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Science and Technology and U.S. Economic Policy, 1921­1953

David M. Hart

The Innovation System of the United States in the 1950s was a far cry from what it had been in the 1920s. It was much bigger, more complex institutionally and more divers in its objectives. Above all, the federal government was more prominent. Federal funding made the "Big Science" of particle accelerators and the "Big Technology" of ballistic missiles possible. It also expanded dramatically the scale and scope of "Little Science," research projects conducted by individuals academic investigators. Military procurement induced the growth of corporate as well as academic R&D. Firms across the country invested in new technology, often with the generous assistance of Washington. Federal facilities, especially those of the Atomic Energy Commission (AEC), evoked public mystery and enthusiasm in the 1950s much as the General Electric "House of Magic" had in the 1920s.

The very prominence of these federal endeavors, however, has tended to obscure the more subtle ways in which public policy shaped the governance of technological innovation in the postwar United States. A broad array of industries, some technologically innovative like electric power and others stagnant like railroads, were regulated for economic reasons, usually with at least some loose coordination at the federal level. Federal intellectual property and anti-trust law influenced the technology strategies and R&D behavior of corporations, large and small. Federal initiatives restructured the financial markets, particularly for mortgages and venture capital. Macroeconomic stabilization policies aimed at bolstering confidence in business investment over the long term. It was the combined effect of all these threads of government activity, all intended at least in part to influence the pace and direction of technological innovation, that constituted the postwar policy.

This web of science and technology policy was not spun from a master design. Vannevar Bush was brilliant and effective in mobilizing the nation's scientific and technological resources for World War II, but Sciencethe Endless Frontier is better seen as a political tactic than as an original blueprint. Bush himself acknowledged as much, nearly passing over the report in his memoirs. The institutions of American government and the style of American politics precluded the dominance of any single vision of the state, even in an area of public life apparently so esoteric as science and technology policy. Most components of the policy reflected several visions at once. The impressive technological capabilities of the air force, for instance, were the manifestations not merely of the relentless promotion of national security concerns by General Curtis LeMay and his chums, but owed debts as well to Bush's associationalism, presidential economic advisor Leon Keyserling's Keynesianism, and Senator Robert Taft's conservatism. The hybrid political roots of other distinctive features of postwar federal science and technology policy can be traced in a similar fashion.

Thinking about science and technology policy as the product of multiple entrepreneurs pursuing competing visions of the state in multiple venues is useful. It links to the rest of American politics, since policy entrepreneurs often draw inspiration and seek allies elsewhere in the political systems. It allows us to think through some of the complex connections between ideas, interests, and institutions that characterize the policy process. It helps us to imagine counterfactuals more clearly and to appraise them more realistically. It provides a conceptual framework that can profitably be extended forward through the rest of the twentieth century. It might even give us a glimpse of what lies beyond, as the post-Cold War era unfolds.

Casting a Broader Empirical Net: The Gleanings

The conventional wisdomthat there was a "postwar consensus," galvanized initially by the Bush report, that dominated science and technology policy for decadesrests on a historiography that, although it contains a few outstanding studies, is rather thin and has been too much under the influence of former and contemporary practitioners. The major thrust of my research has been to broaden the scope of our knowledge of this policy history in order to build a deeper understanding of it. Postwar debates in other policy areas were deeply influenced be legacies and memories of 1920s "normalcy" and the Great Depression as well as World War II, and it was my instinct that science and technology policy would not prove to be the exception. I also pushed to supplement analysis of direct federal R&D spending with studies of regulatory and legal instruments that the American state can use to influence private behavior. This strategy entailed going beyond the presidency, which has been the institutional focus of most work in this tradition, and Congress, to which modest (but much too little) attention has been paid, to the courts, federal agencies, and civil society. I delved into policy proposals that failed to win approval as well as those that were actually put in place, the better to understand the alternatives that were perceived at the time. The results of this effort have been presented at length in the previous chapters but are worth recapping here.

Technological innovation in the Roaring Twenties was dominated by giant corporations. The development of new products and improved processes by a rapidly growing group of corporate research laboratories was facilitated by conservatives in the administration who believed that the government ought to do little with regard to science and technology besides ensure property rights and get out of the way. Old Guard Republicans carried forward the loose antitrust and tight patent policies of the pre-World War I era, which encouraged firms to acquire their technological competitors and make long-range investments in the own R&D. Treasury Secretary Andrew Mellon's flagship policy of tax cuts aimed at releasing venture capital to finance private inventive activity, among other things. Although the nation's research universities engaged in an aggressive effort to expand their base of support, they neither turned to the federal government nor were encouraged to, beyond long-established programs in agriculture and other applied fields. A few elite universities found private patrons, notably the Rockefeller foundations, to advance their quest for autonomy and excellence; others drew closer to industrial patrons, shaping research and education to their needs. The growth of corporate and academic R&D begun in the 1920s, largely under private auspices, continued with little respite right through the Depression and into the war.

The main counterpoint to Mellon's conservative vision in the 1920s was Herbert Hoover's associationalism. This conception of the political economy was derived from the cooperation among firms and between industry and government brought about by World War I. Although that war left a modest institutional legacy in the form of the National Research Council (NRC) and the National Advisory Committee for Aeronautics (NACA), its ideological legacy was more powerful. American capitalism's weaknesses, the associationalists claimed, stemmed from an excess of competition. Too much competition induced irrational and myopic behavior, leaving business executives without adequate information to act on the general interest as well as their own self-interest. Such failure stymied technological innovation, one of capitalism's signal strengths to Hoover's mind, particularly in very mature and very immature industries. As Secretary of Commerce from 1921 to 1928, Hoover undertook initiatives to build voluntary associations for cooperation in industrial R&D in such industries as textiles, construction, radio, and aviation through the Bureau of Standards and other elements of his department. The associationalist vision also inspired other groups, such as the Division of Engineering and Industrial Research of the NRC, to undertake similar efforts outside the formal structure of government.

The crucial arena of contention for conservatism and associationalism was the court of business opinion. Although Secretary Hoover sought larger budgets for his department and fought some internal battles to get them, neither his vision nor Mellon's asked too much of the federal government. Associationalism, however, asked competitors to cooperate with one another and with government technical bureaus in the creation of industrywide research programs and patent pools. They even asked all of industry to united in a grand association to support academic science. It was an uphill climb. Few firms perceived the cooperative interest that the secretary and his minions identified, despite vigorous proselytizing. Nonetheless, a seed was planted that would bear fruit in the next decade.

The crash of 1929 suggested to most Americans that Hoover had substantially underestimated the defects of capitalism. A system that suddenly left a quarter of its workforce unemployed seemed to require a thorough overhaul, rather than tinkering at the margins. Although Hoover himself was unable to accept this common wisdom, many associationalists proved willing to stretch the Hooverian vision in response to the crisis. They gave their best effort in the implementation of early New Deal legislation, such as the National Industrial Recovery and Emergency Railroad Transportation Acts of 1933, in which Congress delegated extraordinarily vague and broad authority to the executive branch. The new, improved associationalism called for the government to organize industrial associations and to give them coercive power to coordinate economic activity. Science and technology policy entrepreneurs, such as MIT President Karl Compton and the NRC's Maurice Holland, attempted to use this framework to require participation in cooperative research and information exchanges. They believed that such mandates would help suppress short-sighted wage-cutting competition and encourage firms to engage in technological competition, leading to new jobs, higher wages, and improved productivity over the long term.

To others, however, including both business and labor in "sick" industries like railroads, iron and steel, and textiles, technological innovation tended to devalue fixed capital and displace workers. Hence, they sought to use associational authority sub rosa to retard the pace of innovation and protect themselves. Although the associationalist phase of the New Deal was short-lived and the coverage of its economic policy was very spotty, the evidence suggests that the protectionists accomplished their ends more fully than Compton and the progressives. Certainly that was the popular perception; when the National Recovery Administration (NRA) collapsed in 1935, the notion that the state ought to be used to slow the pace of innovation was largely discredited with it. Some "little NRAs" nonetheless emerged intact from the rubble to regulate particular industries for another several decades. The railroad industry, for instance, found protection from protection from its technological competitors in regulation, staving off collapse if not decline.

This protectionist thread had a counterpart within reform liberalism, associationalism's major competitor in the early New Deal executive branch. Reform liberals were much more hostile to conservatism than associationalists were; they placed the blame for the economic catastrophe squarely on the shoulders of capitalists themselves. Firms, they maintained, would not and could not act in the public interest when their self-interest diverged from it, as was typical. Instead, the state had to step in to act on behalf of the public interest, not to displace the market but to make it function up to its potential. The state they had in mind would be flexible and expert, applying different solutions in different industrial sectors. As noted above, some reform liberals feared technological unemployment and included among their preferred solutions to the Depression the use of state power to regulate the pace of innovation to ease the "adaptation" process (as the sociologist W.F. Ogburn termed it). Heavy-handed protectionist schemes like the machine tax never progressed very far, but this sentiment did contribute to the regulation of wages and hours to spread around the work that machines left people to do.

A more significant thread in reform liberal thought focused on creating new jobs, rather than sharing the old ones, by using the state to accelerate the pace of industrial innovation. New industries based on technological breakthroughs, they imagined, would absorb workers displaced by process improvements in mature sectors. The Tennessee Valley Authority (TVA) was an early expression of this vision of the state, and its "phosphate philosophy," which was said to have created a new fertilizer industry and to have given poor farmers greater marker power, made its promise vivid. In the wake of the "Roosevelt recession" of 1937­38, reform liberalism reached the apex of its influence as the president countenanced an investigation into the concentration of economic power. Thurman Arnold, Assistant Attorney General for Antitrust, implemented this program, attacking both the controlling patent positions of the great firms that did most of the nation's R&D and obstacles to modernization in the construction industry, particularly those presented by the craft unions.

Paralleling the rise of reform liberalism in the administration, however, was a resurgence of conservatism in Congress. The bitter recriminations that accompanied the death of the NRA in 1935, the strident tone of the 1936 campaign, and the court fight of 1937 prepared the ground for conservatives to blame the New Deal when economy turned down at the end of 1937. Congress in 1938, unlike in 1933, refused to delegate authority to the president. Reform liberal legislation, such as Arnold's patent bill, stalled in the face of ideological polarization. Frustrated by congressional intransigence, exemplified by the impotent proceedings of the Temporary National Economic Committee, Arnold took his policy entrepreneurship to the courts, which were being repopulated by "New Dealers" (as the reform liberals took to calling themselves). Using innovative legal and political tactics, Arnold managed to expand the antitrust division and began to win cases against large patent-holders, attacking such alleged practices as suppression and restrictive licensing. The mobilization for World War II interrupted his offensive, as the military authorities gained exemptions for their large contractors, many of whom Arnold had targeted. Yet, when the fighting began to die down, Arnold's successor, Wendell Berge, was largely able to complete his mentor's project of establishing the preeminence of the public interest in technological competition over the property rights that inhered in patents. Over the next several decades, U.S. high-technology companies responded to the new legal environment by relying less on patents and external acquisition of technology and more on being the first mover and conducting in-house R&D, leaving new niches for innovative small firms in the process.

Arnold's attack on the construction trade unions (and on materials manufacturers, distributors, and contractors) was part of a larger reform liberal effort to remake housing as an innovative, low-cost, high-employment, mass-production industry like automobiles. To prepare the way for housing's Henry Fords, Miles Colean of the Federal Housing Authority argued, the government should conduct R&D, restructure the mortgage market, and serve as an intelligent large-scale buyer of innovative housing products as well as break monopolies and cozy deals. Colean's ideas for housing finance reform and public housing projects coincided with Harvard economist Alvin Hansen's notion that the federal government needed to become an investment banker. Aggressive public investment, particularly in sectors like housing, in which rapid technological innovation seemed to be stifled, was a logical consequence of Hansen's interpretation of the new Keynesian view, stemmed not from corporate malevolence, but from mechanical malfunctions that the state could compensate for. However, like patent reform, the late New Deal housing program, with the exception of financial changes, was stalled by congressional conservatives and by the war. More surprisingly, Arnold's construction antitrust cases came to grief; the same New Deal justices who saw a public interest in weaker patent laws saw a public interest in stronger labor protection laws, even if unions retarded the pace of technological innovation. Yet the postwar period ushered in a technological transformation of home-building nonetheless, thanks largely to government-led innovations in housing finance as well as the general buoyancy of the economy. Such success, in conjunction with their wartime experiences, encouraged Keynesians to renounce the restructuring of economic institutions that stood at the center of reform liberalism.

The war, of course, changed far more than Keynesian policy references. Many U.S. military officers emerged from the war with a zeal for new devices and a strong desire to build a national security state that could design, produce, and deliver them. These views marked an astonishing turnabout. The interwar military was small and technologicaly backward. When President Roosevelt shifted his focus from economic recovery to preparation for war after Munich, he found a military establishment that badly lagged behind the civilian economy. Into this breach, ironically, stepped associationalists who had drifted toward conservatism when the New Deal had lurched to the left. Vannevar Bush, president of the Carnegie Institution of Washington, shared Roosevelt's activist pro-British sentiments; Roosevelt recognized Bush as a creative and capable administrator who could secure the enthusiastic cooperation of the nation's leading academic and corporate laboratories for the military effort. As congressional objections to presidential power diminished after France fell and disappeared in the wake of Pearl Harbor, Bush acting on the president's behalf, became the key decision-maker in science and technology policy. Rejecting reliance on the heavy-handed military technical bureaus. Bush's entrepreneurship led to the creation of committee-based, public-private partnerships, exemplified by organizations like the National Defense Research Committee (NDRC) and the synthetic rubber research program, both of which owed much to the associationalist vision. The pooling of private technical resources and intellectual property, force-fed by state-financed capital investments, produced an extraordinary burst of scientific and technological process in such major industries as chemicals and electronics.

While Bush kept at bay crusty military traditionalists who resented civilian influence on the one hand, he also firmly rejected reform liberal attempts to use the war to establish large state-led technology development projects that were not clearly tied to military products. His vision encompassed the establishment of government technological capacities to support peacetime economic growth as well as the military effort. Reform liberal efforts, like the War Production Board (WPB) Office of Production Research and Development (OPRD), met resistance not only from Bush, but also from the dollar-a-year men on loan from industry who dominated the WPB, from congressional conservatives, and from the military establishment. Secretary of Commerce Wallace's postwar initiatives to make OPRD and similar organizations permanent met an even more devastating fate. With the lapsing of the war emergency, Congress once again became the main arena for science and technology policy-making. Appropriations slashed the Commerce budget, while authorizing legislation never quite came to a vote.

The immediate postwar experience of Bush's military adversaries was more satisfying than Wallace's, but only somewhat so. NDRC's wartime successes had helped to inspire military enthusiasm for technological projects of a scale and complexity that went far beyond what Bush thought necessary and that gave the military more control than he thought appropriate. The air force and the navy gained virtual control by 1950 of the Atomic Energy Commission (AEC), crushing reform liberals who had hoped that a state-led civilian atomic power industry would replicate the prewar successes of TVA. But other initiatives of advocates of the national security state bumped up against a rigid budget ceiling imposed by President Truman with the support of conservatives as well as Keynesian advocates of domestic programs. The long-range missile and the supercarrier, for example, remained on the drawing board, victims of the budget crunch and the vicious internecine conflict that it spawned in the Pentagon. Even the Strategic Air Command of General LeMay, the highest priority of the air force, was left short of cash. The fiscal squeeze was relaxed just once before the Korean War, following the "war scare" in the spring of 1948. In this instance congressional conservatives, led by Senator Taft, demonstrated that if they had to spend money on defense, they would rather spend it on high technology than on boot camps. Mostly, however, they preferred not to spend at all, sending the military brass into paroxysms of rage.

Bush's own postwar experience also consisted of more pain than pleasure. He was superseded in the military sphere, and his plan for a government agency to sponsor academic research that was controlled by nongovernmental experts, presented in Sciencethe Endless Frontier, was thwarted. The stalemate on the National Science Foundation (NSF), while made less painful by the generous patronage of universities by the Office of Naval Research, the AEC, and the National Institutes of Health, was not broken until 1950. Bush's associationalist vision for the NSF was compromised (on paper, if not in practice) in the final administrative arrangements, although, the resulting agency was also a far cry from the reform liberal vision that had motivated Bush's chief competitor, Senator Harley Kilgore. The compromise on NSF, in which old associationalists and old reform liberals eventually found a new common ground, had a parallel in the venture capital program advanced by the administration in the spring of 1950. Both groups agreed after the war that there was a gap in the provision of capital to small high-technology businesses, but they disagreed about how to close it; consequently, the conservative status quo was maintained. This stalemate, too, was less painful than it might have been, because of the postwar economic boom. A sharp fall in investment in 1949 finally motivated action. The CEA's Leon Keyserling dropped the public investment idea that had been at the core of the reform liberal vision and advanced a plan to close the small business capital gap by stimulating private investment activity with loan guarantees, tax breaks, and deregulation. Such a package, couched in Keynesian terms, appealed to those, like Senator Ralph Flanders, who had moved away from associationalism toward a moderate "commercial Keynesian" position in the late 1930s and 1940s. Flanders preferred that the government react cautiously to economic changes and favored tax cutting over spending when stimulus was truly necessary. This stance did not preclude activism but relied on careful monitoring of economic conditions and on "jawboning" the private sector first.

Flanders and Keyserling agree, in particular, on jawboning labor negotiations to link productivity to wages. This linkage ensured that the benefits of technological change would be shared among consumers, investors, and workers and that a healthy macroeconomic environment for investment, including investment in R&D, would be maintained. The 1950 agreement between the United Auto Workers and General Motors codified such a productivity bargain and was widely imitated. This labor/management accommodation, combined with growing agreement on the scope of market failure in academic scientific research and venture capital in the face of conservative opposition, suggested that the first half of 1950 might mark the beginning of a period of "secular exhilaration," in which firms capitalized on the civilian technological opportunities turned up by wartime and postwar R&D. Alvin Hansen's fear of "secular stagnation," which was voiced by some even in the late 1940s, faded away and with it the justification for structural economic reform.

The Korean War abruptly changed the picture. Early in 1950 national security state advocates had begun to make a vigorous argument, summarized in NSC-68, for more defense spending; the Korean War made their case far more successfully than they could have imagined. The military budget ceiling was lifted with a vengeance, as spending rose from $13 billion in fiscal 1950 to over $60 billion in fiscal 1952, settling ultimately at about $40 billion. This new ceiling, like the old one, was imposed by conservatives who would rather not have spent at all and Keynesians who wanted to find funds for domestic programs. But both groups adapted their ideals to take into account the new reality that the massive military budget represented. As they had in 1948, conservatives pressed for the U.S. defense posture to favor strategic weapons. Such a strategy seemed to them to yield more bang for the buck and to pose less of a threat of foreign entanglements and restrictions on domestic liberty than did larger ground combat forces. Codified by Secretary of State Dulles in the doctrine of "massive retaliation," this approach relied on ambitious technological efforts to develop air defenses and intercontinental ballistic missiles as well as B-52s and H-bombs. Keynesians, too, resigned themselves to the necessity of military spending and found virtue in it. The defense budget, they claimed, paid off serendipitously by supplying a demand stimulus to the economy; defense R&D paid off serendipitously through scientific and technological
spillovers to civilian industry.

By the end of the Korean War, the air force was the most important organization in the U.S. national innovation system. It exercised significant influence over the atomic energy program and academic research in a range of physical science and engineering disciplines as well as over an array of large and small contractors in aviation, electronics, and a host of lesser industries. Its path to power, however, was not a steady climb to greatness, but a roller-coaster ride buffeted as much by domestic economic and political consideration as by the Soviet threat or by exogenous technological breakthroughs. It owed its preponderance in the defense budget to Senator Taft's conservative coalition. Its cooperative technical relationships with contractors and academic scientists reflected Bush's wartime associationalism. It drew on Keynesian analysis and the idea of spillover to legitimate the scale of its spending, particularly on science and technology.

In Conclusion

However fascinating the analogies between, say, the 80th Congress of 1947­48 and the 104th Congress of 1995­96, the late 1940s are not going to be replayed. Nor will they be run in reverse, with the United States demobilizing fully from the Cold War. These analogies and the historical analysis on which they are built should be used, too, to understand differences between the past and the present. Federal biomedical research funding may now play roles analogous to military R&D spending, including sustaining academic researchers who care not a whit for practical applications and spinning off new economic sectors, but the underlying mission and public appeal is not the same. As long as members of Congress and their constituents keep getting sick and pray that science can provide cures, it seems likely that the NIH budget juggernaut will continue to roll on. The global economic context of the contemporary debate also has no exact parallel in the past. Technological competence has diffused widely, and macroeconomic independence has eroded. As a result, the structure and consequences of the associative or Keynesian policies, for instance, are likely to be quite different than in the past. Conditions placed on the access of foreign firms to publicly funded technology development consortia and concerns about foreign direct investments in U.S. high-technology industries are among the new issues that perplex today's science and technology policy entrepreneurs.

The fundamental questions and processes, however, remain the same. In what ways does the market fail to generate scientific research and technological innovations? Can the federal government make markets work better in this regard? How? Policy-makers answer these questions by integrating what they understand about science and technology with what they understand about the science and technology with what they understand about the state and the market. Science and technology policy entrepreneurs provide the intellectual links between the grand visions of the political economy and the nitty-gritty of proposals for government action. They execute political as well as intellectual strategies, targeting particular institutions and interests. They cannot, however, choose their opposition, nor insulate their efforts from wars, depressions, realignments, and other cataclysms that shuffle the Washington scene. As much as they make their own destinies, they are at the mercy of events too large to be controlled.

Public policy has a similar relationship with science and technology. States cannot determine what nature will permit, what geniuses can devise, or what other states decide to do. They must react. But they may also act, facilitating or obstructing the creation and diffusion of new knowledge and products, tempering or reinforcing their effects on people and places. The United States has been the preeminent actor in this regard for most of this century. Its science and technology policy has changed the way its people and the people of the rest of the world live, work, and fight. A deeper understanding of the decision-making processes that led to these consequences holds the promise not necessarily of a world transformed, but perhaps of a world made a little better. This modest hope ought to be the lodestone of citizens, policy-makers, and scholars alike.

David M. Hart is an assistant professor of public policy at the Kennedy School of Government, Harvard University. Reprinted with permission from Forged Consensus: Science, Technology, and Economic Policy in the United States, 1921­1953, Princeton University Press, 1998, Chapter 8, The Past in the Present: The "Hybrid" in the Cold War and Beyond, pp. 206­214 and 232­233.