The second Nixon administration starts amid growing concern about a decline in American competitiveness in the world economy, ascribed to our loss of technological lead in a number of fields. It would be easy to follow very mistaken policies at such a time, because of what some people would call "natural political reactions," others our sad institutional habit of fighting against, instead of working to take advantage of, desirable trends for mankind.

Two such major trends are clearly in train, and we are probably underestimating both of them. First, between now and 1985 the poorer countries of the world will become the most economic producers and exporters of an expanding range of existing manufactured goods, while the rich one-fifth of the world (the United States, Japan, and the European Economic Community, or EEC) will switch increasingly to the production and export of know-how. The danger here is that Americans may respond with pressure for protectionism, to slow the growth both of our imports of cheap manufactures and of our exports of profitable know-how.

Secondly, there has been a big reduction in U.S. government research and development on armaments and space, which had spin-off effects for American export industries even while pursuing other and often wasteful goals. It is natural to ask: "Can we not use redeployed government research and development to keep U.S. technology ahead in specific civilian fields?" A vague policy of this kind could produce technological marvels which are commercial disasters. We should instead be devising policies which: (a) reconcentrate our research efforts on things which aim to be commercial successes; and (b) restructure our market system so that commercial rewards attend anything which proves most effective in satisfying man's most urgent needs, measured in human terms both at home and abroad.

The object of this article is to further discussion of a trade and science policy which could take advantage of these opportunities before us. Since any policy introduced during the second Nixon administration in 1973-1977 will have its main effect only in the 1977-1987 decade, the discussion of specific ideas has become urgent.

II

It is very likely that the southward transfer of manufacturing industry will be rapid. Europe and Japan are now belatedly going to take up, with German and Japanese zeal, the process of "exporting manufacturing jobs" which America started. It is an old saw that in the 1950s America began to stop exporting manufactured goods and went over to exporting manufacturing companies; by the end of the 1960s the annual production of American subsidiaries abroad was five times as large as the volume of American exports, while the exports of Europe and Japan still exceed the overseas production of their companies' subsidiaries.

But northern Europe in the last ten years has kept up its rate of manufacturing only by importing ten million workers from the south (Greece, Turkey, Yugoslavia, etc.). More than half of the shopfloor workers in the big Renault automobile works in Paris are immigrants, because sophisticated Parisians no longer want to work at as tiresome a blue-collar job as automobile manufacture (whereas 15 years ago the job of an automobile worker was one of the most envied in Europe). Because there are increasing social awkwardnesses with immigrant workers and concern about pollution from new manufacturing plants, EEC countries in the next decade will move industries to the poor south or east instead of importing workers from there. The next big new EEC automobile plant will be built in Spain and the one after that possibly in North Africa, or conceivably in Communist East Europe. The Japanese are similarly going to switch more manufacturing to Japanese-sponsored firms set up in poorer countries to their south and west.

Another trend that is going to speed this transfer of manufacturing industries out of rich North America, northern Europe and Japan is the increasing "packageability" of industrial know-how. Whether one welcomes or deplores the fact, each burst of new investment in manufacturing industries is making it more economic for shift-working machine-minders' jobs to replace what used to be called craftsmen's jobs; and it will increasingly be easier to find these workers in the poor countries than in the rich countries (where growing percentages of young people are going on to a college education). Moreover, business training must soon start to make greater use of the huge new educational technology becoming available for teaching the less skilled-audiovisual aids as well as computer-assisted instruction-which can be geared to the speed of the recipient's own learning process. Perhaps above all, the cost of telecommunication will soon no longer vary with distance. We will soon be imposing exactly the same marginal cost on an automated (especially satellite) telecommunication system by telephoning China as by telephoning the office next door. The world, therefore, is likely to move during the rest of this century into the age of what has been called the "transglobal teach-in," as well as transglobal computerized operation. We shall be able to telecommunicate instantly, from computer to computer across the world, the best training programs, logistic policies, marketing and credit policies, and production processes, to be followed by some plant which exports widgets from Pakistan, while its white-collar work can most profitably be centered in Osaka or San Francisco or Paris or maybe some tropical island holiday resort. And we shall be able to use computer terminals for catalogue shopping of best buys across tens of different international boundaries at the same time.

III

This new technological age into which we are advancing, much faster than we think, can be called the third stage (perhaps the "third century") of the 200-year-old Industrial Revolution. During that period only, the richest one-third of mankind has been raising its living standards each decade (after having previously stayed stuck at much the same levels of income per head as the ancient Romans), because in each of these last 20 decades we have been increasing our control over energy and matter. To this has been added in the last two decades a new factor: the beginnings of control over the processing of information.

During the first century of Industrial Revolution after 1770-broadly, the age of coal, steam, railways, iron and steel, mechanization of cotton textile production-the leading technological country was Great Britain; but by 1870 its investment had become largely geared to foreign investment, selling to the rest of the world the know-how in which it had become expert in the railway age. Britain badly mismanaged its transition into what can be called the second stage, or "second century" of industrial revolution from 1870 to 1970 (which could be called the "Henry Ford century of mass production"). Around 1870 Britain was still spreading its empire across the world, just as the United States is now spreading its multinational corporations across the world (arousing some of the same emotions), but by the 1890s Britain was no longer the richest country per head in the world. The United States had taken over, and began to run through much the same cycle of history in the American (or Henry Ford) century as Britain had done in the British (or Victorian) century. Some pessimists will say that it is even ending the same way, only worse, with Vietnam as our Boer War in which national confidence finally spilled over the top and then ebbed.

I do not belong to this company of pessimists. The leading technological country at one stage of the Industrial Revolution does indeed have a difficult task in adapting to the next stage. This is why there is a strong possibility that Japan-and a slighter possibility that the EEC, or just conceivably the Communist world-will adapt better than we to this next stage, the transition out of the Henry Ford age into the system-designer's age. But this will happen only if during these next few years the United States adopts the wrong international trade and investment policy and the wrong science and technology policy. What are the dangers and how do we avoid them?

IV

In international economic policy the big dangers may be: (1) U.S. import protectionism; (2) U.S. protectionism against exporting our technology; (3) insufficient flexibility in our methods of investment abroad, which could lead to insufficient dynamism in our creation of new American exports.

It is going to be right to be aggressive in opposing import protectionism, and also very difficult. Britain has suffered badly because it protected too many of its old Victorian industries; today it has far too many of its resources locked up in loss-making coal, shipbuilding, textiles, etc. Will America do the same for automobiles and steel? Our difficulties are compounded: we do not have a free-trading tradition; the countries which are soon going to become major exporters of many Henry Ford-age manufacturing goods are countries with fractions as low as a tenth of America's present standard of living arid wages (e.g. Brazil, Indonesia, Egypt); and the power of pressure groups, labor unions as well as corporations, upon our congressional system is large.

Moreover, it would be wrong to suppose that protectionist pressures in 1973- 1985 will come only from the obvious industries. At present, while America suffers from growing import competition in industries which have few new products (automobiles, steel, shoes, etc.), our exports are competitive in industries that provide a stream of new products (e.g. advanced chemicals, machinery, aircraft, computers). But it is important to realize that these will move further down the product cycle between now and the mid-1980s, so that large parts of them may by then be noninnovative industries (due for the factory work to be shifted to Taiwan). The real American manufacturing export industries by the late 1980s may be industries so innovative that they have not yet been invented; although one might suggest pressure groups on behalf of a policy that will favor those export industries of tomorrow, who can be their lobby if we don't yet know what they will be? But a strong guess is that the main export will be know-how.

This underlines the danger of what might be called technological protectionism. There is likely to be a continuing acceleration of the speed at which new processes introduced in the United States can be conveniently transplanted abroad (because of new "packageability" of know-how, etc.). But it will be a grievous mistake if we therefore take steps to make trade in know-how even less free than it is at present, because that is the export industry by which we may live. For example, it is disturbing that the Nixon administration recently forbade General Electric an export license for some advanced jet-engine technology which it wanted to use in connection with a joint venture in Europe. The decision was taken nominally on defense grounds, but there are signs that some people close to President Nixon think it sensible to keep such technology a temporary monopoly at home. The Europeans will probably now develop it on their own instead of in partnership with the United States, and then in the 1980s start exporting to lower-wage countries in Africa their licenses to manufacture it. This is a prime way to cut ourselves out of future markets.

The policy with regard to export of know-how should be precisely the opposite. While America should take a positive line in GATT for freer trading in goods (of which we have become net importers), it should emphasize all the time that the quid pro quo we ask is that exports of American know-how should not be held out by administrative and other restrictions in technology-importing countries.

But to take advantage of free trade in know-how means that we must look to our own actions in a third key area-ensuring flexibility of our methods of investment abroad. There is some justification for the criticism that top entrepreneurial expertise in America today, as in Victorian Britain at the end of its railway age, has not only become more concentrated on foreign investment, but is operating in ways that create exactly the wrong image. The late-Victorian British sent in the missionaries with the traders, and (at least in poor countries) followed with the flag of Empire soon after; they tried to make New Delhi or Lagos resemble South Kensington. The late Henry Ford-age Americans have not sent in the flag of Empire with their multinational corporations, but they have sometimes tried to bring in their religion of corporation-worship and to make São Paulo like Detroit. And they have found that, like the old British Empire, this leads to serious problems of resentment, including the charge that such activities are imperialism in a new form.

I do not want to spend much space here on a discussion of how American multinational corporations should conduct themselves in poorer countries. But we may not take sufficient note of the new competition that lies ahead.

In 1973-1985 the EEC countries and Japan are likely to switch to becoming large-scale investors abroad. They will not only be using the device of the multinational corporation, but will also experiment, probably rather more energetically than we do, with licensing agreements, turnkey agreements, joint ventures, management contracts, etc.: whatever the host countries are most eager to accept on terms that are mutually profitable. These host countries may include some unexpected places. I have a suspicion that by the 1980s (although not in the 1970s) the most profitable such ventures may prove to be in the Communist countries of Eastern Europe, China and possibly Russia herself. These are the areas with well-educated labor forces that are at present producing furthest below what would be their potential level of productivity if efficient and market-oriented management techniques were applied; and it seems entirely possible that political conditions there-with the probable exception of China-will by that time become more amenable to joint ventures with capitalist countries, probably long before they become amenable to the operation of free-trade unions.

By the 1990s, it would not be surprising if very important producing centers arose from one or more of the following economic development programs: (a) Japanese investment in Siberia; (b) Japanese investment in China; (c) EEC investment in Eastern Europe; (d) American investment in different areas of the Communist world. It would be pleasant to think that American policy was alive to the possibilities under the last of these, which are wider than our current interest in the U.S.S.R. Even if there proves to be exaggeration in this vision of capitalist development of the Communist third of mankind, the United States should be careful that its belief in the multinational corporation as the best weapon of foreign investment in Latin America, Asia, Africa, etc. does not lead to its losing its place as a major exporter of know-how, while other countries are using more popular systems.

But there is an even more fundamental point. By its nature, overseas investment seeks to spread what has been developed at home-it is predominantly reproductive rather than in itself innovative. Historians often say that Britain was passed by Germany at the end of the Victorian age because too many of Britain's best brains were oriented to Empire. Similarly, I believe that too many of America's best brains are absorbed in the reproductive activities of multinational corporations abroad, and too few in the process of innovation, which usually starts at home. In fact, America is now doing rather badly at seizing new innovative and export- producing possibilities, particularly those created by the infant information-processing revolution that began in the late 1950s. To deal with this lag we must look to our science and technology policy.

V

The Nixon technology policy presented to Congress last year was what is generally called an "opportunity-oriented policy"-that is, it pledged federal support for types of research that seem promising. This is generally distinguished from a "problem-oriented" research policy, where the research organization is set a target; this can be either government- decreed-e.g. "get a man on the moon before the end of the 1960s, and work out the best way to do it"-or government-influenced through favorable rigging of market rewards. My own preference, as the reader will see in a moment, is for a much stronger emphasis on the problem-oriented approach. But first a few words on how the opportunity-oriented portion of a total program could be handled, for obviously there must be some opportunity- oriented subventions to people who are working well in the right direction, and who will not carry on research and development if they have to be rewarded solely on assessment of eventual performance.

We have seen in the last two decades that under an opportunity-oriented approach far too much research money is likely to go to research expenditure favored by the military-industrial complex, simply because that is the field with both technology-infatuated non-cash-paying customers (the armed services) and technology-oriented business interests in situ. There is a strong argument to be made that America since 1945 could in fact have secured far cheaper deterrence against Russia (not to mention far more effective military effort against her eventual actual enemies of North Korea and North Vietnam) by devoting more of her defense effort to conventional weaponry and less to high-technological experimentation-this at a time when almost every other function of U.S. government would have gained from being operated with more high technology and with less conventionalism.

Moreover, it is very easy under an opportunity-oriented policy to whip up a campaign for pushing more money into, say, research on cancer. There will no doubt be a time when information becomes available that makes a cure for cancer look hopeful; that will be the time to step up applied research. But at present it may well be that most of the best people for the job are searching in the best ways, and cannot at present find the solutions. To finance less-good scientists to come in and look in less-hopeful ways is a waste of resources that could be applied to much more productive purposes.

For these reasons any opportunity-oriented science policy in America should work through as many competing chosen instruments as possible. An opportunity-oriented policy necessarily has to be applied in basic science, where the financial sponsor has to see himself as a patron of the advance of knowledge as an end in itself, rather than as the purchaser of an immediately usable result. The university and other laboratories engaged in this basic science should be seeking to use their staff and other laboratories in the most promising way, and should be able to draw finance from many competing sources. If there is one big government source, it may be too much influenced by the military-industrial complex, by political emotions, or by a natural bureaucratic tendency to distribute funds according to some principle of the next-man's-turn-and so avoid giving aid to the occasionally kinky ideas that have sometimes brought man his greatest advances.

So my recommendations on pure science for public policy are these. Try to regulate the total funds coming forward for pure scientific research simply by what economists call a "marginal" approach: decide whether at any one moment too many scientists are being diverted into pure research (in which case try to reduce the funds) or too few (in which case increase them). Try to get people thinking in terms of incremental value in expenditure of those funds that are available. Try always to see that those funds are made available for universities and others from as many competing sources as possible: that is, operate quite largely through foundations.

VI

For these next few years, however, the main job of government in the area of science and technology is surely to provide an incentive for the innovations which modern science is putting within our grasp, and which could meet the great unsatisfied needs of man. There is no need for government to tamper with the market mechanisms where effective consumer demand now exists or can readily be stimulated through new invention. Rather, the task for which government help is needed is what might be called "market creation": making it profitable for companies to seek competitively to satisfy wants which are clearly felt by the public at large, but for which at present there is no market incentive to bring new technology into being. For the essence of the problem-oriented approach, as I see it, is that the forces of the market should operate to perform defined tasks as effectively as possible.

To repeat, the field of the future-for meeting human needs and for American exports alike-seems to me to be devising incentives to produce innovation. On this view, the key areas for government activity fall into three heads: (a) the creation of markets for the sort of "systems imports" which should increasingly become the main exports from richer countries to poorer countries; (b) the creation of markets for "systems solutions" to problems which are at present not being adequately tackled in the rich one-fifth of the world; (c) some big problem-oriented research projects which probably can only be tackled by government on the Manhattan Project or Apollo model. Each of these, and particularly (a) and (b), could set the framework for what really may be the main export industries of America by the late 1980s. Their advancement is needed both for its own sake and for America's continued effectiveness in the world economy.

Consider, first, the biggest present problem of mankind. Robert McNamara said at the last meeting of the World Bank that economic effort in the poor two-thirds of the world should be switched much more to dealing scientifically with four giant subjects-nutrition, shelter, literacy and employment. Even when the upper half of the population of poor countries becomes richer by being drawn into the world economy-and it is probable that the southward migration of manufacturing will help more and more of them-the submerged half remains in a condition of wretchedness, oppressed by these four ills.

It has become traditional to suppose that nutrition, literacy, shelter and employment are general subjects which must be handled by the governments of poor countries themselves. Actually, they are rather specific subjects, and often ones that-if we were interested purely in results-could much better be tackled by corporations which are especially skilled in research, marketing, organization and communication. There are huge psychological difficulties in the way here; but if we are concerned with results-and for mankind's biggest problem we ought to be-let us consider the performance possibilities first, and proceed afterwards to discussion of ways around the huge psychological difficulties. Private corporations would offer the governments of the countries concerned a free choice; it would be the decision of the governments whether to take advantage of the services or not.

Suppose, for example, that American or international aid funds were earmarked to support a competitively bid contract to lift nutrition standards in some designated and poverty-stricken area of Africa from the present inadequate protein intake per head to a new target figure for 1980- the payments to be based heavily on the degree of success achieved. My guess is that it would now be possible for some new sort of commercially motivated service corporation to move in; to undertake advanced agricultural research into what sorts of seed can best be used there; to undertake medical and sociological research to find what the nutrition- health needs really are; to organize the job of packaging know-how and advertising so as to persuade farmers to plant new varieties of rice rather than cassava (and teaching local housewives to cook it) ; to arrange for the purchase on world markets of whatever is most needed to supplement the local diet before new planting policies bring results; probably to reorganize local marketing and credit arrangements geared to raising nutrition standards by the target amount. All of these are jobs which local governments at present do not have the staff and expertise to do well. They could form the basis for a new industry of "bringing agricultural revolutions," which might find a very large market in the next three decades-including countries that would be able to pay for it without aid funds, such as the nations that are, or are about to become, rich through the sale of oil.

It will at once be argued that, in the provision of such basic services, Third World governments are interested not only in performance, but also in the exercise of power. Few countries want private enterprise corporations to exercise power in these fields, and even fewer developing countries will ever want foreign private enterprise to do so. In that case, it will be necessary to consider joint ventures, licensing agreements, management contracts with foreign governments, or simply sale of the know-how for nutrition programs in packaged forms. The difficulty in these big problems, such as nutrition, is that there will be need for research on the spot before there can be much hope of a final effective program package. I do not believe that answers can be found quickly just by getting professors from the rich world to write reports on how nutrition programs in up- country Nigeria should be run by local governments; there will be a need sometime to get performance-oriented organizations into the field. If they are profit-seeking (or at least growth-seeking) organizations, working under performance contracts, they will probably get the research done more quickly and precisely.

Many other possible areas of activity suggest themselves for target- oriented and strictly performance-rewarded corporations from the advanced countries. These may well be the speediest instruments for devising attacks in the poor countries on mass illiteracy-especially as advanced educational technology in computer-assisted learning programs, audiovisual aids and broadcasting is well suited to poorer countries. Another area would be the organization of building programs in backward areas, using local materials, into which practically no research has been done. While the market-oriented southward shift of manufacturing will lead automatically to the packaging of training programs for preparing labor for big capital-intensive and export industries, some priming of the pump will be needed to set up training programs for labor in labor-intensive local industries. Arguably- though admittedly most sensitive of all-such corporations would even be better than local governments at organizing efficient programs for voluntary birth control and local health services.

In any event, whether in these specific areas or not, there is a clear need to help poorer countries to devise the computer software (technical knowledge and programing capacity) that could help them to take advantage of the computer revolution. As matters stand, the whole information- processing industry is geared too much to the needs of rich countries, too little to the needs of poor ones.

In many of these areas, markets for these services will eventually become available through normal commercial forces, once it is recognized that we are living in an age of research explosion, in which the initial expertise will flower first in the rich countries, although it increasingly (indeed, I would say, more urgently) needs to be used in poorer countries. But there is a need to hurry the process along. My suggestion, in short, is that American aid-bilateral or multilateral-be used to further such projects. Is it, then, legitimate to tie such American aid to the use of American facilities? At present, such tying is usually made to the use of surplus American products or services like arms, wheat or shipping. Surely it would be much more sensible and respectable to tie aid to the task of bringing into being "systems" exporters of the kind discussed in this section. These are simply more available in America.

VII

How should a problem-oriented technology policy be set afoot at home? A place to start would be in our civilian public services, where there is at present almost no effort to bring in new high technology. Part of the reason for the lag is political or bureaucratic block: anything that saves labor will disturb existing habits of work. But a bigger problem is the fragmentation of public demand. At one stage in the 1960s, American business thought that education would be a booming field for new techniques; the hope foundered largely because school demand was divided among more than 20,000 school districts. With about 85 percent of aggregate school budgets going into salaries and another 13 percent into construction and maintenance, the remaining two percent, spread among thousands of buyers, was too little to give high technology a fair chance. Hence, a market cannot at present be carved out in America for the sort of computer- based education techniques that are likely to revolutionize the learning process within the next three decades. It is a frightening possibility that Japan and even Russia may reach this educational revolution before we do.

The same factors, fragmentation and inertia, apply to a host of other areas- police-alarm systems geared to computers, new equipment for recycling waste materials, and the devising of systems approaches to such problems as urban sanitation, mass transit, retraining of labor, and the very processes of bureaucracy. The occasional successes achieved by the present vague programs of opportunity-oriented research simply show what public services are missing. What they need is a switch to problem-oriented research, with some sort of central body priming the pump to meet the problem of fragmented demand. So long as systems approaches are geared to devising the sort of systems that can be sold to single local budget authorities, they are likely to be the sort of systems approaches which think small; but if we had some central mechanism which would buy-say, for ghetto districts- something much grander, well above their initial budget possibilities, then we might move into systems approaches which change the whole pattern of urban living. Federal government financing of initial development with individual local governments left the choice to purchase or not may well be the answer. The difficulty with many of the new products of the data- processing revolution will be the same as those of earlier products: high initial cost, dropping greatly later as the data banks are assembled and packageability of know-how improves.

Such a central body, however, will not solve the problem of the bureaucratic block. Maybe the only way to escape from this, to which I suspect that we must come some day, will be to hire out many more public services to contractors who are employed on a performance-contract basis. A market system would require that many city and other local governments specify the results they want from their existing or new services; and then that competitive bodies tender to do them on a purely performance-rewarded basis.

And the specified results should be of a positive nature, not to operate what is, still less to fix the defects of present systems, but to achieve something better. For example, a contract to achieve specified amounts and speed of traffic flow might give the contractor the right to charge private automobiles for use of city streets, employing the profits to establish alternate mass-transit systems. Or to take an example that is only partly in the public sector at present: American medical research would be transformed if we rearranged the market for medical care so that American physicians were given an incentive to keep us healthy, instead of being given a cash incentive to treat us in the most expensive possible way after we have become ill.

To those who watch our cities today, such suggestions may seem unreal. We can continue to decay if we choose. But if we were able to turn things around and move ahead to solutions of problems increasingly common to all the world, we would again have improved the conditions of life and the American economic position at one and the same time.

What, then, of the private sector? In particular, what of the areas where the buyer is a private individual but there is a clear and recognized public interest in the nature of the product, so that government intervention is warranted? An immediate present example is the nonpollutant automobile.

Here I believe the best federal policy would lie in new sorts of tax credits, not to pay back losses but to increase the profits from innovation that meets socially desirable goals. Let industry finance its own research and development (subject to normal investment credits), but make super- added profits the prize for projects that work.

I believe such a scheme might have helped on the example I have just given, the nonpollutant automobile. Suppose the federal government had announced in about 1965 that any company undertaking to have its sole output by, say, 1973, consist of non-polluting automobiles (defined under some strict test of emissions into the air) could register as what might be called a "Schedule A" company for a period that would be agreed to under some bargaining process-say, 15 years after 1965-during which its operations would be tax-free.

After the announcement of any such scheme, each of the big automobile manufacturers might well have sought to register some new subsidiary company in their group as a Schedule A company. If this incentive had been created, my guess is that the breakthrough might well have taken place.

For automobiles, this suggestion is already water under the bridge. America has gone a different road-first ignoring the desirability of bringing forward a nonpollutant car, and then deciding in a rush to order the big automobile manufacturers to produce solely such cars within what is probably an impossibly short time. But I would urge that Schedule A tax credits could be given some new fields to try to conquer. All the suggestions will be controversial, but those opening public debate on these subjects should not be afraid of sometimes sounding fantastical, because the fantastic will soon become commonplace. In the category that might be called "goods with a social advantage," the examples could surely be multiplied. A harmless substitute for cigarettes or, to steal a leaf from Aldous Huxley, for alcohol and drugs? To be less exotic, the Schedule A treatment would be used for innovations in the public-service sector, already noted, or for devices designed to replace wasteful and repetitive personal services-for example, a mass-use machine that starts to do away with the need for mailmen and newspaper delivery boys by allowing printouts of material to take place economically over telecommunication into our homes. Systems that would recycle garbage, simplify medical diagnosis and health service distribution, or provide sources of clean energy are all examples of goods or techniques with a social advantage, the development of which could be encouraged by such an incentive.

The advantage of Schedule A, for which the work of selection should be done by Congress or by some specialized agency reporting to it, is that reference under it could range from the general ("anything newly patentable sold to a police or fire department in the next ten years") to the most specific-and this would encourage a wider and more suggestive debate about new inventions that society really needs. And no harm done, or cost incurred to the government, if a particular incentive does not work.

VIII

Finally, however, there are some big technological problems in society that can probably only be tackled by government-sponsored research, on the model (if not always the scale) of the Manhattan and the Apollo projects. The trouble with purely private-enterprise research, to quote the National Science Foundation, is that too many research and development efforts of American industry "are aimed at low risk, small step, product and process improvement that offers the necessary assurance of pay-off in the short term." While a government policy of selective tax credits would overcome the problem of some innovations that need a long lead time, it would not suffice for all of them.

It is possible nowadays for a government-sponsored research project to be successfully problem-oriented rather than vaguely and wastefully opportunity-oriented, but the dividing line is thin. The need is to state a target, preferably a financial one, both as regards performance requirement and cost. In the end the Anglo-French Concorde project was wastefully "opportunity-oriented," because the British and French governments poured money into a design that they liked; Concorde would have been "problem- oriented" if the two firms had been told to make an aircraft with such and such a commercial payload, capable of such and such a speed and range, below such and such a price. The Apollo project was more successfully problem-oriented: NASA was told "to get a man on the moon in the 1960s," and set cost limits. On the whole, the Japanese government follows a problem-oriented technology policy; it lets Japanese firms know what problems they would like to see solved, and protects those firms that are producing solutions that can sell commercially, but it does not usually prop up Lockheeds that are losing a lot of money.

One problem-oriented project that might be worth establishing in the United States now is the search for the so-called "moral alternative to oil." Presumably, this would be hydrogen created by electrical dissociation of water, which would have the huge advantage of being an almost limitless resource. Maybe the last steps toward achieving this-and making it a safe field-can only be taken through a several-billion-dollar-a-year government project on Manhattan or Apollo lines; probably such a project would now work. But if President Nixon does establish such a project, it is very important that it should not be in a vague opportunity-oriented way, a commitment to devote more money to research inquiries that sound hopeful. The target for any agency charged with the task should be on some such lines as: "Find a nonpollutant and stable fuel by 1980 that will not be more than 50 percent dearer than oil in terms of 1973 prices."

The present general forecast is that imported oil will rise by at least 50 percent in price in 1973-1980. But the presumption is that if a project of this kind succeeded and if imported oil rose by only around 40 percent, then a tax of about ten percent might be put on imported oil to make the new fuel competitive; alternatively, the existence of the new fuel could be a national insurance policy to prevent Arab oil countries raising their prices by more than 50 percent. Conceivably, private involvement could be sought from utility and other interests in a government research project to find a substitute for oil in these next seven years. Maybe some system of worldwide patents could be devised as the pay-off.

IX

This article has been concerned with the sort of policy that America should be devising to make the crucial transition from the "Henry Ford mass- producing age" to the "systems-designing age"; a policy for continuing into the third century of post-1770 Industrial Revolution the technological lead which America seized at the beginning of that revolution's second century. I suspect that a main reason why America won technical advantage at the beginning of the Henry Ford age was that, by good luck, the market provided us with the right "problem-oriented" challenge for that time. Because the United States did not have a large labor force, the incentive in America from the 1870s on was to invent labor-saving machinery and labor-saving methods. At that moment, Europe, and particularly the leading industrial country, Britain, had large and rather underemployed labor forces; its scientists remained vaguely opportunity-oriented in doing whatever research seemed interesting. It happened that labor-saving machinery and methods became what was needed in the mass-manufacturing revolution.

It is almost certain that the breakthrough in technological capabilities for information processing in the last 15 years means that the need now is to have market incentives to invent "systems approaches" to problems. There is a real danger that America may fall from her proud position as the world's leading technological country because we do not have such market incentives in being, and are not preparing to install them. Nobody else is yet installing them either, but Japan might well win the race to do so. The Japanese are hugely achievement-oriented, rather than just research- oriented-which is why Herman Kahn may be right in forecasting that in the 1980s they will pass us and become the richest and most productive people in the world. But they need not do so, if the United States during this second Nixon administration, on the eve of its 200th birthday, seizes upon something like the science strategy that will be needed in the new age.

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