July 15, 2005

July 15, 2005 | Commentary on

Derailing the Fortune 500 Gravy Train

Members of Congress will soon return home for August recess. While there, many will express outrage over the 33 percent increase in government spending since 2001, and the $400 billion budget deficit. They will offer vague pledges to rein in government.

Taxpayers have heard it all before.

Those who want to see how serious lawmakers are about restraining spending would be wise to follow the fate of the Advanced Technology Program (ATP) in this year's budget. Corporate welfare at its worst, ATP may be the most offensively unnecessary program in Washington. If lawmakers cannot even close down ATP, then they clearly are not ready to make the larger and more complicated decisions necessary to bring the budget under control.

Congress created ATP in 1988 when Japanese-style industrial policy was en vogue. ATP would "bridge the gap between research and the marketplace" by providing grants to businesses engaged in commercial scientific research. Unlike the National Science Foundation, which funds basic academic-style research, ATP funds projects with a "significant commercial payoff," meaning those that would create substantial profits for businesses.

Between 1990 and 2004, ATP spent more than $2 billion, 35 percent of which was distributed to 39 Fortune 500 companies. For example, $127 million has gone to IBM, $91 million to General Electric, $79 million to General Motors, and $44 million apiece to Motorola and 3M. Overall, these 39 companies reported revenues of $1.4 trillion in 2003. This is how Congress spends tax dollars extracted from working Americans.

Taxpayers aren't the only ones questioning Washington's priorities. Economists wonder why government should subsidize commercial research at all. Basic economics clearly states that, if these projects will be as profitable as promised, businesses have every incentive to invest their own funds in their development. Surely the investors and businesses spending $150 billion each year on commercial research and development should welcome these profitable investment opportunities. Yet Congress maintains that no company would invest its own money in, say, profitable HDTV or flat-panel televisions unless taxpayers were footing most of the bill.

ATP officials respond by claiming to serve only as a "financier of last resort" for promising projects that have repeatedly failed to secure private investors. Hogwash. Surveys reveal that the majority of ATP applicants never bother to seek private funding before applying for a grant (and some even reject private investors, possibly because it would mean sharing the profits).

Most near-winners, after being rejected by this so-called "financier of last resort," suddenly and miraculously find private investors. Among remaining near-winners, most still refuse to invest their own money or even seek private investors. Instead, they continue playing the ATP lottery by submitting the same application year after year.

Not surprisingly, it turns out that Uncle Sam is a poor investor. Only one-third of ATP projects ever make it to the market. In hopes of minimizing conflicts of interest, ATP purposely seeks grant reviewers without any knowledge of the markets. Even if they wanted market knowledge, businesses are typically tight-lipped about their research plans. The predictable results are taxpayer-financed boondoggles: Grants for technologies that had been patented decades earlier; millions for discredited technologies that no private investor would waste a dime on; companies filing for bankruptcy shortly after receiving their grant. Perhaps investors who avoided these projects knew what they were doing after all.

During a recent Senate committee hearing, several senators argued that eliminating ATP would devastate America's scientific progress. Yet ATP represents just 0.1 percent of federal research-and-development spending. Lawmakers loath to shrinking the federal budget could shift this money into the National Science Foundation.

President Bush has repeatedly called for ATP's elimination, and the House of Representatives has voted to eliminate the program for six consecutive years, including this year. Yet every year, the president and the House have allowed a group of senators -- representing states that disproportionately include recipient companies -- to guarantee the continuation of this Fortune 500 gravy train.

Lawmakers offer platitudes about smaller government and deficit reduction and then vote to lavish the tax dollars of waitresses and welders on Fortune 500 companies. Whether or not they end this abhorrent program will reveal more about lawmakers' values and priorities than any speech back home.

Brian Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

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