Does high-tech flower best with or without subsidy?

By , Business editor of The Christian Science Monitor

As a good capitalist, L.Thomas Bryan gets a certain wry amusement from quoting a top communist. When talking about a national strategy for high technology, he paraphrases China's late chairman, Mao Tse-tung. ''Let the thousand flowers bloom,'' he advises, meaning let high-technology companies continue to spring forth from a risk-taking, entrepreneurial environment. Don't stifle this process with the dead hand of government intervention.

That's one view of how the United States should deal with the competitive threat to high-tech business from Japan and other nations.

Others, looking at the Japanese system of singling out an industry for special government assistance and protection until it is able to export highly successfully, suggest that Washington do something familiar. They are really talking of a form of government planning, but that word has unpopular connotations and so a euphemism is employed - ''targeting.''

Recommended: Smart watches: The 6 most intriguing high-tech timepieces

There's something of a national debate going on over this issue right now, perhaps particularly in New England, which in some ways pioneered high-tech industry and now has the second-largest bunch of such companies in the nation, after California. The area's high-tech business is so successful that New England suffered considerably less from this slump in the economy than the nation on average. New England also attracts a constant stream of visitors from other parts of the country or abroad seeking either to attract high-tech plant expansions or learn how to create an environment in which a domestic high-tech industry will thrive.

People like Mr. Bryan are asking, ''How do you keep a winning game going?''

Bryan heads the high-technology lending group at the First National Bank of Boston, the region's largest bank. He also works with the New England Council, an independent regional business association. In these capacities he is constantly visiting high-tech companies and talking with their managements.

As he defines targeting, it is ''the undertaking of specific joint government and business economic policies and actions with a view to seeking dominance in a particular industry.''

One of the subsidies granted the emerging semiconductor industry by Japan's Ministry of International Trade and Industry was loans that had to be repaid only when companies reached profitability. That may sound a fair deal, but it really means that a company's capital costs are cut to zero until it reaches profitability, an event that could be delayed for some years. A company can price its products accordingly, giving them a great advantage in international competition.

One response to this competition, Mr. Bryan notes, would be for the United States to put large, concentrated, direct government subsidies into its own targeted industries. But the Boston banker maintains that such a strategy would be inappropriate for high-tech industry, since ''technological innovation is a many-flowered and often accidental process.''

Most economists would probably explain the rise of high-tech in New England as a fallout from its universities, its educated population, the availability of venture capital, and the willingness of the people to accept change as they saw such traditional industries as shoes and textiles move to the South or abroad.

Though Mr. Bryan doubts the value of targeting, he and the New England Council do want indirect government encouragement through more support for research and development. Last week a council delegation was in Washington presenting the case to legislative assistants of the New England congressional delegation, and also at Internal Revenue Service hearings on the current R&D credit on software.

The council wants this R&D credit extended beyond its 1984 expiration; it would like to see the creation of a ''Basic Research Trust Fund,'' which it hopes would remove funding for basic research from the annual vagaries of budgetmaking; it wants tax incentives that would encourage the private sector to support the development of scientific and engineering education; and it proposes more tax incentives to ensure continued availability of risk capital for R&D.

Probably the R&D tax credit, which will cost $600 million this fiscal year, has a good chance for renewal. But the other proposals could face a harder time in Congress.

One problem is that massive federal deficit. Congress is under extreme pressure not to launch any new expensive programs - even if they are tax expenditures rather than direct subsidies. Further, there remains the question of how much the already complex tax system should be made even more complex with further loopholes, even though the aim of the new tax breaks may be admirable.

Whatever, the growing importance of high-tech and of R&D is clear. New England high-tech employment grew 40 percent between 1975 and 1981, from 301,000 to 425,000. Most high-tech companies spend 6 to 10 percent of sales each year on R&D. High-tech is largely driven by small start-up companies, many of them springing out of larger companies as experienced executives and scientists jump ship to apply some new idea.

It's an exciting industry. How to keep it strong and expanding will be debated for months or years to come.

High tech--more jobs for New England 1975 1980 % of total % of total Number in manufacturing Number in manufacturing State high tech employment high tech employment Maine 6,100 6.4 10,900 9.6 Vermont 11,000 27.5 16,300 32.0 Rhode Island 16,000 13.9 20,200 15.6 New Hampshire 20,400 23.9 39,000 33.4 Connecticut 80,000 20.5 98.600 22.4 Massachusetts 167,600 29.0 234,000 34.8 Source: Massachusetts Division of Employment Security

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...