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Chapter I Major Objectives of Federal Policies for Research, Development, and Regional Economic Growth The affluent economy we enjoy in the United States today has in large mea- sure been made possible by the application of scientific knowledge and tech- nology. This has remade the way people live and work. The application of the fruits of scientific research and technological innovation has given us the ca- pacity to release menânot the elite few, but the broad masses of menâfrom the relentless pursuit of subsistence. Soon two thirds of our work force will be engaged not in producing goods, or food, or fiber, but in providing services in such fields as education, health, finance, government, sales, and recreation. Yet, while the application of science and technology has made this transfor- mation possible, large areas of our country and a substantial segment of our population have been unable to share adequately the fruits of this new society. Variously labeled "the invisible America" or the "unseen poor," they are neither invisible nor unseen any longer. The costs of social change resulting from technological progress are often borne by those elements of society and regions of the country least able to sustain them. We have not developed the political, social, or economic mech- anisms for distributing the costs or benefits of technological progress suffi- ciently equitably so that its net desirability can become more obvious to all. The nation should commit itself to the task of assuring that citizens in all re- gions of the country may benefit from the fruits of scientific knowledge and advanced technology, particularly with regard to the fuller development or accessibility of under-utilized resources. It is the opinion of this Committee that social, economic, and political policies and institutions can be created that will provide for more effective 11
12 utilization of scientific knowledge and technology throughout the country among all segments of the population. As a first step toward developing such policies, present national scientific and technical programs and policies should be assessed in order to determine how or whether they can contribute to regional as well as national growth. Major Objectives of Federal Programs in R&D In congressional testimony, Dr. Donald F. Hornig, then Science Adviser to the President, specified the principal federal goals in supporting science in aca- demic institutions: I assume we can agree that we are pursuing several interrelated goals in our federal support of science in the universities. We wish to ensure that our nation either leads or is at the forefront of re- search in the most important fields of science; We would like to make available to all young people, wherever they live and whatever their economic level, the possibility of education of the highest quality; We wish to develop strong intellectual centers in all parts of our country that can provide the focus and the manpower for modern technological development. In the period since World War II, the first goal has been the major concern of most agencies supplying federal support. . . . Our efforts have been success- ful; we are now a world leader in scientific research.12 Dr. Hornig's testimony indicates that there are a variety of goals for sci- ence and research; similarly, there are a number of goals for technology and development. This Committee has found it valuable to classify federal programs for R&D into two broad categories, in accordance with a suggestion by Dr. J. H. Hollo- mon.13 First are high-priority programs, widely considered to be vital to the welfare of the nation as a whole, and directed toward what we designate as "central national goals." These programs have one characteristic in common: they are programs with a national focus; in most cases, the client or patron is the American public as a whole, rather than any specific locality or region of the nation. There are not marked differences among regions either in the com- mitment to such programs or in the anticipated major consequences. Examples include national defense, space exploration, high-energy physics, nuclear power, a cure for cancer, and national eminence in science. Generally speaking, they
13 are programs for which there is a national commitment to achieve identifiable goals. Typically, programs aimed at central national goals are in large measure initiated and sponsored by mission-oriented federal agencies, often through grants to and contracts with organizations of demonstrated competence. In addition to these primary objectives, the agencies carrying out such mission- oriented programs have a secondary responsibility to the nation: to assure that there will be adequate scientific and technical resources, both human and ma- terial, in their fields of interest in the years to come. This longer-range goal, however, does not have the priority that attaches to the primary mission, whether it is to solve the mysteries of cancer, to defend the nation against external enemies, or to unravel the secrets of the atomic nucleus. The Committee has proposed that the second category of goals for federal R&D programs be designated as "distributed national goals" in R&D. The concern may be national, but the problem, its solution, and the consequences thereof are decentralized. Included in this second category are R&D efforts aimed at improvements in agriculture, in water resources, and in the physical environment; other examples are R&D directed toward regional economic de- velopment or the rebuilding of cities. Although these programs represent a broad national commitment, they share in common a strong local ingredient; i.e., they are characterized by the need to specify in regional terms both the nature of the problems to be solved and the nature of the approach to the solution. Dr. Hollomon describes this group of programs as follows: Instead of highly centralized direction and management, this category of fed- eral support reflects a pluralistic, decentralized approach, both geographically and institutionally. Government, at all levels, as well as private industry and nonprofit organiza- tions are involved in the decision-making process and funding leading to re- search for the solution of these problems. Geographically, for example, the agricultural technology useful in Wisconsin is quite different from the agricul- tural technology appropriate for Arizona. Yet both areas need technological competence per se.13 This Committee believes that there is a need for a more adequate national commitment to promote the economic well-being of the various regions of the country and, as a necessary ingredient, a need for national programs that pro- vide for technological competence in these regions. Our free-enterprise system has built-in features that place demands on a given industrial enterprise to be receptive to the incorporation of new tech- nology in order to survive in a competitive environment. Similarly, the eco- nomic and military strength of a nation relative to others is generally recognized to depend on the development of technological capability and innovation.
14 Note the present concern in many European countries over U. S. technologi- cal superiority. Although the vitality of a metropolitan community or a backward region of the country may also depend in a similarly critical way on the proper in- corporation of technological advances, there are no indicators such as corpo- rate profit or balance of payments to specify that need or its magnitude. Nor is there typically a governing body to assure the economic viability of a region as a unit. Although some states have made significant efforts in behalf of their own economic development, the natural framework for economic and social development frequently does not conform to state lines. Hence, the incorpo- ration of R&D or the development of long-range plans has not been systemat- ically employed at local or regional levels. To aid in the development of regional competence, action by the federal government may be necessary, but not sufficient. Local efforts and local or- ganization are absolutely indispensable to success in meeting regional goals. However, this Committee believes that the states and regions of the country can not acquire and retain the scientific technological resources to sustain and improve their economies unless there is a more adequate public recognition of the need for a distribution of competence itself throughout the country and a public decision to do something about it. There is need for an enlarged and clearly defined program of distributed national goals in R&D. The Committee furthermore believes, however, that we can not and should not "remedy" regional technical disparities by imposing on programs whose primary concerns are our central national goals some arbitrary distribution formula for R&D funds based solely on population or geography. To do so would be to ask that these vital national programs be carried out under crite- ria that would permit inefficient use of the resources applied to their urgent objectives. Nor do we have evidence that there would be a major contribution to economic vitality in regions not otherwise adapted to support or benefit from such efforts. As is the case for programs aimed at central national goals, support of pro- grams concerned primarily with distributed national goals must be established on a selective basis. The criteria and mechanisms for implementation of dis- tributed national programs may differ, but the development of scientific under- standing and the encouragement of technological innovation can be successful only if practicable means are found to provide selectivity in the support of R&D. Assessment of the funding required to maintain adequate programs in these two major categories of R&D must entail a careful and detailed analysis of the separate objectives of each category. Although the technological competence in underdeveloped regions might be enhanced by a buildup of programs in either category, it does not follow that a uniform distribution of R&D support
IS in both categories would meet either national or regional needs. Furthermore, while certain regions have attained sophisticated technological competence through implementation of central national programs in R&D, it would be a serious over-simplification to assume that all their regional problems were thereby solved. Federal support is needed to implement programs aimed toward a wide va- riety of central and distributed R&D objectives. The need for support of cen- tral national goals has been recognized by the nation at large, and, in general, suitable mechanisms have been devised to implement them. However, the po- tential returns to society from programs aimed at distributed national goals in R&D have not yet been generally appreciated; nor have adequate means for their implementation been widely adopted. There is reason to believe that present levels of funding are inadequate to serve both major categories of na- tional goals. It is within the context of these observations that the further findings and recommendations in this report are set forth. Objectives of Federal Programs for Regional Development In broad terms, national policies for regional development should have two primary objectives: To improve incomes and levels of living in regions by making it possible for the people in each region to increase their contributions to the national econ- omy through development of the region's comparative advantages and fuller utilization of its manpower and other resources. To assist in correcting major imbalances in the availability of social and eco- nomic opportunities among some parts of the nation and between some re- gions and the country as a whole. However, each region of the country can not possibly become a duplicate in microcosm of the national economy. Inter- and intra-regional migration will continue as individuals and institutions seek new opportunities; diversity, mi- gration, and change are all elements of growth and development. Obviously, a seaboard region has different opportunities for development from those of a region deep in the interior. A sparsely populated, arid region calls for regional development objectives different from those required in a more densely populated, humid one. Regions isolated from the main economic heart of the country in less-desirable climatic areas call for a different approach than those similarly isolated in more attractive climatic zones. The level of de- velopment each region can attain without imposing excessive costs on the
16 country as a whole depends upon many factors. It is true that national afflu- ence, science, and technology make it possible, if we wish, to create major new population centers and economic complexes where we choose, even under the most adverse conditions. But there is sometimes a profound difference be- tween what is technically possible and what is in the best national interest. An attempt to develop, without understanding all its implications, a homogeneous distribution of population and economic activity across the country would im- pose upon the nation excessive costs of production supported in the form of public subsidy. These costs would eventually be felt by every consumer and taxpayer, as well as in the ability of American products to compete in world markets. This Committee believes that the objective of "balanced development" as set forth in the Economic Development and Public Works Act of 1965 can never be attained if it is construed to mean a homogeneous distribution of eco- nomic activities among the regions of the country. The Committee does believe, however, that if somewhat differently defined, the objective of balanced regional development can be met. Cities and regions inevitably specialize in products and services that they export to the rest of the country. Incomes and growth are a function of that regional specialization, and high incomes are normally associated with a favor- able mix of high-growth activities in those sectors for which the region can offer particular comparative advantages. Unfortunately, and not unexpectedly, the underdeveloped regions of the country tend to specialize in slow-growth and/or declining sectors of employ- ment such as mining, fisheries, agriculture, and the declining or static sectors of manufacturing. Some regions experience slow growth because they have been bypassed by a developing economy or have found themselves saddled with slow-growing industries. Others, in an attempt to develop a more sub- stantial economic base, have sought to attract new industry into their regions and have found it easiest to attract the kind of industries that are slow-growing and technologically underdeveloped. Frequently these industries are attracted by low wages and can meet their requirements with an unskilled and under- educated labor force. Regions with such industries presently lack many of the institutions, public and private, required to help them correct this imbalance. In such cases, the objective of balanced growth should be viewed as the attempt to develop a regional economy in which the sectors of growing employment outweigh the declining sectorsâan economy ultimately capable of sustaining sufficient growth to maintain a high rate of employment through the develop- ment and utilization of its own resources and comparative advantages. While this report stresses the importance of invention and innovation, cer- tain cautionary statements should also be made. There is an implicit assump- tion in certain recent statements that, with proper R&D, lagging industries
17 such as textiles, fisheries, and railroads could become growth industries, that the only thing lacking is technological innovation. Without increasing demand, it is difficult to introduce technological innovation, especially in industries with very low demand-price elasticity, such as textiles and food. It is much easier to embody innovation in capital investments when these investments have to be made anyway, to meet a rising demand, than to replace obsolete equipment. This is part of the "chicken and egg" question dealt with in the work of Schmookler14 and others, i.e., the question of whether demand leads to technological innovation or technological innovation leads to demand. The maximum impact of R&D lies in industries such as electric power and com- munications, where the demand-price elasticity is very high and there are also large economies of scale. It should also be recognized that the economic problems of a depressed region with a large surplus of unskilled labor are often more susceptible to solution via the introduction of a technologically unsophisticated, labor- intensive industry than by the attraction of a high-technology industry calling for skilled manpower. The undeniable validity of the above assertion has led some authorities to the generalization that "such regions don't need R&D, they need entrepreneurs." There is little doubt that the improvement of a depressed economy calls for a variety of highly motivated entrepreneurs and innovators; this is one of the central conclusions of this report. Furthermore, such entrepreneurs may help the economy by introducing labor-intensive industries with relatively small R&D components. At the same time, if we define R&D to include efforts to survey the problems and opportunities in a region, to develop plans for the short-range solution of such problems, as well as to identify the long-term needs and potential strength of a region, such R&D activities can contribute significantly to both short-term and long-term eco- nomic regional well-being. Delineation of RegionsâPlace Prosperity versus People Prosperity Any discussion of regional development brings forth the question, "What con- stitutes a region?" This Committee has recognized that the problems of rural Appalachia, which includes a major portion of the areas of 13 states, have many similarities to the problems in the core centers of our metropolitan areas. Neither Appalachia nor portions of Los Angeles and Washington share in the affluence of the nation as a whole. In a sense, therefore, each of these geograph- ical units represents a depressed region. However, the Committee feels that to designate pockets of low economic opportunity, either urban or rural, and to try to find solutions to their prob- lems in isolation from adjacent areas that are part of the same geographic or
18 otherwise defined social or economic region is to limit the attainment of viable economic solutions. In a society in which metropolitan areas, in particu- lar, have attained significant comparative advantages, particularly with respect to the location of high-technology industry, it seems essential to designate regions in a sufficiently large context to permit viable economic relationships. Thus, regional delineations should recognize the essential interdependence of urban centers and rural hinterlands (and the central cores of cities with their metropolitan areas). Since the regional pattern of relationships is in a state of continuous change, we hesitate to propose a single national pattern. Neverthe- less, throughout this report the Committee uses the term "region" to connote large multi-state regions sharing many common economic, social, and political ties and with a common set of important urban areas as their centers. In some cases, the term "region" is applied to designated areas such as the Four Corners Region or the Ozarks Region as set forth in congressional legislation establish- ing multi-state or multi-county areas for special federal help. The Committee believes that sound national policies for regional development require that those designated regions that do not include metropolitan centers be re-defined in order to make a sound approach to development possible. The Committee recognizes that, while certain broad national objectives for regional development may now be formulated, these have not as yet been crystallized as stated national policies for regional economic development, either in terms of a regional geographic pattern for the nation as a whole or in terms of specified national priorities. Such larger issues go beyond the scope of this Committee's charge. However, the Committee has inevitably been faced with certain questions that relate to the broader national issues. Thus, we have recognized the distinctions between place prosperity and people prosperity and the conflicting priorities that may sometimes be in- volved in dealing with regional problems. There are inevitably some areas or communities for which the comparative economic advantages have been ad- versely affected to such an extent that to maintain the objective of place prosperity is simply not in the national interest. The movement of people across regional boundaries in response to economic incentives is an accepted facet of our national life. At the turn of the century, the town of Aspen, Colorado, became a depressed area with the depletion of the local silver mines. Then, after the sources of income or employment disappeared, the town was no longer depressed: it was simply vacated. In recent years, it has assumed a new prosperity, again associated with the nearby natural resources, but totally unrelated to its former enterprise. Thus, a region is considered to be affluent or depressed mainly in terms of the affluence of the people who live there, and these may change significantly with time and circumstances. Clearly, the provision of added mobility to segments of the population is one way of altering the economy of a region. It may alleviate an economically
19 depressed region without enhancing its growth, or it may transfer the economic problems from one region to another, as with the migration of underemployed agricultural workers in the South to the slum districts of major northern cities. Thus, a commitment to regional economic growth should not be construed in a narrow parochial context. A broad national policy for regional develop- ment must take into account not only the validity of population mobility but also the concept of localized decision-making as to regional priorities. At the same time, a representative democracy must establish national policies that entail a concern for the well-being of the individual regions as well as that of the nation as a whole. In the final analysis, regional economic development is an issue when the community leaders and/or the political leaders in a given region define it to be an issue. In making this decision, they have taken a first essen- tial step toward alleviating existing regional problems or toward anticipating the solution of future problems.