Menus Subscribe Search

America’s Stealth Industrial Policy

• May 30, 2008 • 11:05 PM

Free marketers want the government off business’s back, notes a University of California sociologist, but they may not realize how much of the spine is government funded.

Back in 1998, Bill Gates bragged about the dynamism of the U.S. computer industry and claimed: “There isn’t an industry in America that is more creative, more alive and more competitive. And the amazing thing is that all this happened without any government involvement.” — cited in Glenn R. Fong, “ARPA Does Windows: The Defense Underpinnings of the PC Revolution,” Business and Politics (2001).

Gates’ anti-government vehemence is understandable; his statement was released as the Justice Department was filing its major antitrust case against Microsoft for abusing its dominant market position. Still, Gates was deliberately invoking a false story line about innovation in the U.S. economy.

The story line has been endlessly repeated by the ideologues of the free market. The dynamism of the U.S. economy allegedly springs only from the entrepreneurial energy and imagination of the people who run large, medium and small firms. Government’s role is almost entirely negative; its mindless and unjustified regulatory efforts and its burdensome taxes only make the job of entrepreneurs harder. If government would only get off the back of these businesspeople, then we would truly see dramatic technological innovation.

But Bill Gates’ specific claim and the general story line are simply false. The rise of the computer industry in the U.S. was, at every stage, orchestrated by major government initiatives and even to this day large federal investments are being made to keep the U.S. computer industry ahead of foreign competitors. Nor is the computer industry atypical. Virtually all U.S. industries have become heavily dependent on scientific and technological advances that are financed primarily by the federal government’s support of university and government laboratory researchers.

Moreover, these advances are nurtured and shepherded into commercial products through the efforts of dozens of different government programs. In a word, the U.S. has a dynamic and highly effective industrial policy.

The conventional wisdom, of course, is that the U.S. doesn’t have an industrial policy. The U.S. did have a serious policy debate in the early 1980s when advocates of industrial policy urged the U.S. to emulate the Japanese model and set up a centralized agency that would “pick winners” by channeling substantial government funds to particular firms and industries. However, these advocates were defeated by the proponents of the free market who insisted that only markets could “pick winners.”

It is true that the U.S. rejected the Japanese model of industrial policy in the 1980s. But in that period, leaders in the legislative and executive branches who were concerned about U.S. competitiveness took initiatives that helped the U.S. to develop its own highly decentralized form of industrial policy that takes advantage of U.S. global leadership in scientific and engineering research. This new model drew heavily on the highly successful efforts of the Advanced Research Projects Agency in the Department of Defense.

Historians recognize that ARPA played an indispensable role in advancing the computer and microelectronics industry in the U.S. The agency funded the initial creation of computer science departments in major universities, financed many of the most important hardware and software innovators, and its ARPAnet ultimately became the Internet. ARPA’s program officers identified key technological challenges and funded different research groups whose work showed promise of meeting that challenge. When the key innovators were university-based researchers, ARPA officials helped them to make the connections to get their innovations into the marketplace.

Policymakers in the 1980s and 1990s built on ARPA’s successes by diffusing them to other agencies and by accelerating the movement of innovative ideas from publicly funded laboratories to the commercial marketplace. One key mechanism is the Small Business Innovation Research program that provides more than $2 billion a year of support to small firms, many of them newly created startups. Grants that come with no strings allow these firms to push forward thousands of different innovations, many of which have achieved success in the marketplace in literally every corner of the economy.

Other U.S. agencies have also followed ARPA’s model of setting technological targets for groups of researchers in industry, universities and government laboratories. At the Department of Energy, the Advanced Technology Program at the National Institute of Standards and Technology, and at the National Institutes of Health, it has been standard practice for years to focus the energies of researchers on surmounting key barriers that block commercialization of particular technologies.

The importance of this system of industrial policy is indicated by the R&D 100 Awards announced each year by R&D Magazine. These have been called the Oscars of technology: They go each year to 100 innovations that are incorporated into actual commercial products. In 2006, 88 of the awards were given for innovations developed in the United States. For 77 out of these 88 innovations, there is evidence that federal dollars helped to finance the specific technology.

In short, the government is deeply involved in many of the most exciting new products that U.S. industry is putting into the marketplace.

But why isn’t the existence and success of this decentralized industrial policy better known? One answer is that decentralized industrial policy is much harder to study or report on than the Japanese model, where many of the key actors are assembled under one roof and produce voluminous reports on their successes. There are some excellent case studies of the federal role in certain key technological breakthroughs, but it is easy to dismiss the results as atypical.

Another answer is that we have been fooled by the free market story that Bill Gates invoked when he was at war with the Justice Department. Relentlessly pushed by the Republican right and its big business allies, the market narrative leaves no room for a positive governmental role. The results are evident in even the best newspaper accounts of recent technological breakthroughs. The New York Times, for example, might report that Intel or IBM has made a major breakthrough in developing a new optical chip that portends much faster computing speeds. Only in one of the very last paragraphs will they disclose that the research was funded by ARPA or another government agency, and they never report systematically on the research efforts being supported by that agency.

But the risks are great if we continue to let our industrial policy lie hidden in the shadows. Solving the linked problems of high energy prices and global climate change requires a dramatic expansion in federal efforts to accelerate the diffusion of green technologies.

The good news is that we have a system in place that is up to the challenge. But if we continue to be fooled by the free market narrative, we will be unable to save ourselves or the planet.

Sign up for our free e-newsletter.

Are you on Facebook? Click here to become our fan.

Add our news to your site.

Fred Block
Fred Block is professor of sociology at the University of California at Davis and a senior fellow with the Longview Institute. His current research on U.S. technology policy is supported by a grant from the Ford Foundation.

More From Fred Block

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Recent Posts

August 20 • 4:00 PM

Why Can’t Conservatives See the Benefits of Affordable Child Care?

Private programs might do a better job of watching our kids than state-run programs, but they’re not accessible to everyone.


August 20 • 2:00 PM

Oil and Gas Companies Are Illegally Using Diesel Fuel in Hundreds of Fracking Operations

An analysis by an environmental group finds hundreds of cases in which drillers used diesel fuel without obtaining permits and sometimes altered records disclosing they had done so.


August 20 • 12:00 PM

The Mystery of Britain’s Alien Big Cats

In a nation where the biggest carnivorous predator is a badger, why are there so many reported sightings of large cats?


August 20 • 10:00 AM

Death Row in Arizona: Where Human Experimentation Is the Rule, Not the Exception

Recent reports show that chemical roulette is the state’s M.O.


August 20 • 9:51 AM

Diversity Is in the Eye of the Beholder

Perception of group diversity depends on the race of the observer and the extent to which they worry about discrimination.


August 20 • 8:40 AM

Psychopathic or Just Antisocial? A Key Brain Difference Tells the Tale

Though psychopaths and antisocial people may seem similar, what occurs in their brains isn’t.


August 20 • 8:00 AM

What the Cost of Raising a Child in America Tells Us About Income Inequality

You’ll spend nearly a quarter of a million dollars to raise a kid in the United States, or about five times the annual median income.


August 20 • 6:00 AM

In Praise of ‘American Greed’

While it remains semi-hidden on CNBC and can’t claim the car chases of Cops, American Greed—now with eight seasons in the books—has proven itself a worthy endeavor.


August 20 • 4:00 AM

Of Course I Behaved Like a Jerk, I Was Just Watching ‘Jersey Shore’

Researchers find watching certain types of reality TV can make viewers more aggressive.


August 20 • 2:00 AM

Concluding Remarks About Housing Affordability and Supply Restricitions

Demand, not supply, plays the dominant role in explaining the housing affordability crisis. The wages are just too damn low.


August 19 • 4:00 PM

Can Lawmakers Only Make Laws That Corporations Allow?

There’s a telling detail in a recent story about efforts to close loopholes in corporate tax laws.




August 19 • 12:00 PM

How ‘Contagion’ Became Contagious

Do ideas and emotions really spread like a virus?


August 19 • 10:00 AM

Child Refugees: The New Barbarians

The disturbing rhetoric around the recent rise in child refugees into the United States from Central America may be shaping popular opinion on upcoming immigration reform.


August 19 • 8:00 AM

Making Police Departments More Diverse Isn’t Enough

Local police departments should reflect the communities they serve, but fixing that alone won’t curb unnecessary violence.


August 19 • 7:15 AM

Common Knowledge Makes Us More Cooperative

People are more inclined to take mutually beneficial risks if they know what others know.


August 19 • 6:00 AM

Seeking a Healthy Public School Lunch? Good Luck

Mystery meat will always win.


August 19 • 4:00 AM

The Positive Effects of Sports-Themed Video Games

New research finds sports-themed video games actually encourage some kids to get onto the field.


August 19 • 1:00 AM

DIY Diagnosis: How an Extreme Athlete Uncovered Her Genetic Flaw

When Kim Goodsell discovered that she had two extremely rare genetic diseases, she taught herself genetics to help find out why.



August 18 • 3:30 PM

Mister Rogers’ Heart-Healthy Neighborhood

Researchers find living in a friendly, cohesive neighborhood lowers seniors’ chances of having a heart attack.


August 18 • 2:00 PM

Wealth or Good Parenting?

Framing the privileges of the rich.


August 18 • 12:00 PM

How Much Did the Stigma of Mental Illness Harm Robin Williams?

Addiction treatment routinely fails people with mental illnesses, while mental health care often ignores addiction. And everywhere, stigma is rife. Can a tragic death prompt a more intelligent approach?


August 18 • 10:00 AM

Punished for Being Poor: The Problem With Using Big Data in the Justice System

Correctional departments use data-driven analyses because they’re easier and cheaper than individual assessments. But at what cost?


Follow us


Diversity Is in the Eye of the Beholder

Perception of group diversity depends on the race of the observer and the extent to which they worry about discrimination.

Psychopathic or Just Antisocial? A Key Brain Difference Tells the Tale

Though psychopaths and antisocial people may seem similar, what occurs in their brains isn’t.

Common Knowledge Makes Us More Cooperative

People are more inclined to take mutually beneficial risks if they know what others know.

How a Shift in Human Head Shape Changed Everything

When did homo sapiens become a more sophisticated species? Not until our skulls underwent "feminization."

Journalists Can Get PTSD Without Leaving Their Desks

Dealing with violent content takes a heavy toll on some reporters.

The Big One

One in two full-time American fast-food workers' families are enrolled in public assistance programs, at a cost of $7 billion per year. July/August 2014 fast-food-big-one
Subscribe Now

Copyright © 2014 by Pacific Standard and The Miller-McCune Center for Research, Media, and Public Policy. All Rights Reserved.