4. Reshaping Industrial Policy

The world is complicated; even the most successful plans carry hidden costs. "The Reagan nightmare of supply side economics and military Keynesianism" had no more enthusiastic champion than the Wall Street Journal, which now complains about the predictable effects as they impinge on wealth and power. "Public higher education -- one of the few areas where America still ranks supreme -- is being pounded by state spending cuts," the Journal reports, echoing the concerns of businesses that "rely heavily on a steady stream of graduates." This is one of the long-predicted consequences of the cutback of federal services for all but the wealthy and powerful, which devastated states and local communities. Class war is not easy to fine tune.

The economic managers of the 1980s not only left the US with a legacy of unprecedented public and private debt, but also with the lowest rate of net private investment of any major industrial economy. Net new investment in the 1980s fell to its lowest level (as a share of national income) since World War II. In 1989-1990, the US fell behind Japan in absolute level of industrial investment, with a population twice as large. The US position in high-tech industry also declined. Another legacy of "the nightmare" is a decline of spending for research and development -- like health and education, "investment" for the future. R&D has fallen to "perilous" levels, the policymaking arm of the National Science Foundation (National Science Board) reported in a 1992 study. Corporate spending, which had risen steadily before, virtually levelled (in constant dollars) from 1985. These trends, if continued, would be "fatal to the technological competitiveness of the US," the co-chairman said. Blaming bad management practices and corporate debt, the NSB reports that the US falls below its major trade competitors in total R&D, and 25 percent below in non-military industrial R&D. Corporate debt reached such levels that "by the time the recession began in July 1990, corporate interest rates were absorbing 44 percent of pretax profits, more than double the average for the 1960s and 1970s," economist Robert Pollin writes. Borrowing was used for consumption and financial speculation, including $1 trillion spent on mergers and acquisitions, with no indication of economic rationalization but ample evidence of a heavy debt burden, and a decline of 5 percent in corporate R&D as compared to a 5 percent increase for companies not involved in these practices, the NSF reported (for 1986-1987).¹⁶

For 40 years, US industrial policy has been based on the Pentagon system, with its regular stimulus to high-tech industry and state-guaranteed market to cushion management decisions. When a government stimulus was needed, a threat to our existence could readily be concocted: the Korean War in 1950, Kennedy's "missile gap," the impending Russian takeover of the world and the "window of vulnerability" in the late Carter-early Reagan years. The fakery was evident in each case, but Soviet power and tyranny were real enough, and that sufficed. Massive state intervention in the economy provided the US with a comfortable lead in advanced sectors of technology. It served as "an important pillar of the economy," ideologists and business leaders now concede as they lament the passing of the Soviet threat, which could always be invoked to keep the government crutch in place. In the post-World War II period, military spending has led the way out of recession, a senior economist at the Boston Federal Reserve Bank observes, and "There has never been a time when a rise in defense spending would mean more for the economy than now." Many economists consider the major factor in the Bush recession to be the cutback in military procurement -- orders placed with factories, which have not only accounted for a healthy segment of the output of goods and services but have had a substantial multiplier effect, creating jobs in companies that produce consumer goods for the relatively high-paid workers in companies that are profitable thanks to the taxpayer subsidy. "The impact is bigger than you can see by just looking at the numbers," conservative economist Herbert Stein of the American Enterprise Institute notes. "The abrupt dissolution of the Soviet Union" has undermined the device instituted to maintain the economy after World War II, Times economics correspondent Louis Uchitelle reports, and "leading military companies" like General Electric are in trouble, as is high-tech industry generally.¹⁷

The old pretexts are gone, and it is no longer so simple to hail the virtues of free market capitalism while feeding at the public trough. New methods are needed.

At the same time, the cutting edge is shifting towards other areas, notably biotechnology. Like other competitive sectors of the economy, the pharmaceutical and health industries and agribusiness have always benefitted from a state-organized subsidy for research, development, and marketing. These areas are now gaining a greater role in planning for the years ahead. In the early postwar years, research would "spin off" electronics and computer firms. Today, biotech firms are springing up around the same research institutions, by rather similar mechanisms.

The US National Institutes of Health are engaged in what the Wall Street Journal calls "the biggest race for property since the great land rush of 1889," in this case, "staking U.S. patent claims to thousands of pieces of genetic material -- DNA -- that NIH scientists are certain are fragments of unknown genes." The purpose, the NIH explains, is to ensure that US corporations dominate the biotechnology business, which the government expects "to be generating annual revenue of $50 billion by the year 2000," and vastly more beyond. A patent for a basic human blood cell could allow a California company to "corner the market for a broad array of life-saving technologies," to cite merely one example. The biotech business took off after a 1980 Supreme Court decision granting a patent for an oil-dissolving microorganism developed through genetic engineering, the Journal observes. Medical procedures such as bone-marrow transplants and gene-based therapies will also be protected by patent. The same could be true of engineered animals and seeds.

We are now speaking of control of the essentials of life. By comparison, electronics deals with mere conveniences.

Foreign governments that are able to intend to retaliate. The scientific community at home and abroad has also expressed its opposition to these efforts. One cynical researcher remarked that as government-industry efforts are proceeding, some day parents might have to pay royalties for having children. A meeting at the National Academy of Sciences sent "a strong message that the U.S. and international genetics community is still vehemently opposed to NIH's moves," Science magazine reports. Representatives of leading US and European scientific organizations "argued that if the NIH is allowed to go ahead, it will start a patent stampede that will destroy international collaboration and hinder product development." The first South-North Human Genome Conference passed a unanimous resolution saying that "intellectual property should be based on the uses of sequences rather than the sequences themselves," and leading European scientists called for an international treaty to block patenting of gene sequences as such. A representative of the (US) Industrial Biotechnology Association noted that industry has reservations too, but the organization "believes that NIH had no choice but to file the applications," and NIH Director Bernardine Healy said that NIH will proceed in order "to protect its options -- and those of the taxpayer," the latter phrase being one of the euphemisms for those who stand to profit, and for whom social policy is regularly designed in state capitalist welfare states (for the rich).

In March 1992, Senator Mark Hatfield introduced legislation calling for a moratorium on patenting of genetically-related organisms, but withdrew it after "it drew widespread industry opposition and in particular sparked an all-out lobbying effort by the Industrial Biotechnology Association," the newsletter of the health research industry reported. Administration officials also lobbied against the amendment, as did the Congressional Biotechnology Caucus. A moratorium "would lead us to forfeit our lead in biotechnology, where patent rights are a key to the large [private] investment needed for product development," the Secretary of Health and Human Services asserted. Meanwhile, a study of the National Academy of Sciences and Engineering proposed a $5 billion quasi-governmental company "to channel federal money into private applied research": publicly-funded research that will yield private profit. Another report, entitled The Government Role in Civilian Technology: Building a New Alliance, calls for new efforts to extend "the close and longstanding" government-industry relationship that has "helped to establish the commercial biotechnology industry." It recommends a government-funded "Civilian Technology Corporation" to assist US industry to commercialize technology by encouraging "cooperative R&D ventures in pre-commercial areas." The ventures will be "cooperative" -- with the public paying the costs -- up to the point of product development. At that point costs change to profits, and the public hands the enterprise over to private industry.¹⁸

The "vile maxim of the masters" has a corollary in the state capitalist societies: public subsidy, private profit.

A few weeks after these reports appeared, the head of the NIH project resigned along with virtually his entire staff to set up a private laboratory, with a stake of $70 million from a group of venture capitalists. The chairman of the funding corporation "said he had suddenly realized that there was an international race to lock up the human genome," and that the NIH lacked the funds to win; "I suddenly said to myself, `My God -- if this thing doesn't get done in a substantive way in the United States, that is the end of biotechnology in the U.S.'" There may also be a buck or two for the benefactors attempting to save the US economy, who will keep the rights to any product developed. Scientists "are aghast at the possibility that the human genome could be locked up and owned by private investors," also noting that the technique used to isolate the gene leaves the scientific work -- discovering the function of the already patented gene -- to be done by others. Scientists generally are calling for an international agreement to prohibit such patents. For now, the race to lock up the future biotech industry continues.¹⁹

¹⁶ Sonia Nazario, WSJ, Oct. 5, 1992. Wachtel, op. cit., "Afterword"; John Zysman, "US power, trade and technology," International Affairs (London), Jan. 1991. Benjamin Friedman, NYRB, Aug. 13; CSM, Aug. 14; Science, Aug. 21; Pollin, Guardian (NY), August 1992.

¹⁷ Uchitelle, NYT, A1, Aug. 12, 1992.

¹⁸ Michael Waldholz and Hilary Stout, "Rights to Life," WSJ, April 7; Leslie Roberts, Science, May 29, 1992. The Blue Sheet, April 8, 15, 1992.

¹⁹ Gina Kolata, NYT, July 28, 1992.