale for federal R&D is the "me too" argument . America mus t fund such projects because other nations do. Unless Amer ica in- vests as heavily in R&D as do Japan and Germany, we will fall beh ind in the international competi t ive sweepstakes. There is much wrong wi th this argument . First, countries do not lose if their neighbors find more efficient ways of producing some good or service. All mank ind benefits w h e n knowledge is increased anywhere . To v iew such gains as losses is to rep- licate the old mercantilist idea that internat ional t rade and commerce are like war.

Moreover, experience suggests modest expectations for such massive political investments. The Japanese investments in high-resolution TV, for example, have not proven valuable. Those few programs that have succeeded, like Toshiba's dynamic random access memory (DRAM) project, were the result of superbly managed Japanese companies rather than government handouts. 4 A recent book by Terence Kealey, The Economic Laws of Scientific Research, suggests that total R&D expenditures may not vary, despite varying national policies. He finds that total R&D spending seems to relate closely to national GDP. In nations with low government-funded R&D, the private sector pays more of the bill. In nations where government provides ready funding, the private sector reduces its investments accordingly, s In the United States and the UK, more funding is from private sources; in France and Ja- pan, more is from government. This argument for a strong displacement/ substitution effect suggests that taxpayers gain little from political R&D expenditures except the creation of a new form of corporate welfare.

The "insurance" argument for federal R&D is an especially common piece of rhetorical chicanery. 6 We are told, for example, that federal investment in renewable energy technologies is a small price to pay for protection from the potentially catastrophic risks of global warming or Mideast oil supply disruptions. Let us leave aside the question of whether greater use of w ind and solar power really can mitigate climate change, or substitute for petro- leum-based energy. A more fundamenta l problem is that individuals and societies face countless risks, many of them potentially catastrophic. If we were to try to insure against all of them, we wou ld go broke. So the real issue is not whether insurance is a good idea, but which kind to have and how much. Why should we consider the "insurance" provided by DOE energy programs more valuable than that provided by defense spending, police and fire protection, or cancer research? More pertinently, w h y should anyone believe DOE energy research wou ld better protect families than simply allowing taxpayers to keep more of their hard-earned dollars?

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Picking a Better Team of Horses: Assessing Specific R&D Programs

Let us now turn to the management of the federal R&D budget. A first point is that federal research should be used to inform science policy, not defend it. Unfortunately, that is not the current practice. Consider, for example, climate change research. This portion of the federal R&D budge t is projected to grow rapidly. The goal should be to seek a better unders tanding of the complex links be tween man ' s activities and potential climate change effects. Our knowledge remains very imprecise, as illustrated by the unexplained differences be tween the results predicted by current models and the empirical data recorded from satellites. For example, w h y do satellite data show almost no warming even though the amount of CO 2 in the atmosphere has increased by almost 50% over the last decades?

Unfortunately, but understandably, EPA is increasingly focusing efforts away from such knowledge-creating work, focusing instead on the more politically relevant work of creating scare scenarios of the downs ide impacts that might occur were climatic change to be a reality. This is not sur- prising: President Clinton and others in the Adminis t ra t ion suggest that the time for scientific debate is now over; it is time to act. 7 Research that might undermine current anti-energy use policies is therefore discouraged; data collection that suggests problems with current climate change models is assigned lower priority. Instead, the Administrat ion has focused on Im- pact Analysis, a type of scenario analysis that asks what horrible results might occur in various fields (public health, flood control, agricultural out- put) if the worst fears of the catastrophists become reality. There is an element of intellectual creativity in all this, of course, but authors like Stephen King are more appropriate than scientists for this type of work.

A different but related abuse is the funneling of R&D funds into political advocacy and lobbying. A quick look at DOE's on-line Procurement and Assistance Data Systems (PADS) reveals some curious "R&D" projects. DOE awarded:

�9 $1.6 million to the Solar Industries Association for "Solar Energy Market Promotion and Technology Transfer;"

�9 $157,000 to the American Solar Energy Society for a "White Paper and Long- Term Media Campaign to Publicize Solar Energy Success Stories and Ad- vances in Technology and Market Penetration;"

�9 $427,810 to the Geothermal Energy Industry for "Support of U.S. Geother- mal Industry;"

�9 $1.75 million to the Alliance to Save Energy to "Promote Efficient Use of Energy;" and

�9 $160,119 to the American Council for an Energy-Efficient Economy to "Re- view State Energy Research, Development, and Demonstration Programs."

DOE categorizes all these commercial and political promot ion efforts as "research and development ." Under the guise of support ing energy R&D, DOE is funding those who lobby for bigger DOE budgets.


The institutional structure of most regulatory agencies gives them little reason to engage in balanced, objective scientific research. An agency is locked into a set of issues; if objective research were to suggest that these issues are improving or that their urgency is less than once believed, then the agency will decline. Thus, an agency can be expected to avoid any research that might threaten its existence or powers. EPA is especially subject to this problem.

Sound science should play a key role in guiding EPA's policies and priorities; it does not. EPA's major problem is not that it does sensible things foolishly, but rather that it does too many foolish things. EPA finds it very hard to conduct good research when that research might well threaten the very existence of the agency or one of its growth programs. An example of this abuse of science is the National Acid Precipitation Assessment Study (NAPAP) conducted by EPA to determine the risks associated with acid rain. The NAPAP study was massive (ten years of research and $600 million in funding). Unfortunately, the results failed to support the alarmist arguments that EPA and others had been using to advance their policy agenda. As a result, the study was suppressed and ignored while Congress and the Administrat ion proceeded to enact (without analysis) major new air pollution legislation. That legislation included an acid rain p rogram which costs $2.5 billion per year, and is now being touted as a model for emissions trading under the as-yet unsigned, unratified global warming treaty. NAPAP had suggested that this program was largely unnecessary, that its minor potent ia l benefi ts cou ld read i ly be a t t a ined by m i n o r remediation measures. But at EPA, politics and agency objectives, not sound science, dictate policy.

There are other reasons w h y politically selected R&D projects are less likely to yield significant gains. Ideas likely to prove successful will al- ready have attracted private champions. These private researchers and investors will resist efforts to in t rude on their established turf. Thus, the projects available for government support are likely to be well beyond the current technology frontier. Yet, since no one knows in which direction that frontier is moving, projects selected in this way are unlikely to succeed. Private long-range investors in the high-tech area also face an uncertain future. However, the fact that they can benefit appreciably if their projects prove successful allows them to rationally invest in a portfolio of low-probability projects, counting on the large profits from the rare success to offset the costs of the many. Political R&D managers have no such opportunity.

Factor Efficiency Often Isn' t Very Efficient: Energy efficiency R&D pro- ponents fail to distinguish between factor efficiency and overall efficiency. DOE and its allies tend to assume that firms do not use the most energy- efficient heating, lighting, and equipment because of ignorance, inertia, or short-sightedness. However, energy use decisions often reflect instead dif- ferential factor prices, the usefulness of "obsolete" technologies, or the avail- ability of superior investment opportunit ies elsewhere. After all, "energy inefficient" technologies may be economically more efficient--if modern- ization costs are high or energy prices are low, for example. America 's early

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chair-making industry, for example, used far more wood than its English competitors; however, it used less skilled labor. The reason, of course, was that wood was plentiful, skilled labor scarce. Both societies selected those technologies that were appropriate to the economic realities they faced--a scheme forcing American producers to be more "wood efficient" would have cost the colonists dearly. The regulator's goal of a Lake Woebegone world where all businesses attain factor efficiency levels above the average is silly, deserving of ridicule, not respect.

Nor is it reasonable to argue, as regulatory enthusiasts often do, that Americans "waste" energy because they use more per capita than do Euro- peans or Japanese. America has more abundant energy resources than Eu- rope and Japan, so energy tends to be less expensive here. America has a lower population density, so we must consume more energy for transpor- tation. Americans enjoy 50-80% more living space, per capita, than do Eu- ropeans, and 250% more than the Japanese. Larger domiciles require more energy to heat and cool. More living space also means more and larger household appliances such as refrigerators and washing machines. To enjoy the benefits of economic progress and prosperity is not necessarily to "waste" energy.

Technology Forcing May Create Costly Unintended Consequences (CAFE): Technology-forcing mandates may seem reasonable, but they often carry with them unintended and costly consequences. Take the Corpo- rate Average Fuel Economy (CAFE) manda te that forced au tomobi le manufacturers to increase the average fuel efficiency of their fleet. The regulation certainly lowered average car fuel consumption figures, but it had many unanticipated consequences. First, the lower fuel consumption lowered the costs of driving, encouraging greater vehicle miles of travel. This offset reduced the anticipated energy conservation gains but, more signifi- cantly, CAFE massively affected the ability of auto makers to produce, and consumers to purchase, vehicles to their liking. CAFE accelerated the decline of the basic family automobi le- - the station w a g o n - - a n d the emergence of new-style vehicles, passenger vans and suburban utility vehicles. (These vehicles, classified as light trucks, escaped the stringent standards imposed on cars.) These latter vehicles tend to be more expensive and less fuel efficient than the vehicles they replaced.

Another impact was to delay fleet turnover and thus to delay the safety, environmental, and fuel efficiency gains from newer technologies. An even more significant effect was to force automobile manufacturers to drasti- cally lower vehicle weight, reducing crash-worthiness. The effect was to increase highway fatalities sharply--an additional 2,500 to 4,000 h ighway fatalities per year! Indeed, CAFE has more than negated the protection from air bags or any other feature adopted to improve auto safety. Yet, neither DOT nor those agencies most concerned with energy conservat ion ad- dressed this offset. They seek to avoid the painful safety analysis entailed in such a blood-for-oil trade-off. Thus, none of these agencies have devoted any research dollars to analyzing the unintended but painfully real consequences of their regulatory policies.


"Technology as Magic" Problem: One additional problem is the w a y in which technology comes to be v iewed by advocacy agencies: R&D is to produce answers to the costly problems created by the agency's policies in the first place. Cars are to be safe---and fuel efficient. Renewable fuels must be produced at costs no higher than those of conventional fuels. Electric cars must be as convenient and cost-effective as conventional gasoline-powered vehicles. Reducing fossil fuel emissions a lmost 40 percent be low baseline projections must not cost much-or mus t p roduce net economic gains! Science is v iewed as a genie in the bottle, able to achieve any miracle as long as properly coerced. The idea that science will deliver any politically desired result is extremely dangerous.

The Regulatory Bias Problem: The science programs of EPA and DOE both suffer from a major bias in that their charters encourage them to consider only certain risks and certain benefits. Consider, for example, energy efficiency research. DOE and EPA both view energy efficiency as a "good thing" rather than as one element of a product or a sys tem--an energy- efficient car that is less safe may be a "bad thing" but that fact is not relevant to these agencies. Their charter encourages them to consider some factors (for example, the gains possible via energy conservation) and to ignore others (for example, the negative impacts of less safe cars). That problem has become far more serious in recent years as "good government" reformers have succeeded in eliminating what has been called conflict of interest from many regulatory agencies.

For example, USDA once regulated pesticides and thus that agency was responsible for promoting agricultural interests and ensur ing safe food. That charter required them to research both the gains and losses associated with more restrictive regulation of pesticides. N o w that pesticide regulation has largely been transferred to EPA, such balanced research is no longer achieved. EPA ignores the "natural" carcinogens, while placing great weight on the risks associated with trace residuals. This bias problem means that R&D seeks only evidence for ever more stringent regulation; there is no support for research on the unin tended consequences of regulation. This calls for reforms that would force the agency to consider the risks of over- regulation as well as under-regulation.

Selected Comments on the DOE Research Budget:

Privatize the Government Labs: Study after s tudy has found that political research facilities rarely produce valued product. A National Academy of Engineering study in the mid-1970s stated:

With a few exceptions, the vast technology developed by federally funded programs since World War II has not resulted in widespread 'spin-offs' or second- ary or additional applications of practical products, processes and services that have made an impact on the nation's economic growth, industrial productivity, employment gains and foreign trade. 8

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More recently, Professor Joseph Martino author of Science Funding: Poli- tics and Porkbarrel, studied the efficacy of politically funded R&D and found the record equally disappointing. 9

I suggest that the military aspects of these labs be transferred to the De- partment of Defense (along with all programs related to weapon development and production). The commercial aspects should be privatized either by offering them to the industries they supposedly benefit or by allowing the current research staffs to take them over via an employee buyout approach. Linking research to human needs is a good idea, but very difficult to achieve in a political framework.

Eliminate All Energy Research Programs: Rescind DOE funding for energy R&D. The DOE has no business engaging in energy R&D. This activ- ity should be left entirely to the market. The argument that business will not develop new beneficial technologies and therefore government should take up the slack has no basis in fact. As noted in the CBO's "Reducing the Deficit" report, major new technologies for enhanced oil recovery have come from private industry, not DOE. The most important fact that Congress must remember when thinking about R&D is that for a new technology to be socially beneficial, it must be profitable. If it is profitable, industry will develop it. If it is not, industry will not develop it nor should taxpayers pay to develop it.

The CBO states in its report that "DOE continues to develop technologies in which the market clearly has no interest." For example, "DOE spent hundreds of millions of dollars on coal-powered magneto-hydrodynam- i c s - w i t h o u t any indication of who was interested in the product." The FY 1999 budget requests $227 mil l ion--a $50 million or 22% funding increase for the Partnership for a New Generation of Vehicles (PNVG). The goal is to produce cars with double and triple the fuel economy of today's models. Rather than expand this program, Congress should eliminate it. If it is tech- nologically feasible to produce cars that get eighty-plus miles per gallon without sacrificing comfort, safety, style, and affordability, auto makers have incentive enough to do so without dipping into the taxpayer's pocket. Pro- grams like PNVG are a direct subsidy to corporate America. If the Republi- can Congress wishes to demonstrate its commitment to spending reductions, it should cut all corporate subsidies. All government-funded energy R&D should be abolished.

Such subsidies rarely improve the health of the targeted industries. Re- call that nuclear power was long the most subsidized form of power; yet its special status also encouraged politicians to regulate it fiercely. There are no free subsidies. Today, nuclear power is the most financially troubled source of power - - in large part because of such restrictive regulation. Would a more market-oriented development path have made nuclear power more viable? We will never know. For such reasons, solar and wind power enthusiasts should think twice. The effort devoted to gaining political support comes at a high price, not the least of which is that one may well lose track of economic reality. As soon as preferences change, and some new energy source becomes the "flavor of the day," such hothouse energy sources

36 Knowledge, Technology & Policy ! Fall 1998

wither away. Having never been required to meet a market test, they often find themselves non-economic, overly complex, and poorly matched to the types of energy needed by consumers.

The federal government has spent billions on research for energy efficiency technologies and renewable energy sources. Yet as Robert Bradley notes in a recent Cato Institute monograph, renewable energy remains about twice as expensive as new capacity from gas-fired electricity, and triple the cost of surplus electricity. ~~ After some two decades of subsidies and favor- able tax treatment, wind and solar power combined supply less than half of one percent of total U.S. electricity needs. The market is trying to tell us something. Such programs represent corporate welfare, plain and simple, and should be ended.

EPA Research Programs

Environmental Science Has Become an Oxymoron: EPA sets the stan- dard for politicized science. A friend there once called to say that he thought I was too harsh; EPA bureaucrats, he asserted, believed in good science, they just weren ' t al lowed to practice it. One of the first reviews of EPA, Asking the Wrong Questions, ~1 made this point very effectively. The book noted that EPA should not really be viewed as a public health agency; few of the policies that fall under EPA's ambit can positively affect the health of the American people.

EPA's campaign for more stringent ozone and particulate matter standards is a case in point. EPA cowed policy makers into accepting the new standards by posing as the defender of asthmatic children. Yet a l though childhood asthma rates are increasing, urban air quality has been steadily improving. The balance of evidence suggests that outdoor air pollution is not responsible for the rise in chi ldhood asthma. 12 A more likely culprit is exposure to cockroach dust and other indoor air pollutants that build up in poorly ventilated (or as EPA might say, energy-efficient) homes. EPA is widely perceived to be a public health agency but undoubted ly EPA's support would decline if Americans were fully informed on the role it plays in our society.

Thus, for EPA to do good science would be for EPA to admit that much of its current support is based on confusion and misinformation. Few agencies could be trusted to conduct such research, and EPA certainly cannot. EPA has consistently sought studies that justified its actions, rather than studies which sought to clarify what is known and what is not about the affect on humans of various materials at varying levels in diverse environ- ments. EPA has rarely conducted research on the adverse consequences of its regulations, even when the impact was environmental .

As but one example, EPA seeks to reduce tropospheric ozone; yet, such reduced ozone levels will lead to increased ultraviolet beta radiation expo- sures and consequently (by the logic that EPA has used in justifying its CFC control policies) to additional cancers. Thus, one might expect a r isk/r isk analysis of the gains possible by ozone reduction compared with the new

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risks created by higher radiation exposure. EPA has neglected this research. Ironically, the DOE, an agency responsible for expanded energy use, has done work of this type. This illustrates once again that the institutional framework of the agency is critical if sound science is to be encouraged. Even when EPA has conducted sound scientific research--a key example being the Na- tional Acid Precipitation Assessment Program (NAPAP)--it has felt free to ignore the results when the results were not to its liking.

Zero-out Superfund Research: Many private studies of Superfund sites have determined that the best solution is to put a fence around them. EPA research has focused on new technologies to make clean sites ever cleaner; EPA has done minimal research on whether such sites pose risks of a level making such costly expenditures reasonable at all. Again, this lack of balance, of focus, relates to EPA's incentives; shifting Superfund sites to the private sector would encourage more meaningful research. We might expect more research on capping sites, on ensuring reliable childproof barriers around sites, and on pumping strategies that wou ld minimize off-site migration of leachate. Such research would be far more useful than that now unde rway at EPA.

Eliminate the Radon Action Program: The EPA is running an alarmist campaign on the purported threats of radon gas to homeowners . The EPA wastes $5 million yearly on this program, and spends an additional $8 million on related grants to states. If the EPA's testing and redempt ion guide- lines were followed, they would cost American homeowners $44 billion, for no conceivable health benefit. 13

Improving the Racetrack: Strengthening Private R&D

The most meaningful thing that Congress could do to improve science and technology would be to reduce the federal tax and regulatory burden. Policies should also move to expand private property arrangements over hazardous waste sites, underground water supplies, and ocean and other water resources. It is no accident that our knowledge of fish biology has massively expanded in recent years along with the increasing importance of aquaculture. People have reasons to become smart about things that will benefit them; the expanded property rights role over fishing resources has given many more people an incentive to conduct R&D in this area. The results are showing up in our supermarkets in the form of lower-priced salmon and catfish, for just two examples.

Repeal Antitrust Laws: A specific regulatory policy that should be re- formed is antitrust. U.S. antitrust policy was slightly modified in the 1980s, but it has rebounded and remains one of the major barriers to a f lowering of cooperative business efforts including cooperative R&D. The antitrust laws that inhibit joint ventures in high-tech industries should be repealed. It is exactly in such industries that s tandard setting, joint research projects, and other risk-sharing arrangements are most likely to advance societal welfare. Such less restrictive policies wou ld also encourage more investment in private R&D.

38 Knowledge, Technology & Policy ! Fall 1998

Repeal the "Right to Know" Laws: Another barrier to private R&D is the proliferation of so-called right to know laws. These laws treat information as a free and public good and thus discourage its private creation. Government should perhaps not expend vast resources in protecting information emulation is often the most effective way of promulgating technological innovations; however, government should do nothing to make it easier to free ride. Companies spend vast sums to achieve marginal efficiency gains in production processes. Were all inputs and outputs of all processes made public, as current Toxic Release Inventory laws intend, then reverse engineering would make many "trade secrets" public knowledge. If we wish to encourage innovation, then the TRI rules should be repealed. How much and what kinds of information companies disclose about their production processes should be determined by consumer choice, not government edict. TRI rules are all too akin to requiring people to cry "fire" in a crowded theater--or perhaps to a law requiring chemical products to wear the equivalent of a regulatory skull-and-bones emblem. EPA trivializes the real risks of society.

Conclusion

Our challenge is to find ways to encourage scientific and technological progress. That challenge is akin to efforts to improve the speed records at a racetrack. One approach has been to increase federal funding for promis- ing technologies. This is akin to picking the horses that will run at the track; certainly that approach may yield some gains. However, the results also depend upon the condition of the track and the rewards available to the winner. Thus, faster speeds might also be encouraged by improving the track (for example, by eliminating barriers and filling in "potholes") and by allowing the jockeys to keep more of their earnings

There is no doubt that science and technology are critical to the future of the United States and the world, but there is much doubt that they are best advanced in Washington or that they are best financed by taxpayers. Scien- tific and technological research pursued in the private sector is the best means to improve our economy, ecology, and human welfare.

Notes

1. National Science Foundation website. 2. Quoted in Joseph P. Martino, Science Funding: Politics and Porkbarrel (New Brunswick:

Transaction Publishers, 1992), p. 356. 3. Mikhail S. Bernstam, The Wealth of Nations and the Environment, The Institute of Eco-

nomic Affairs, 1991. 4. Rogers, T.J., Silicon Valley Versus Corporate Welfare. Cato Institute Briefing Paper No.

37, 1998. 5. Terence Kealey, The Economic Laws of Scientific Research (London: McMillan Press Lim-

ited, 1996), pp. 240-241. 6. See Glenn Schleede's March 17, 1996 letter to the Honorable Dana Rohrabacher, refut-

ing certain arguments presented at the March 14, 1996 hearing of the House Science Subcommittee on Energy and Environment.

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7. "But make no mistake, the problem [global warming] is real. And if we do not change our course now, the consequences sooner or later will be destructive for America and the world." Remarks by the President on Global Climate Change, National Geographic Society, Washington, D.C., October 22, 1997.

8. National Academy of Engineering, Committee on Technology Transfer and Utiliza- tion, "Technology Transfer and Utilization: Recommendations for Reducing the Em- phasis and Correcting the Imbalance," Washington, 1974. p. i.

9. Joseph P. Martino, Science Funding: Politics and Porkbarrel (New Brunswick: Transac- tions Publishers, 1992).

10. Robert L. Bradley, Jr., Renewable Energy: Not Cheap, Not "Green" (Cato Institute Policy Analysis, No. 280, August 27, 1997).

11. Landy, Marc K., Marc J. Roberts, and Stephen R. Thomas, The Environmental Protection Agency: Asking the Wrong Questions (Oxford, England: Oxford University Press, 1989)

12. EPA, Air Quality Trends, September 1995, p. 8. 13. Cassandra Chrones Moore, Haunted Housing: How Toxic Scare Stories are Spooking the

Public Out of House and Home (Washington, DC: Cato Institute, 1997), p. 10.

Governmental research funding and economic distortion

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