"Knowledge is the only instrument of production that is not subject to diminishing returns." - J. M. Clark
Although the National Mutual Fund would greatly increase the production of wealth through investments in capital equipment, there are many critical segments of the economy that require much more than simply increased investment capital. Many of the areas of the economy that are most in need of improvement do not typically produce high profits on capital investments. In general, such things as public transportation, housing, and health services are not sectors of high growth based on automation. In these areas, the NMF could not be expected to reap early or massive income for promoting the general welfare. In fact, public transportation systems and low-cost housing construction generally produce losses rather than profits. Increased capital investments in these areas by the NMF could reasonably be expected to produce even larger losses. Presumably, the investors who currently are financing the railroads and construction companies have invested in the most profitable (or the least unprofitable) rail routes and the most promising housing markets. Increased investment would almost certainly be forced into even less lucrative areas than those that are already losing money. This would seem to be a strong argument against the practicality of upgrading the quality of life by means of the NMF.
However, this argument is valid only in areas of the economy where technology is stagnant. It is based on the law of diminishing returns, that holds true only when nothing new is invented. Public transportation and low-cost housing are money-losing businesses today and will remain so in the future only so long as these areas remain technologically backward. If new technology were introduced into these areas, they would develop many profitable investment opportunities.1
In order to support this assertion, we need only to observe that railroads have not always teetered on the edge of bankruptcy. In the early days of railroading, when technology was advancing rapidly, rai1roads were an extremely profitable business. Railroad investments made many men into multimillionaires. But over the years, railroad management has become entrenched in bureaucratic tradition, and unions have erected barrier after barrier to modernization of equipment and work procedures. As a result, technological advance has slowed to a snail´s pace, and profits on railroad investments have fallen correspondingly.
In the field of home construction, one might observe that low-cost housing has never been a particularly profitable investment. This serves to further confirm the relationship between profitability and technology. Technology in the field of housing construction has been stagnant for several centuries. Alvin Toffler, in his book FUTURE SHOCK, describes housing as a pre-industrial craft.2 The basic structure of the housing industry is modeled after the 16th century system of craft guilds. Houses are still built by itinerate artisans who migrate from one job to the next, much as they did in the time of Shakespeare. Modern-day construction-job classifications date back to the Renaissance; i.e., apprentice, journeyman, master craftsman, etc. Many unions refuse even to use simple power tools or prefabricated components. Mass production was developed as an industrial technique over a century ago, but it has not yet been adopted to any significant degree by the housing industry. Modern methods of computer-aided design and automated assembly of houses are strictly in the realm of EXPO exhibits and experimental demonstrations.
High profits on investment are commonly realized in industries where technological advancement is rapid. Examples of this can be seen in IBM computers, Xerox photocopiers, and Polaroid cameras. The extraordinary success of these companies does not imply that there is anything inherently profitable in building computers, photocopiers, and cameras. It merely suggests that profits are to be found in greater productive efficiency; i.e., in providing better products and more convenient services at lower costs. Likewise, there is no reason to assume that there is anything inherently unprofitable in building houses or transporting people. But until these industries find ways to reduce costs and improve their products and services, additional capital investment will simply produce more overpriced housing of inferior quality and additional trains that no one wants to ride. When businesses are technologically stagnant, increased capital investment merely increases their size and enables them to lose money faster. The only hope for making industries such as rail passenger service and low-cost housing profitable is to introduce more efficient procedures, reduce costs, increase output, and improve quality. This cannot be done by simply investing more money in methods and procedures that are already operating at a loss. It can only be done by new technological developments that provide greater efficiency and productivity.3 What is needed is abroad, long-range program of research to discover new knowledge in socially beneficial technologies.
A Role for the Federal Government
Conducting such a research program is the proper role of the federal government. There are several reasons why this is so. First, much of the research that needs to be done is expensive and of a high-risk nature. It is not the type of research that promises certain or early returns on investments. Thus, it is not attractive to private industry unless heavily subsidized by the government.4
Second, many of the sectors that are most in need of research are not areas in which inventions can be kept proprietary or converted into competitive advantage by private industry. Thus, there is very little incentive for private industry to pursue such research with its own funds.
Third, even where inventions can be kept proprietary, the benefits from an invention to society typically exceed by more than twice the profits received by the company that produced the invention in the first place.5 For example, the benefits to society of the transistor, or penicillin, or even Scotch tape far exceed the profits to the companies that originally developed these products. As a result, private industry tends to invest far less in research than is socially desirable6 and fails to invest at all in areas where private benefits promise to be small, even though social benefits may be potentially enormous.7
Fourth, many of the sectors of the economy that are most in need of technological innovation are made up of small enterprises with no central funding authority. Individual housing contractors, small service industries, and local town governments typically have insufficient capital surpluses for supporting basic research.8 Modern research often exhibits a threshold or critical mass phenomenon; i.e., a certain minimum amount of money is required to perform any meaningful investigations. The type of research that can be done by a few individuals for a small cost has already been done or is being done. The type of research being neglected is the high-cost high-risk research that requires large staffs of highly trained personnel and expensive equipment. This type of research is sorely needed in the civilian society today, but it is precisely the type that small service industries, school boards, local medical associations, and small contractors cannot afford. Even if small enterprises were supplied with research monies through government subsidies, diffuse fragmented groups are not equipped to initiate, plan, and manage major research efforts. In order to be effective, a research program needs to be coordinated and balanced in terms of long range and short-range goals. This requires central management. A diffuse collection of small enterprises is unable to maintain a coherent program with continuity and direction over a period of years.
Fifth, the federal government is the only organization with sufficiently broad interests to carry out an adequate research program in the many different areas that need development simultaneously. Much needs to be done from the systems standpoint. Many new technologies need to be examined as to the ways they interact with each other and with society in order to understand their properties. For example, the building of a highway affects the need for sewers, and the institution of a job-training program affects the need for housing. Research into systems problems of these types is extremely complex and expensive. It is beyond the scope of interest of most individual groups. Systems research impacts many different sectors simultaneously, and, unfortunately, what is everybody´s business is frequently nobody´s business. The society in general suffers from systems problems, but no single group is individually responsible. Therefore, systems research must be done by the government, or it never gets done.9
Finally, the federal government is the only authority that would be able to adequately coordinate new technology with the passage of regulatory laws governing its use. Particularly in the housing industry (but in many other industries as well), archaic laws and regulations are the greatest impediment to the implementation of new technology. Private industry cannot be expected to invest money in developing new technologies if antiquated laws and union regulations forbid their use. A critical part of any research program in socially beneficial technology would be the modification of existing legal barriers to permit its implementation and, where necessary, to regulate its use so as to prevent abuse.
The unregulated use of new technology, of course, can often lead to worse consequences than the lack of its development in the first place. Many technological developments in the future will have the capacity to affect society in ways that the majority of people would consider undesirable. Such developments, therefore, should be subject to control and regulation by an agency that is politically responsible to the people. One way to protect the interest of the people in such cases would be to have the federal government draw up and pass regulatory legislation that would be subject to modification by state and local governments wherever special circumstances or strong local preferences would indicate.
In general, the most effective way to get workable legislation in complex technica1 matters is to have regulations drafted by experts who understand the potential shortcomings, as well as the benefits, of new technologies. An optimum means of achieving this would be to have the authority for scientific research, as well as regulatory action, coordinated by the same agency. This type of coordination has worked quite well in the Department of Agriculture where, for example, farm research and meat inspection are both controlled by the same agency.
One of the constitutional purposes for which the federal government was established was to promote the progress of science and useful arts.10 Unfortunately, the federal government has never had a consistent policy for developing socially beneficial technology. Although the government does sponsor an adequate research program in agriculture and medicine, relatively little money is spent on technological development in other areas of social need.11 The really large government-sponsored research programs are confined to military and aerospace research and to pure science.
It might be said that technology is the root of civilization and art the flower. Research in socially beneficial technology should be a primary function of the government. That it is not is evidence of a grotesquely distorted sense of priorities.
Science at the Cabinet Level
The United States Government should cease to ignore its clear responsibility to vigorously pursue technology for socially beneficial purposes. It should establish a Department of Science and Technology with cabinet level status.12 The role of this department should be to conduct and encourage research into areas of technology beneficial to the society as a whole. Much of this research should be done under contract to private industry, but at least some of it should be conducted in government laboratories by government scientists. The Department of Science and Technology should be similar in structure to the National Aeronautics and Space Administration (NASA) during the mid-1960´s in its mixture of in-house and out-of-house research and development programs. NASA, incidentally, could serve not only as a model but also as the nucleus for such a department.
There already exist many government departments and agencies that do bits and pieces of research here and there in the civilian sector. There is the National Science Foundation, the National Bureau of Standards, the Energy Research and Development Administration, the National Aeronautics and Space Administration, the Environmental Protection Agency, the National Oceanographic and Atmospheric Administration, the Agricultural Research Centers, and many others. There also exist many panels and committees that plan and recommend scientific policy such as the National Academy of Sciences and National Academy of Engineers. However, these advisory panels have no authority to do more than recommend, and there is no agency with the power to put their recommendations into action. For example, in a 1971 meeting of the National Academy of Engineers,13 it was concluded that socially beneficial technology was woefully underfunded in this country and as a result productivity was lagging far below what could be achieved. Unfortunately, such recommendations are largely fruitless, since there exists no clearly defined agency that could turn such recommendations into coherent funding requests to Congress. It is most difficult to launch a coordinated research program or to generate effective momentum toward research goals when authority for conducting research is scattered among dozens of competing departments, agencies, and offices. Within the United States Government there exists no single authority that can present to the Congress a unified budgetary request for a broad, comprehensive, and coordinated research program in the socially beneficial technologies. Neither does there exist any central mechanism for setting goals, conducting research, letting contracts, monitoring performance, and managing funds so as to implement a civilian research program.
A Department of Science and Technology would remedy these shortcomings. It would provide coordinated planning, budgeting, and program management. It would do for civilian technology what the Defense Department has done for military technology and the National Aeronautics and Space Administration has done for space technology. A Department of Science and Technology would present to the Congress a unified program for budgetary appropriations and would provide for the Congress a single point of accountability and responsibility for research activities carried out. No longer would budgetary appropriations be fragmented to the point of incoherence, and no longer would hundreds of conflicting, overlapping, and inadequate research programs be funded and bootlegged under an incomprehensible jumble of divergent authorities.
A Department of Science and Technology would assure that the full potential of modern science and engineering was focused on relevant social problems before they reach the stage of crisis. One of the results would be that socially beneficial industries, that presently are technologically stagnant, would become profitable investment opportunities. These could then be exploited by both NMF and private capital. Thus, the Department of Science and Technology would provide technological development, the NMF would provide capital resources, and the DRP economic stability. Working together, these three agencies would produce economic prosperity and human well-being far beyond what is now considered possible.