PICKING WINNERS AND LOSERS IN THE GLOBAL TECHNOLOGY RACE

I. INTRODUCTION Fears that the United States is losing its leadership position in technology (Nelson and Wright, 1992; Scherer, 1992) have prompted the Clinton administration to develop an activist policy position that supports private sector research and development activities. This economic "call to arms" is predicated on the belief that without government assistance the United States risks falling behind in the race to create good, high-paying jobs in an increasingly competitive global economy. Tantamount to picking "winners and losers," the government, whether by mandate or by establishing a set of parameters guiding some type of competitive application process, would decide which technologies warrant future development with taxpayer supported funding (see Branscomb, 1992, for a list of "critical technologies"). One can trace the underpinnings of the Clinton position - that the private sector tends to underinvest in research and development - to Kenneth Arrow (1962). Even before the cries of the Clinton administration, Arrow reached the conclusion "that for an optimal allocation to invention it would be necessary for the government or some other agency not governed by profit-and-loss criteria to finance research and invention" (1962, p. 623). While government funding clearly has contributed to the development of key industries such as computers (Flamm, 1988), this does not necessarily mean that continued success requires an activist government policy. An alternate view originating in the work of Schumpeter (1961, 1975) argues that government protection in the form of patents, rather than government spending, can provide the necessary institutional framework required to solve the problems associated with market failure. These two opposing positions share in common the belief that the solution to the problem of market failure centers around stimulating invention. However, missing from this discussion, is the recognition that policies designed to enhance invention often come at the expense of the diffusion of technology (see, for example Wright, 1983), even though generally it is diffusion that creates productive potential and competitiveness (Stoneman and Diederen, 1994). Therefore, policies promoting diffusion rather than invention of new technologies may better serve to enhance the competitive position of the United States. But, more importantly, implementing a policy that rewards the diffusion of technology can create new incentives for additional spending on research and development, thereby potentially solving the underinvestment problem resulting from market failure. Focusing on diffusion opens up a third possibility for addressing the problem of this market failure. A new type of governance structure based upon a forced royalty system may provide an alternative to the market and to the current "hybrid" system based on patents and haphazard government subsidies. Rewarding firms on the basis of how widely others use their technologies would create positive incentives for inventive activity without imposing the corresponding costs associated with preserving monopoly property rights or pursuing activist government policies. II. THE CLINTON ADMINISTRATIONS TECHNOLOGY INITIATIVES The Clinton administration is promoting a number of technology initiatives designed to foster the "development and diffusion of strategically important new technologies" by working "more closely than before with U.S. industry to identify high-priority technology needs and opportunities." Having identified these needs and opportunities, "Federal funding will be used primarily to provide incentives to industry to undertake high-priority technology-development activities" (Clinton, 1993). To promote the development of these strategically important technologies, the government is pouring millions of dollars into a wide array of programs. These programs include the following: (i) National Information Infrastructure (NII) This plan is designed to spend $1 billion for research and development in high-performance computing and communications. …