PLANNING, HAYEK AND THE CTC

Author: By David Warsh, Globe Staff

Date: Sunday, March 29, 1992
Page: 77
Section: BUSINESS

On the surface, his career was a supremely, almost uniquely happy one. Late photographs show him smiling, winking, beckoning to the newly privatizing world he had relentlessly imagined. And why not? He outlived not only his antagonists but their ideas, outlived not only the Keynesian revolution but the Communist revolutions as well.

It is hard now to recall the fury that greeted the "The Road to Serfdom" when it was published in 1944, a time when John Maynard Keynes, Joseph Schumpeter, Karl Polanyi, Karl Mannheim and Harold Laski were trumpeting the death of capitalism and the inevitability of planning. Yet Hayek, who was born in Vienna in 1899, lived to be celebrated as the philosopher laureate of the administrations of Margaret Thatcher and Ronald Reagan. His collected papers, a series slated to reach 22 volumes, reveal a remarkable intelligence operating across a wide range of fields.

Deeper down, however, this is not an entirely happy story. A measure of this is that Hayek is not to be found in either of two interesting new books about the institutions in which he spent much of his working life. "Eminent Economists: Their Life Philosophies," edited by Michael Szenberg, contains revealing autobiographical essays by 22 excellent economists of the older generation, including representatives of the right like Karl Brunner and James Buchanan. Hayek merits only three entries in the index.

Nor, despite having taught there for 12 years, does he have a place in ''Remembering the University of Chicago: Teachers, Scientists and Scholars," a collection of 47 biographical essays assembled (and in some cases written) by Edward Shils that conveys the flavor of that powerful institution.

The point is that Hayek was not a dominating part of the tapestry of either community (although he shared a Nobel prize with Gunnar Myrdal in 1974). His more direct connection was with politicians and activists rather than his peers.

Why? A clue of sorts was provided last week in a report by a committee of that forum of the very best and brightest, the National Academies of Science and Engineering and the Institutes of Medicine, which called in a clear cool voice for the government to edge into . . . economic planning!

This was a panel of 15 technology policy experts, all deployed on the cutting edge of industry, led by Harold Brown, former president of the California Institute of Technology (and secretary of defense under Jimmy Carter). At the same time, Business Week magazine renewed its quadrennial call for "industrial policy" in a cover story. But the academy survey is far deeper stuff, a shrewd survey of how and why the American market sometimes fails to achieve the commercialization of technology -- and a pathbreaking recommendation for a way to remedy the breakdown.

After considering -- and rejecting -- the idea of a Civilian Technology Agency, established within the conventional bureaucratic framework of the government, what the academy panel proposed instead is a Civilian Technology Corp. This would act as a kind of Federal Reserve System for innovations in their very earliest stages, a quasi-governmental institution with a chief executive, a board of directors, a non-Civil Service staff, $5 billion in public money that would be self-replenishing through equity positions, patents and license fees -- and very little active congressional oversight. In giving the CTC a "civilian patina," the idea would be to insulate it as much as possible from pork-barrel politics, said Sen. Ernest Hollings (D-S.C.), chairman of the Senate Commerce Committee, a tireless worker in the technology-policy vineyards who received the report and held hearings on it.

To be sure, the academy panel was composed mainly of the sorts of managers who would be most at home in a Democratic administration. Besides Brown, included were several others who served in the Carter administration, including John Deutch, Richard Cooper, C. Fred Bergsten and William J. Perry. Its report had been summoned forth by the Democratic Congress. But the group also included Yale's Paul MacAvoy, a long-time adviser to President Bush, and it is hard to think who in the research and development community would oppose very strenuously the measure -- except, perhaps, long-time venture capitalists who, remarkably, were unrepresented both on the panel and among its presenters.

That leaves the group -- many professional economists among its number -- who would prefer to accomplish the same end of stimulating key technologies with a research and development tax credit, especially one designed to permit American corporations to sponsor more work in universities. But as chairman Harold Brown notes, there would then be problems of excluding abuse through cunning definitions -- and even then, the tax credit remains a blunt instrument. A Bush administration task force might refine the vision of a CTC, modify it -- but at a price tag of $5 billion, it would be, frankly, frivolous not to take the gamble and plunge $5 billion in defense savings into the project, in hope that it would somewhow galvanize American industry in the post-Cold War era.

Now the great Hayek was nothing if not opposed to projects like these. He hated planning in virtually all its forms. It was competition, not agreement, that led to progress, he liked to say. Indeed, all his life he argued against the governmental supervision of money and banks through central banking systems like the Federal Reserve. Private banks could issue currencies, form protective associations, conduct their own antitrust enforcement and the like.

But in these arguments, Hayek failed to persuade his colleagues. He had little interest in the many ways that markets sometimes fail: in monopolies, for example, or in the behavior of "externalities" of the price system, whether bad effects, like pollution, or good ones, like knowledge. So great was his faith in markets' efficacy -- and so great his skepticism about governments' ability to achieve worthwhile aims -- that he envisaged a kind of picturebook world, lacking in realism. His was not exactly a case of a Wegener (the "premature" discoverer of plate tectonics), a man who was brilliantly right ahead of his time with a key insight; rather, he was a master publicist, an advocate for the cause of human liberty. What a pity he is not here to see the horrendous global planning juggernaut now slowly heading towards Rio de Janeiro!

It may turn out that the government has no very useful place in the seed- capital industry, that it does best when it serves as a very exacting customer, as in the case of the Apollo space program or the Defense Advance Research Projects Agency, or DARPA. But clearly the future belongs to those who understand not just markets' strengths, but their weaknesses, too. Contra Hayek, then, look for government to become a little more involved in civilian technology, if only as the kind of experiment that he would have understood.

WARSH ;03/27 NKELLY;04/01,09:48 WARSH29B