Technology Traps

Defunding the megaprograms

T.J. Rodgers from the February 1995 issue

(Page 2 of 3)

I am a member of the board of directors of the largest GaAs chip maker in the United States. Here are the facts:

1) Current terrestrial GaAs wafers cost $500.

2) The hypothesized improvement in the crystal structure of space-grown wafers is irrelevant, since the GaAs chip manufacturing process destroys and rebuilds the crystal as part of the process.

3) All GaAs companies would go out of business if their wafers cost $10,000 each.

The basic problem with megaprogram funding is that particle physicists, space scientists, and big-company technology experts can have their way with a lay Congress that barely comprehends the complex technologies it is funding. And even that minimal comprehension comes only when huge sums are expended on ever-increasing congressional staffs.

After eliminating the big-science megaprograms, Congress should attack the technology subsidies that Secretary of Labor Robert Reich reasonably calls "corporate welfare." The corporate subsidy most often touted as a success by the Clinton administration (yes, they speak on both sides of the issue) is Sematech, the Austin-based semiconductor research facility that has been given $1 billion in two five-year grants so far. A reasonably well-run organization, Sematech recently announced it would not seek a third $500-million grant. (Of course, the original Sematech promise was that it would not come back to Congress the second time.) The Clinton administration believes Sematech should be replicated in other industries. But its record is not one that warrants replication:

* Sematech has as members only 12 of America's 200 semiconductor companies.

* Two of Sematech's original 14 members quit because even with their dues halved by government subsidy they could not justify the investment.

* The big companies that control Sematech's board designed the consortium's dues structure to prevent small, entrepreneurial companies from joining. A $20-million chip company that may someday be the next Intel must pay 5 percent of revenue, while Intel itself pays only 0.15 percent of its revenue--a 33-to-1 ratio, which is the primary reason so few companies joined Sematech originally. Of course, Intel, which makes over $1 billion a quarter in pre-tax profits, needs the subsidy a lot less than the small companies that were excluded. But the political system provides the opposite results: Only big companies can muster the lobbying resources to convince Congress to subsidize them. And why would they share the pork with the upstarts?

* Sematech used its government subsidy to attack directly the other 100-plus American chip companies that were not Sematech members. After the checks were signed and the TV lights turned off, Sematech began granting funds to companies that make the critical equipment for the production of computer chips--in return for contracts to hold back the most advanced equipment from all but Sematech members for up to one year. (The deals, which Sematech denied repeatedly, were discovered during a lawsuit.) It is no wonder that Sematech insisted on and received antitrust immunity as part of its funding legislation.

If Sematech's silicon-chip subsidy represents the Clinton/Gore model for government subsidies, it's up to the new Republican Congress to stop its replication. Let's not copy a system that allows well-heeled corporations to use their lobbying clout to entrench themselves with taxpayer subsidies, to the detriment of new companies with new ideas.

The flow of bright, well-educated technologists into industry is much more important to American high-tech businesses than are subsidies to prop up ailing giants. And by cutting out science megaprograms and corporate technology subsidies, the new Congress can both cut the federal budget and free up funds to increase university research funding.

Many Silicon Valley venture capitalists--no friends of big government--believe that the defunct DARPA (Defense Advanced Research Projects Agency) was one of the most effective government technology programs. They credit it with funding such winning pre-venture-capital investments as the UNIX computer operating system work done by Sun Microsystems founder Bill Joy.

DARPA funded my doctoral studies on transistor physics at Stanford. The high-performance chips I worked on may or may not have improved national defense, but I became one of the hundreds of DARPA-funded Ph.D.s who flooded into Silicon Valley from Stanford and Berkeley.

What caused an unlikely agency like DARPA to provide decent return on government investment?