ELECTION '94: GOP and Technology

'Subsidy'-style Programs May Get the Axe,But Republicans Promise Tax Breaks

ith Republican surgeons standing around the operating table, President Bill Clinton's industrial policy is undergoing a near-death experience - and only an emergency intervention by the high-tech industry can resuscitate it, say administration officials.

But is not clear that industry will rush to aid programs such as the Commerce Department's Advanced Technology Program (ATP), slated for cuts by the new Republican-controlled Congress, which swept onto the Hill Nov. 8. Instead, industry likely will throw support behind more valuable plums - and classic GOP initiatives - such as deregulation and tax-breaks for research, said industry officials.

"It will be a test of just how much industry support there is for [President] Clinton's technology policy," said Dorothy Robyn of the White House's National Economic Council. Echoed George Uriano, head of the ATP, which is managed by the National Institute for Standards and Technology, Gaithersburg, Md.: "It's up to industry." Under the Clinton policy, the ATP program is set to grow from $431 million in 1995 to $750 million in 1997.

But don't count on it. The new Republican leaders on the Hill have long argued that government should restrict itself to creating a fertile environment for technology and business, and should avoid direct subsidies to favored industries. Theirs was, until this month, a minority's lonely voice in the political wilderness. But now the Republicans sign the checks.

Accordingly, the Republican "Contract With America" targets the ATP and other programs for cuts, freeing up funds for tax-breaks favored by Republicans. Predictably, Administration officials disagree, arguing that targeted tech subsidies are essential to the nation's economic well-being -- and complement rather than replace more general macroeconomic measures. The Administration also invokes a now common refrain: government grants only go to companies willing to put up an equal share of their own money. That provides a kind of mechanism for preventing bureaucrats from funding really stupid ideas.

"We only fund programs when industry is putting 50 cents on the dollar on the table.... This is not bureaucrats picking winners and losers," said Lionel Johns, deputy to John Gibbons, the White House's science chief. Still, it is perhaps telling that many in industry offer little support. Joel Johnson, vice president of government relations for the Washington-based Aerospace Industries Association, says his group will push for government-backing of defense exports and an end to the government's recoupment of its share of a product's research and development costs. Instead of the Technology Reinvestment Program, his association "would rather have money in defense programs than these frilly things," he said. Over $400 million will be spent on the TRP program in 1995.

Mark Rosenker, chief spokesman for the Washington-based Electronics Industries Association, said it will be difficult for the high-tech industry to unite behind the ATP, TRP and other technology promotion programs. Defense-oriented companies do not give it a high priority, while commercial research firms are reluctant to see competitors benefit from grants, he said.

Companies are more likely to unite behind proposals that benefit the entire industry, such as deregulation, a capital-gains tax cut and an extension of the tax break for research and development, he said. For industry, the tax break is worth up to $9 billion per year, far more than the ATP program. And larger, dominant firms such as Microsoft may benefit from a Republican push to reverse Clinton's more rigorous enforcement of antitrust regulations, both at the Federal Trade Commission and the Justice Department. "Macro-economic policy changes are far more preferable than starting [technology] programs," said Bill Morin, vice-president for government relations at the Washington-based National Association of Manufacturers.

Still, not all is lost, and politics as usual will likely come to the aid of at least some of Clinton's programs. The way Morin sees it, ATP could "be the virgin that goes into the volcano to appease the angry gods," allowing other technology programs to survive. The Republicans "are [not] a bunch of Luddites," and will likely support programs that contribute directly to national security, such as the Pentagon's TRP program, he said.

In other areas, the White House and the Republican Congress may find common ground: For example, administration officials say they are relaxing regulations to promote industry development of the National Information Infrastructure. And their support of legislation to unshackle the Baby Bells is ideologically aligned with Republican rhetoric.

Still, fierce battles loom, particularly in the area of defense budgets. The Republicans have committed themselves to boosting the defense budget, a choice even many in the defense industry find problematic. With unassailable entitlements sucking up more and more money, defense is about the only axeable chunk of federal outlays. The defense boost would therefore have to come from within the Pentagon itself -- from so-called non-defense spending on environmental cleanup at closed bases or attempts to transfer technology to new commercial markets, according to John Kasich, slated to take over the House Budget Committee. The $263 billion defense budget contains from $5 billion to $15 billion in such non-defense programs -- programs which also exist because they have strong political support. "We might see a little squirt up in defense," said Michael Smith, vice chairman of Hughes Aircraft Company. But Smith echoes the view that defense cuts are driven more by monetary than partisan concerns -- and will stay that way into the foreseeable future.

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