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Administration Initiatives Shift Funds to Civilian R&D

By Steven Pearlstein
The Washington Post

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The Clinton administration announced a series of initiatives Monday that amount to a new, activist policy that would involve the federal government more directly in the workings of the free market economy.

Visiting California's Silicon Valley, President Clinton and Vice President Al Gore announced a technology policy that will shift billions of dollars of federal money from the Pentagon into civilian research and development.

Later in the day in Everett, Wash., the president and vice president assured workers and executives of the nation's aerospace industry that the government would take further steps to protect them from unfair foreign competition and help finance the next generation of supersonic jet.

And in Washington, Labor Secretary Robert B. Reich and Education Secretary Richard Riley vowed a "radical" restructuring of the American high school and community college as they outlined plans for training the next generation of technical workers to operate the high tech factories of the 21st century.

The actions come just days after the administration released $500 million in funds to assist workers and communities hurt by declining defense spending and promised to spend $10 billion for new high-tech infrastructure projects such as information superhighways and high-speed trains.

In substance and spirit, these initiatives represent a repudiation of the economic philosophy of the Reagan and Bush administrations, which consistently argued that the free market was better than government "industrial policy" in setting research priorities, identifying the hot new products of the future, determining the fate of various industries and companies.

While administration officials Monday never used the phrase industrial policy, analysts said there was little doubt that was what they had in mind.

"The sound you hear is of the door finally being shut on laissez faire," declared MIT's Lester Thurow, who was among the first economists to call for a U.S. industrial policy more than a decade ago.

"The breakthrough is that this is not just about a discrete initiatve here or there," said Jeff Faux of the Economic Policy Institute here is Washington. "This represents a pervasive effort across the federal government."

Conservatives bemoaned the arrival of an era in which government would regularly substitute its judgments for those of the free market.

"It sounds to me like a bunch of kids have got loose in Toys-R-Us and they want one of everything," said Herbert Stein, who chaired the Council of Economic Advisors in the Nixon administration.

Although the new administration has staked out dozens of areas in which it intends to pursue a more activist role, the details are still sketchy and the choices yet to be made are fraught with political and economic pitfalls.

But determining exactly what technologies are crucial for the country, or how that support would be funneled to private firms, is sure to embroil the administration in squabbles within and between industries, according to policy experts.

The administration argued Monday that federal research subsidies are needed because new technologies are now often so expensive to develop that no one company can justify the investment for itself, although the spending can be justified in terms of longterm economic benefit to the entire nation.

Sen. Jeff Bingaman, D-N.M., one of the architects of the administration's technology plan, said Monday that the federal government has been indirectly steering and subsidiziing civilian research for years, largely through the Pentagon and various tax breaks. The Clinton plan, he said, makes those policies more "explicit and coherent" and adds additional funds.

Despite the greater government role, however, the administration's research plan would still be industry-driven, Bingaman said. He cited the requirement that research grants to companies be matched with equal investment by the firms themselves.

The aerospace and airlines industries pose the first test of the administration's new industrial policies.

The nation's airlines have too many planes chasing too few passengers. As a result, carriers such as Eastern Air Lines and Pan American World Airways have ceased operations, with a number of carriers operating under bankruptcy court protection.

These problems have washed back on the aircraft makers. Under financial pressure, U.S. airlines, which had been ordering planes at the rate of one every two days, have all but stopped buying, and cancelled hundreds of back orders. Aircraft companies responded by laying off tends of thousands of workers and delaying development of new planes. To spur sales, aircraft makers Boeing Co. and McDonnell Douglas Corp. are seeking export subsidies and import restrictions to compete against Airbus Industrie, which receives similar help from its four sponsoring European governments. But U.S. engine makers General Electric Co. and United Technologies Corp. fear a get-tough policy with Airbus, which they count among their largest customers.

The Big Three -- American, Delta, and United -- have blamed the industry's troubles on a costly price war brought on by weaker companies protected under bankruptcy or struggling to survive. These carriers have suggested that the government serve as a catalyst to the needed contraction in the airline industry by forcing airlines that seek bankruptcy protection to close their doors rather than reorganize.