Sharper Images
Here they come again. As surely as the cherry blossoms bloom in the spring, the industrial policy mavens descend on Washington every time a new technology or a new Congress gives them an opportunity to push their favorite ideas.
This time the technology in question is HDTV, high-definition television. By producing images six times sharper than ordinary television sets, HDTV promises to turn living rooms into home movie theaters. If engineers ever manage to combine HDTV with flat-screen technology, it could make Farenheit 451's "parlor walls" a reality.
Depending on which experts you believe, HDTV will either be the next personal computer—the leading edge of consumer electronics—or the next quadriphonic stereo—an expensive flop. On Capitol Hill, nobody is making the quad analogy. Rep. Don Ritter (R–Pa.), for instance, calls HDTV "a crown-jewel product" and "one of the most important inventions of the 20th century."
Even people somewhat less prone to hyperbole see HDTV as the technology that could make or break American industry by driving the development of new computer chips and other electronic components. Writes Rep. Mel Levine (D–Calif.) in the New York Times: "If ceding HDTV development helps foreigners monopolize the next generation of electronic components, it will not be long before America becomes a second-rate manufacturing power."
Levine, cochairman of the House HDTV Task Force, says that "although we have to develop a United States–controlled HDTV industry," companies can't do it without government aid. Japanese manufacturers have a head start in the business and could bring HDTV to market as early as next year, at least in Japan.
Absent government involvement, American consumers could buy HDTVs from Japanese or European manufacturers, just as they buy regular sets from Panasonic, Sony, and Quasar today. (Although several foreign TV makers have plants in the United States, Zenith is the only American-owned company still making TV sets.)
But the industrial policy pushers want the U.S. government to ensure that this country will have its very own HDTV manufacturing industry, even if creating that industry costs years of delay and millions of tax dollars. They will not be satisfied with foreign-owned companies making HDTVs in the United States, since they fear that foreign manufacturers won't use American-made components. Through some combination of direct subsidies, FCC standard-setting, and government-supported research consortia, they propose to create an American-owned and operated HDTV industry to counter the Japanese.
These efforts raise three related but separable questions: Should the United States pursue industrial policy? If so, do we need an HDTV industry? And, finally, is HDTV really the wave of the future?
We free-market types like to remind people that, contrary to popular belief, bureaucrats and politicians are very bad at picking business winners. If they weren't so bad, they could invest their own money and get rich. Instead, they tend to prop up losers—businesses that won't make it on their own. Even Japan's much-vaunted MITI is lousy at making business decisions. It pressured Honda not to start making cars, for example, and wasted billions on unprofitable steel and aluminum industries.
(If anything, Japanese companies prosper because the Japanese government is less involved in R&D than the U.S. government. In the United States most research dollars flow from the government to universities, where scientists aren't necessarily looking for commercial projects. In Japan, research money is generally spent by and within companies, where scientists are always under pressure to find new products. Americans win more Nobel Prizes but get fewer patents.)
Even if you believe the government should support some industries, it isn't at all clear that HDTV should be one of them. Aside from a general belief that manufacturing is good and should be favored by the government, the people pushing HDTV policy seem to have a vague national security argument in mind. HDTV provides a market for computer chips, and chips are vital to our weapons systems, they say. What if we had a war and couldn't buy chips from Japan?
This World War II scenario has several problems, even on its own terms. First of all, U.S. companies do know how to make chips, including the low-end chips with which Japanese companies have been so successful. What U.S. companies aren't so good at is making huge quantities of commodity-type chips with very few defects and at very low costs. (American manufacturers dominate the specialized end of the market.) But in a wartime emergency, where profit was less important than production, U.S. plants could just throw out the bad batches.
Second, it's hard to imagine this kind of wartime scenario in the nuclear age. Small, contained conflicts aren't likely to jeopardize supplies. And a full-scale nuclear war would cause, shall we say, more significant problems.
At bottom, the argument for a government HDTV policy comes down to special-interest pleading. There are certain companies that can't make it in this market on their own, and they want the U.S. government to bail them out. As protectionist guru Clyde Prestowitz noted with amazing candor: "Our television industry got blown out 10 or 15 years ago. If you're an American executive and people are urging you to go into HDTV against the very people who blew you out last time, what do you do? You reduce risk by banding together and cozying up to the government, and imitating what your competitors do."
Cozying up to the government has already gotten the Pentagon to hand out $30 million in TV research grants. Better display technologies might improve mapping, radar screens, and other defense applications. But nobody is even pretending the grants are motivated by anything other than a desire to help U.S. industry.
Subordinating defense policy to industrial planning marks an ominous trend. The Pentagon should be like any other smart consumer—looking for the best product at the lowest price. Obviously, it doesn't always do that, for a host of reasons. But the explicit creation of high-profile defense programs to further industrial policy goals, rather than improve military preparedness, is a departure. If the military needs better display technology, it should start with the Japanese companies who have already developed it.
Finally, HDTV may prove to be anything but a winning proposition. Steven Jobs notes that "the computer industry already has better displays than HDTV. The computer industry will become a high enough consumer of semiconductors to dwarf HDTV." Even as a source of entertainment, predicts George Gilder, computers are more promising. Fed by fiber-optic cables and compact disks, future "telecomputers" could offer both high-definition viewing and computing power.
The real problem with HDTV is that the natural progress of the market is blocked by regulation and political deal-making. For instance, the Japanese technology relies on analog broadcast signals, which require a lot of space on the electronic spectrum. Giving spectrum space to HDTV means taking it away from some other use, such as mobile phones.
In the absence of regulation, then, I'd put my money on HDTV technology that uses digital signals sent by cable or fiber-optics. Such technology might even allow American companies to supplant the Japanese. But instead of letting broadcasters, cable companies, and phone operators fight it out, the FCC is under pressure to carve up the market.
Of course, I could be wrong about digital HDTV. And as a fan of going to the movies (I don't own a VCR), I may overestimate the appeal of recreating the bigscreen experience at home. Someone could also come along with a new, competing technology no one has even considered. That's why industrial policy is so hard to get away with. By picking favorites, the government pushes the ideas no one wants and squelches the innovations no one has thought of.