[Senate Hearing 105-127]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 105-127


 
           DEPARTMENT OF COMMERCE'S TECHNOLOGY GRANT PROGRAMS

=======================================================================

                                HEARING

                               before the

                      SUBCOMMITTEE ON OVERSIGHT OF

                 GOVERNMENT MANAGEMENT, RESTRUCTURING,

                      AND THE DISTRICT OF COLUMBIA

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 3, 1997

                               __________

      Printed for the use of the Committee on Governmental Affairs


                               


                     U.S. GOVERNMENT PRINTING OFFICE
 41-565 cc                  WASHINGTON : 1997
_______________________________________________________________________
            For sale by the U.S. Government Printing Office, 
 Superintendent of Documents, Congressional Sales Office, Washington, DC 20402


                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
SUSAN M. COLLINS, Maine              JOHN GLENN, Ohio
SAM BROWNBACK, Kansas                CARL LEVIN, Michigan
PETE V. DOMENICI, New Mexico         JOSEPH I. LIEBERMAN, Connecticut
THAD COCHRAN, Mississippi            DANIEL K. AKAKA, Hawaii
DON NICKLES, Oklahoma                RICHARD J. DURBIN, Illinois
ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
BOB SMITH, New Hampshire             MAX CLELAND, Georgia
ROBERT F. BENNETT, Utah
             Hannah S. Sistare, Staff Director and Counsel
                 Leonard Weiss, Minority Staff Director
                    Michal Sue Prosser, Chief Clerk

                                 ------                                

SUBCOMMITTEE ON OVERSIGHT OF GOVERNMENT MANAGEMENT, RESTRUCTURING, AND 
                        THE DISTRICT OF COLUMBIA

                    SAM BROWNBACK, Kansas, Chairman
ARLEN SPECTER, Pennsylvania          JOSEPH I. LIEBERMAN, Connecticut
ROBERT F. BENNETT, Utah              MAX CLELAND, Georgia
                        Ron Utt, Staff Director
      Laurie Rubenstein, Minority Staff Director and Chief Counsel
                      Esmeralda Amos, Chief Clerk



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Brownback............................................     1
    Senator Lieberman............................................    14

                               WITNESSES
                         Tuesday, June 3, 1997

Mary Lowe Good, Under Secretary for Technology, Technology 
  Administration, U.S. Department of Commerce, Washington, DC....     2
Robert M. White, University Professor, Carnegie Mellon 
  University, Pittsburgh, Pennsylvania...........................     9
Tim Draper, Managing Director, Draper Fisher Associates..........    24
T.J. Rodgers, President and Chief Executive Officer, Cypress 
  Semiconductor Corporation, San Jose, California................    30
Stephen Moore, Director of Fiscal Policy Studies, Cato Institute, 
  Washington, DC.................................................    40
Dwight D. Carlson, Vice Chairman, Perceptron, Incorporated, Ann 
  Arbor, Michigan................................................    41

                     Alphabetical List of Witnesses

Carlson, Dwight D.:
    Testimony....................................................    41
Draper, Tim:
    Testimony....................................................    24
    Prepared statement...........................................    61
Good, Mary Lowe:
    Testimony....................................................     2
    Prepared statement...........................................    49
Moore, Stephen:
    Testimony....................................................    40
    Prepared statement...........................................    85
Rodgers, T.J.:
    Testimony....................................................    30
    Prepared statement...........................................    65
White, Robert M.:
    Testimony....................................................     9
    Prepared statement...........................................    58

                                APPENDIX

Prepared statements of witnesses in order of appearance..........    49
Letter from the National Venture Capital Association, dated June 
  4, 1997, submitted by Senator Lieberman........................    94




           DEPARTMENT OF COMMERCE'S TECHNOLOGY GRANT PROGRAMS

                              ----------                              


                         TUESDAY, JUNE 3, 1997

                                       U.S. Senate,
       Oversight of Government Management, Restructuring,  
                 and the District of Columbia Subcommittee,
                        of the Committee on Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 1:46 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Sam 
Brownback, Chairman of the Subcommittee, presiding.
    Present: Senators Brownback and Lieberman.

             OPENING STATEMENT OF SENATOR BROWNBACK

    Senator Brownback. Thank you all for coming today. I 
appreciate your attendance. We are getting started a little bit 
late and I apologize about that. Both Senator Lieberman and I 
had conflicts in our schedule and he will be coming shortly, 
but I wanted to go ahead and get the hearing started because we 
have people that traveled some distance to be able to be here 
today to testify.
    This is our fifth in a series of hearings on the Department 
of Commerce. In previous hearings, we have heard testimony on 
the Department's census and statistical functions, trade 
functions, National Oceanic and Atmospheric Administration, and 
general department management issues.
    Today's hearing will be looking at technology grants 
administered by the Department of Commerce, primarily the 
Advanced Technology Program. The ATP provides hundreds of 
millions of taxpayer dollars each year to companies and joint 
ventures to spur the development of high-risk, pre-competitive 
technologies.
    Funding for this program has exploded over the years. It 
was started in 1990 during the Bush administration with $10 
million. This year, the program received $225 million. This is 
during a time period in our efforts to balance the budget, from 
$10 million in 1990 to $225 million this year, and the 
administration has requested $275 million for next year. The 
administration has also made it clear that they would like to 
invest even more in this program.
    Some view these subsidies as critical to American 
competitiveness in the global high-tech marketplace. However, 
because many of these grants go to industrial giants such as GE 
and IBM, others view the program as a wasteful corporate hand-
out. These companies already have multi-million-dollar R&D 
budgets and the incentives to invest in technology. In 
addition, there is an exploding ven

ture capital market and market for initial public offerings for 
smaller concerns.
    I would note for those in attendance today that the week 
before we went on the Memorial Day break, this Committee, the 
Governmental Affairs Committee, passed a corporate welfare 
commission bill. The commission will review the Advanced 
Technology Program as well, if that is enacted into law. It has 
cleared the Committee and will be heading on to the floor.
    Today, we will hear testimony from experts on both sides of 
this issue. We have three panels. In the first panel is Dr. 
Mary L. Good, who is Under Secretary for Technology, Technology 
Administration, at the Department of Commerce, and then Dr. 
Robert White, who is a professor at Carnegie Mellon University 
and former Bush administration official when the ATP program 
was first launched. We will have our second panel of industry 
representatives, and then a third panel of both industry 
representatives and one of the think tanks in Washington.
    Without further ado, what I would like to do is go ahead 
with our first panel, even though Senator Lieberman is not 
here. You can present your written testimony and summarize. I 
personally, and I know Senator Lieberman is the same way, 
appreciate shortened testimony and then an interaction. Make 
sure, though, that you hit the key points we need to hear.
    The ATP program will be reviewed in the appropriations 
process as it comes up and will certainly be reviewed in the 
corporate welfare commission, if that is initiated, and I do 
hope we will have the administration's support in initiating 
such a commission.
    So with that, Dr. Good, we welcome you. I understand now 
this will be your last testimony before leaving the Department 
of Commerce. Is that correct?

TESTIMONY OF MARY LOWE GOOD,\1\ UNDER SECRETARY FOR TECHNOLOGY, 
    TECHNOLOGY ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE, 
                        WASHINGTON, DC.

    Ms. Good. That is correct.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Good appears in the Appendix on 
page 49.
---------------------------------------------------------------------------
    Senator Brownback. Well, what a way to go out. Testifying 
in front of Congress again is, I know, no pleasant task. I will 
hope not to make it too difficult on you today.
    Ms. Good. Thank you, Senator.
    Senator Brownback. But I appreciate you being here and the 
microphone is yours.
    Ms. Good. Thank you very much, Mr. Chairman. What I would 
propose to do is to summarize some of my testimony and simply 
submit the entire statement for the record, if I might.
    Senator Brownback. Without objection.
    Ms. Good. And that will leave us some time, hopefully, for 
some dialogue. But I would like to particularly emphasize some 
of the testimony and I will say a few words just in summary 
about the other programs in the Technology Administration, but 
I will focus on ATP, since that is obviously the major issue 
that people want to talk about today.

    But to set that in perspective, I would like to point out 
that really this is sort of a special time. It is kind of a 
window of opportunity to make some historical progress in 
dealing with what most of us believe is really a pressing issue 
of both eliminating the Federal budget deficits at the same 
time that we preserve crucial government functions that are 
important to the Nation's well-being and to all of those of our 
citizens. Clearly, that is a major task that is before us 
today.
    We believe that the President's budget agreement with the 
congressional leaders is both a heartening and remarkable feat. 
It is an opportunity that we should not and must not waste, and 
it is an opportunity that we must make work. So it seems that 
it is really incumbent upon the administration and Congress to 
evaluate which investments we should make in order to both 
maintain our standard of living and provide the foundation for 
continued economic growth and opportunity.
    So the trick is to figure out how to pinpoint the most 
promising Federal efforts that are likely to pay off in the 
long run and how those investments for the future should be 
balanced against today's pressing needs. So, that is why I 
really welcome the Subcommittee's hearing today. The topic is 
clearly one of great importance to the Nation, and so let me 
quote from someone who told me quite eloquently recently the 
following things:
    ``Truth No. 1: Research and development, science, and 
education bring advancements and innovation. Truth No. 2: 
Innovation has been the basis for our competitive edge, 
peaceful and defense, and of our extraordinary lifestyle; it is 
the cornucopia of the modern America and the envy of the world. 
Truth No. 3: Funding research and creating an environment that 
encourages private research and innovation are the bedrock upon 
which much of our national economy is built.''
    Now, those are the words that were in the opening statement 
of one of your colleagues, Senator Bill Frist of Tennessee, who 
spent some time with us recently in another hearing on how our 
efforts in the Technology Administration were helping to ensure 
that these truths continue to be positive forces for the 
Nation.
    Now, I think that all of us agree that sustained economic 
growth, with the jobs and higher standard of living that it 
brings, is clearly amongst the Nation's highest priorities. And 
among the drivers of growth, technology is the single most 
important determining factor. It is estimated to account for as 
much as 50 percent of the Nation's long-term growth. So I have 
essentially spent my professional career advocating the 
importance of R&D and technology in our academic, industrial, 
and government budgets.
    The technological infrastructure that we have built over 
the past 50 years spans industry, academia, and the government, 
and it has generated enormous dividends to the Nation. But in 
today's technology-based global economy, our infrastructure is 
more vital than ever before. It is essential to our prosperity, 
our job base, and the creation of wealth, which in turn are the 
foundations of our standard of living, quality of life, 
national security, and global influence.
    I spent 20 years at Louisiana State University and on the 
National Science Board fighting for university-based research 
because it allows us to develop world-class scientific and 
technical talent,

while simultaneously contributing to the Nation's knowledge 
base. And then during the almost 15 years that I spent at 
Allied Signal, I worked to preserve our R&D base in that 
industrial setting in an era of major consolidation, 
streamlining, and a new emphasis on product quality and process 
improvement.
    Now, while the company was making these needed adjustments, 
it was in its long-term interest to maintain R&D investments 
that would underpin the company's future competitive abilities. 
Now, the success of both of these efforts relied heavily on the 
commitment of the U.S. Government to maintain a stable R&D 
portfolio at the Federal level that could be leveraged by both 
academia and industry.
    For the universities, it has been the base of their 
support. For industry, it has created the infrastructure that 
has provided a flow of new talent and programs that filled gaps 
in new technology development and critical generic technologies 
that the industry could not provide for itself.
    Now, the Federal budget today is often cast as a $70 
billion-plus investment. That is still larger than any other 
nation's, but the reality of that number is really much more 
sobering. Nominally stated, it is $74 billion. The actual 
fiscal 1997 Federal budget in R&D--what could be called the 
science and technology base--is only $41 billion. The rest, 
about 44 percent, is in short-term developments unique to 
specific defense weapons systems, thus offering extremely 
limited usefulness to the economy as a whole.
    Of that $41 billion, nearly a third of that is spent on 
health research. So the Federal investment in every other field 
of science and technology, from physics and materials to 
computing and communications, from energy and the environment 
to software and simulation, is substantially less. It is really 
only $28 billion, out of the total Federal budget of about $1.7 
trillion. As the Federal Government tightens its belt to 
achieve a balanced budget, we must not lose sight of the 
sustained investment required to ensure America's economic and 
technological leadership into the 21st Century.
    Now, while we contemplate the size and scope of our public 
R&D investments, we must take into account what is happening in 
the rest of the world. Nations everywhere have recognized the 
link between technology, economic growth, and job creation. 
They are rapidly expanding their scientific and technological 
capabilities. They are establishing a sophisticated array of 
technology policies, and they are expanding their public 
investments in R&D in order to retain and grow their domestic 
industries, while attracting the engines of economic growth to 
their own shores.
    Just as a brief summary of that, if you look at what is 
happening particularly in Southeast Asia today, you find that 
their major emphasis is on technology transfer to Southeast 
Asia, both by bringing people and resources and creating an 
environment which actually gets people to invest and build R&D 
facilities in that part of the world.
    One of the biggest investments of American companies in R&D 
today is in Southeast Asia, and the rate at which new R&D 
facilities are being built around the world is very high. 
Fortunately, we so far have been able to attract a fair amount 
of those to our shores as well, and in the interim time the 
issue is how do we keep get

ting that investment here, as well as having our people out-
source their R&D across the world.
    Now, in this environment, what we find is that the 
competitive pressures of the global marketplace have forced our 
American firms to move their R&D into shorter-term product and 
process improvements. And what we are in the process of seeing 
is an innovation gap and it is developing between the 
fundamental research that is done primarily at the university 
level--the gap between that and the enabling and emerging 
technologies that will underpin the products and services of 
the 21st Century and the shorter-term development activities of 
U.S. corporations. These technologies are for potentially large 
economic and social returns to the Nation, and they do indeed 
languish in many cases due to their high costs, but 
particularly because of high risks.
    Now, the Advanced Technology Program seeks to try to bridge 
this innovation gap by forming partnerships with companies and 
consortia to advance these technologies to a developmental 
prototype. We don't do product development in ATP and we don't 
do process development in ATP. It is truly a research project 
to look at how we develop a new technology from an idea to a 
stage where it can be looked at as to whether or not it will be 
of commercial interest.
    An Office of Technology Policy analysis of the white papers 
from the U.S. technical community, which was submitted in 
conjunction with the ATP program, shows that high risk was the 
most frequently cited reason for seeking Federal support; that 
is, the program ideas had an inherent risk, exceeding the 
industry threshold to the point that private investment could 
not occur in a timely fashion.
    If you want a dose of reality, I would urge you to sit down 
with some of the small company entrepreneurs trying to get 
financing when they need between about $250,000 and $5 million 
to develop a prototype just to show proof of concept, or sit 
down with a group of venture capitalists, which we have done in 
many cases. The funding for these higher-risk ventures when the 
technical ideas are just that--they are concepts, they are not 
hardware, they are not software--is extraordinarily difficult 
to come by.
    That is one of the key motivators of the ATP, to co-fund 
the very risky technologies that have enormous potential if 
they can overcome the initial hurdles. Then, and only then, 
will the financial markets and the managers of larger company 
R&D operations be willing to invest in these ventures.
    I want to make something really very clear. ATP managers 
strongly believe that we should leverage private sector 
development of enabling technologies without displacing private 
capital funding, and we have significant evidence that makes us 
very confident we are not supplanting private investment.
    Now, cost-sharing is often cited as the primary benefit of 
this program. Other important benefits are derived, though, 
from the Advanced Technology Program. First, companies come 
together to share the cost and risk of developing technologies 
in which they share mutual, non-competing interests. Thus, 
while a technology may be too expensive or carry too high a 
risk for a single company or single industry to develop, ATP 
encourages the types of partner

ships that spread costs and risks, reducing each company's 
barrier to investment. These partnerships also allow the 
technology to be employed in a broad array of potential market 
applications, enabling companies to recoup more quickly their 
R&D investments.
    Finally, ATP's technical and business reviews engender a 
great deal of prior planning, addressing the full scope of 
innovation activities. These reviews improve the planning 
process and serve as a bellwether for potential investors of 
the validity of the technology projects that receive grants 
because it is known that they have survived a rigorous review 
of the technical and financial aspects of the technology. 
Projects that do not receive grants nevertheless benefit from 
these critical reviews, we think.
    We have made tremendous technical progress since we 
launched this program in 1990 with our first awards--288 awards 
have been made to date involving more than 700 participants, 
and that doesn't include the subcontractors and informal 
collaborators. Among our participants are more than 100 
universities, who are involved in over half of all the ATP 
projects. Now, let me repeat that because we perhaps have not 
made that point clear enough. More than 100 universities are 
involved in over half of all of the ATP projects.
    Overall, NIST has committed about $990 million, and 
industry cost-shares by adding another $1 billion. Because ATP 
was only a pilot program prior to 1993, all but a handful of 
these awards were made in the last 4 years. While it is still 
too early to judge long-term benefits, survey results show that 
the program has accelerated technology development, expanded 
the funding that companies otherwise would provide for long-
term research, improved research productivity, created and 
retained high-wage jobs, improved companies' competitive 
standing, and fostered valuable industry-industry, industry-
government, and industry-university alliances that have 
increased the R&D efficiency.
    I would refer you to a report that we gave to the Congress 
last year entitled ``The Advanced Technology Program: A 
Progress Report on the Impacts of an Industry-Government 
Technology Partnership,'' which I think really provides some of 
our issues on how effective the program has been.
    But if you want an outside opinion on the effectiveness of 
the ATP, a glimpse at the extraordinary impact that it is 
beginning to have, let me just refer you to a recent 
announcement from the National Center for Manufacturing 
Sciences. NCMS headed up a consortium of suppliers, makers, and 
users of printed-wiring boards. These are the thin composite 
boards that form the backbone and nervous system of virtually 
every electronic product.
    The challenge for this consortium was to deal with 
fundamental limits in both materials and processes that were 
becoming more severe as electronic devices increased in 
complexity and speed. NCMS and its team members assembled in 
1990 to attack these issues, with support from the ATP. In an 
announcement last month, NCMS declared that the results of 
their ATP co-funded project quite literally saved an industry 
and shaped an unprecedented process for the performance of 
cooperated research and development. And I congratulate my co-
person here today, Dr. White,

because this grant was given during his tenure in the 
Technology Administration.
    And it is no small industry. The U.S. share of the printed-
wiring board industry today is $7 billion. It is a key segment 
of the $20 billion domestic electronic interconnect industry 
that employs over 200,000 people. We invested about $12.8 
million altogether. The remainder of the funding for this 5-
year, $26.6 million project came primarily from the private 
sector, along with some funding from the Energy Department for 
participation by Sandia National Laboratories.
    That is really an amazing return on investment, and it 
would be awfully hard to argue by those data that this was not 
a wise investment in taxpayer dollars. So I would like to 
submit for the record a statement from NCMS which explains 
their findings after looking at this project, and I think it is 
one that you should look at very carefully.
    [The statement of NCMS follows:]

 LANDMARK COLLABORATIVE RESEARCH PROGRAM CREDITED WITH SAVING DOMESTIC 
                     PRINTED WIRING BOARD INDUSTRY

    NASHVILLE, Tenn.--At a recognition ceremony held at its annual 
meeting today, the National Center for Manufacturing Sciences gave its 
Collaborative Project Excellence award to a 5-year R&D program focused 
on Printed Wiring Board (PWB) technology. Printed wiring boards are a 
critical component in electronics products, and they are used in 
virtually every sector of the U.S. economy.
    In his remarks, NCMS President John Decaire noted that this program 
had quite literally saved the $7 billion U.S. PWB industry--a key 
segment of the $20 billion domestic electronic interconnection industry 
that employs over 200,000 people. Dr. Decaire went on to say that as 
the hundreds of innovations created in the PWB program diffused into 
companies who manufacture PWBs, the Nation's global market share--which 
had declined precipitously in the 1980's--began to increase again. 
Based on current estimates, the Nation's global market share in this 
important industry, which now stands at about 28 percent, could exceed 
32 percent by the year 2001.
    Lucent Technologies, Via Systems, Texas Instruments, United 
Technologies, and IBM were all recognized for their participation in 
this program. The National Institute of Standards and Technology (NIST) 
also provided support for this effort through its Advanced Technology 
Program. In particular, Dr. George Uriano, retired former head of the 
ATP, was recognized for his efforts in building the ATP.
    The National Center for Manufacturing Sciences is the largest 
collaborative R&D effort in the United States. NCMS has more than 200 
corporate members in the U.S. and Canada, and manages an annual 
collaborative project portfolio of some $80 million. The organization, 
formed in 1986, held its 11th annual meeting of members this week at 
the Opryland Hotel in Nashville.

    Ms. Good. Now, as I said, it is really still early for ATP. 
Only a few dozen projects have been completed to date. We are 
just beginning to see the results of this work spread 
throughout the various industry sectors, and it likely will be 
years until the full impact is understood. That will happen 
when we see entire new technologies and even new industries 
created out of the basic technology research cosponsored by the 
ATP.
    So when policymakers in the administration and Congress 
worry about how to allocate scarce dollars from the 
government's constricting discretionary accounts, we must all 
look toward the future and should opt for efforts like ATP 
because they really are beginning to make a difference on the 
economy as a whole. That, in a nutshell, is how we view ATP and 
what its worth is.

    In my written testimony which is for the record, I have 
also discussed the Manufacturing Extension Program. And, 
Senator Brownback, you might be more familiar with that one, 
because of your background in the agricultural arena. The MEP 
was fashioned very much on the old agricultural extension 
services. That program is going very well, and at this moment 
also I think enjoys relatively strong political support across 
the country, frankly, and I think for the most part has been a 
very good program. We now, as of this year, have coverage in 50 
States with the MEP program.
    I will not take the time to spend on the details of the 
other programs that we have, but let me just finish by saying 
that if you look at the $28 billion that we spend for all of 
the industries, except the health industry, it really is a 
rather small investment and it is the fundamentals on which an 
awful lot of the rest of our work is going to happen. As I look 
around the world today, I would consider that a rather modest 
portfolio rather than a great and wonderful set of numbers.
    As we look around the world in the global economy, two 
things are really very important. I spent 2 weeks in China in 
the last month, and if you look at Southeast Asia, in 
particular, what is happening is that the ability to do 
research and development and technology development and 
commercialization at the cutting edge does not belong to the 
United States alone anymore. It does not belong to the United 
States and Western Europe. It now belongs essentially across 
the world.
    We have absolutely world-class R&D facilities in Southeast 
Asia today. We have world-class R&D facilities in Europe. We 
are in a position where the only way for us to compete is to 
run faster and do things better and faster, which means that we 
must leverage the monies we do spend in the kinds of transition 
programs that MEP and ATP provide which connect to the very 
basic research that we do in the universities, provide for the 
research and the technology development, and it is research. It 
is not development in the usual sense. We must do that if we 
are going to leverage for ourselves the value that we have in 
training our people.
    The other issue is that to be competitive, the issue is 
going to be how do we incentivize and how do we attract 
companies to do state-of-the-art R&D and manufacturing in the 
United States. What they look for today is people, the ability 
to have quality people, and they look for infrastructure that 
makes it advantageous for them to invest here. Programs like 
ATP build that infrastructure, and it is a pool of technology 
that they feel they can draw from.
    I would just like to finish by saying that I don't look at 
ATP as a corporate welfare program. I look at it as a country 
welfare program, which is very different. That is what the 
government is all about. If, by doing that, it incentivizes 
people like General Electric and DuPont to do some things that 
they would not do--and, remember, ATP requires them to say that 
they will manufacture in the United States and do the research 
in the United States. And if we can encourage them to do these 
emerging technologies here in the United States by cost-sharing 
some of these very high-risk technologies, I consider that to 
be country welfare we simply can no longer do without.

    So thank you very much for the opportunity to address you 
and I will be happy to try to answer any questions or elaborate 
on any of the other programs, if you would like.
    Senator Brownback. Thank you, Dr. Good, and thank you for 
gracing us with your final testimony before Congress.
    The next person up is Dr. Robert White, a former colleague 
of mine, of sorts, if I could put it that way, when I was here 
as a White House fellow in the Bush administration and Dr. 
White was in the Department of Commerce. We worked together on 
a few items then.
    I welcome you back in a new capacity as a professor and 
thank you for coming in front of our Subcommittee.

TESTIMONY OF ROBERT M. WHITE,\1\ UNIVERSITY PROFESSOR, CARNEGIE 
          MELLON UNIVERSITY, PITTSBURGH, PENNSYLVANIA

    Mr. White. Thank you. It is a pleasure to be back. As you 
mentioned, I am a University Professor at Carnegie Mellon 
University in Pittsburgh, and served as the first Under 
Secretary of Commerce for Technology during the Bush 
administration. Before that, I was vice president of Control 
Data Corporation, and also a principal scientist for the Xerox 
Corporation.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. White appears in the Appendix on 
page 58.
---------------------------------------------------------------------------
    What I would like to try to do today is to bring that 
experience to bear on the Advanced Technology Program, and in 
particular, since this program was begun during the Bush 
administration, I would like to try to explain why I think it 
is an appropriate role for the Federal Government.
    Dr. Good has referred to a number of the Technology 
Administration's programs as a ``portfolio.'' My vision is that 
these programs, as well as many others, play a very strategic 
role in the whole technological infrastructure of the United 
States. The argument I am going to make depends very much on a 
concept that I would like to try to explain. It is the concept 
of the national innovation process. This is the broad process 
by which scientific discoveries are converted into commercial 
products. It is a complex process and one that necessarily 
involves industry, government, and academia.
    Since technology has become such an important factor in our 
economic growth, it is very critical for the United States that 
its innovation process be optimal. The introduction of 
technology into our lives is much more rapid today than it has 
been in the past. It interesting to note that it took 39 years 
for the telephone to gain 30-percent acceptance, 18 years for 
TV, 14 for the personal computer, and only 5 for the World Wide 
Web.
    This means that in order to be competitive, all parts of 
the innovation system--industry, government, and academia--must 
work together. We can no longer afford, for example, to have 
academia off doing research in a vacuum, with only the hope 
that these discoveries will somehow be recognized by U.S. 
industry.
    Since the innovation process benefits so many stakeholders, 
I believe it is appropriate that the Federal Government assume 
responsibility for ensuring that the process is efficient. 
Indeed, the U.S. Government already invests in supporting 
innovation. It funds

science. It provides a patent system to protect inventors. It 
maintains international standards of length and time. The Bayh-
Dole Act, for example, stimulates the commercialization of 
federally funded research, and the list goes on.
    I want to argue that ATP is another, but a very unique 
instrument by which the Federal Government supports this 
innovation process. ATP should be measured on its impact on the 
innovation process. Now, I want to support my argument by two 
examples, two examples with which I am personally familiar.
    Every personal computer, or any computer for that matter, 
stores its data and programs on something known as a hard disk 
drive. The hard disk drive industry in America is a $50 billion 
industry and it is largely dominated by U.S. companies. In 
1988, there was a very fundamental discovery made in France and 
it soon became clear that this discovery could have a very 
major impact on the hard disk industry. However, the number of 
questions to be answered from this fundamental discovery 
represented far too many options for even IBM to explore.
    Therefore, the manufacturers, as well as all their smaller 
suppliers, joined together and applied for an ATP grant. They 
were successful in receiving a grant, and now, 5 years later, 
these companies are on the verge of announcing the 
incorporation of this new effect into their future products. So 
it is, in fact, not too early to assess ATP. It has already 
impacted a $50 billion industry and kept it competitive.
    Not only did this grant bring together large and small 
companies, it also involved several universities, as well as 
NIST itself. The fact that ATP funds are channeled through 
industry to the universities assures a focus for the university 
research that is unique to ATP. There is no other program in 
the Federal Government that links industry and universities 
this way.
    In many cases, this research is also carried out in the 
same laboratories where there is a lot of curiosity-driven 
research underway that is perhaps funded by the National 
Science Foundation or other agencies, and it provides a 
realistic context for this research as well.
    There was also a very interesting phenomenon that occurred 
near the end of this particular program. As the companies began 
to become familiar with the issues involved in the science, 
they began to develop their own internal strategies, with the 
result that their involvement with this program began to wane. 
And thus we observed a natural transition between the pre-
competitive phase, characterized by risk-sharing and government 
cost-sharing, to a competitive phase that is now borne entirely 
by the companies themselves. If this were corporate welfare, 
this transition to independence would never have occurred. 
Thus, ATP provided a catalyst.
    As a result of this program, the U.S. disk drive industry 
is ahead of its global competitors. Most of the participants 
feel that without this federally enhanced partnership, they 
would perhaps have fallen behind. What it did was to increase 
the odds that the U.S. industry would learn how to use this new 
discovery before their global competitors.

    While the ATP funds were an important ingredient, ATP also 
provided a structure in which technical personnel from these 
different companies would interact in a way which they normally 
would not do. Incidentally, many feel that if IBM had been 
restricted from this project simply by virtue of its size, many 
of the others would have withdrawn as well. It's one of those 
responses, ``If you join, I'll join.''
    The involvement of universities also means that students 
that were supported by these ATP funds will now diffuse out 
into the industry. Papers and books will be written, 
contributing to U.S. leadership in the disk drive engineering. 
Thus, ATP funding will have had an enormous impact on the U.S. 
engineering infrastructure.
    The second example is that of a small company. A number of 
years ago, Honeywell had developed a memory technology for 
space applications. A Honeywell employee saw a commercial 
application, and so he obtained rights to the technology and 
started his own company. To demonstrate the commercial 
feasibility, he obtained an SBIR grant--that is another one of 
these Federal contributions to the innovation process.
    Then to scale up, the company sought more funding, but 
because the risk was still large, venture funds were either not 
interested or wanted too large an equity position. So the 
company obtained an ATP grant and eventually demonstrated the 
technology to the point that today Motorola has now invested in 
this company and it is successful. It also turns out that this 
particular technology has many other applications, so that in 
this case ATP really has spawned some other companies as well.
    In both these examples, ATP played a decisive role. In the 
first, it accelerated the innovation process. In the second, it 
sustained what was eventually shown to be a valid technology, 
and these are only 2 of the 288 projects that have been funded 
by ATP since it began.
    Now, could these results have been obtained without a 
Federal role? I personally don't think so. The point is that in 
these cases, at least, other approaches to developing the 
technology didn't work. There is a tendency in industry today 
to use technology, not develop it. That is not to say that 
there may be many cases where corporations will develop their 
own technology or cases where venture capital will step up to 
an opportunity.
    Right now, the U.S. high-tech industry is flying high and 
there is a temptation to say leave us alone. But how easily we 
forget. In 1992, Andy Grove was in my office saying that the 
U.S. was about to become a technological colony to Japan.
    As I said at the beginning, the innovation process is 
complex, but it is important that this process be robust and 
responsive to the Nation's scientists, inventors, and 
entrepreneurs. As these examples indicate to me, at least, ATP 
addresses a small but important part of this innovation 
process. So ATP is not about funding industry, it is about 
supporting the American innovation process.
    Thank you, Mr. Chairman.
    Senator Brownback. Thank you very much, Dr. White. I 
appreciate your testimony and comments.

    I think what we will do is we will run the clock here along 
about 7 minutes each so Senator Lieberman and I can bounce back 
and forth a little bit on the conversation with the witnesses.
    You both presented a very good presentation. I would like 
to first start off, if I could, Dr. Good, with you. The week 
before we went on recess, this Committee passed a corporate 
welfare commission bill out of Committee. I am assuming the 
administration does not oppose such a commission, but I don't 
know that anybody was there to testify. Can you comment about 
that, in general?
    Ms. Good. To be honest, Mr. Chairman, I am not sure where 
the discussion is within the administration presently on that 
issue, and I suspect there has been no discussion of any 
substance yet. But I am sure they will take a position at some 
point. I just don't know what it is.
    Senator Brownback. Have you reviewed that legislation?
    Ms. Good. I have not had a chance to review it in detail.
    Senator Brownback. OK. I am presuming the administration 
would not oppose a commission on corporate welfare. They may 
look at the language in it and want to change some of the 
details, and we are certainly open to that, but I can't believe 
anybody would defend the issue of corporate welfare. Now, there 
becomes an issue of what it is, but I can't think that they 
would oppose a commission looking at corporate welfare on this.
    Ms. Good. Senator, unfortunately, in these kinds of issues, 
the devil is in the details and it depends upon how it is 
defined and all of the other issues that go with it. And you 
are absolutely correct; it will depend upon the conditions and 
some of the wording and what it means. Who decides what 
corporate welfare is has a lot to do with how one goes about 
looking at it.
    Senator Brownback. It passed strongly on a bipartisan basis 
and it is a bipartisan commission. Both Senator Kennedy and 
myself were on the original proposing group, so it has a pretty 
wide base of support.
    Ms. Good. I understand.
    Senator Brownback. I hope the administration can look at 
that because there is a feeling amongst a number of us that the 
real way we get at this issue is probably to get it to a 
commission. We always get into these eyes of the beholder type 
of issues.
    Ms. Good. Exactly.
    Senator Brownback. I voted against the market promotion 
program which provides some subsidies to corporations to market 
products overseas, all of them agricultural products, some of 
them companies in my State. But there would be others who would 
say that is not corporate welfare. So I do hope that the 
administration can take a strong look and ultimately support 
that commission bill, or if they don't, tell us specifically 
why they can't support that legislation.
    Ms. Good. Thank you very much, Mr. Chairman. I am sure that 
is the case, and it clearly is an issue that the administration 
is interested in, so it is not a question that it is not of 
interest. I just do not know where the discussions are 
presently.
    Senator Brownback. OK. One of the problems that I have had 
with the Advanced Technology Program has been that I think it 
takes our eye off of the ball here on the real issue of growth 
and

development. I appreciate Dr. White's statements particularly 
about when Andy Grove was in saying we are going to become a 
colony of other more developed nations, and now our 
technologies are booming and flying high.
    How much, though, of that is due to an ATP program. How 
much more could we achieve if we would lower our capital gains 
tax rates, if we would improve our product liability 
environment in the United States? I worry that what we do with 
programs like ATP is focus on the parsley rather than the steak 
and we look at the narrow, small issues here that we can 
complement, when if we could create an overall better 
atmosphere. For example, by lowering capital gains rates. 
Senator Lieberman and I support zeroing capital gains rates in 
Washington, D.C. I would like to see us take it across the rest 
of the country. In addition, we should be improving the product 
liability environment.
    When Congress passed the statute of repose on the general 
aviation industry, that industry--and pardon the pun--took off. 
We got 9,000 new jobs in the aircraft industry in Kansas alone 
when we put that statute of repose in there.
    Ms. Good. Exactly.
    Senator Brownback. Now, it strikes me that that is the 
steak that we are after here, and these tend to make us look at 
a narrower, smaller point, not that they can't be positive, but 
they take our eye off of what we really ought to be focusing 
on. You are in the Department of Commerce. Several of these 
measures have not been supported by the Department of Commerce, 
yet this one is.
    Ms. Good. I would suggest, Senator, that Dr. White's 
comment about the issue that you have to look at the whole is 
very important, and I don't think it takes one's eye off the 
ball. Today, the issue will be whether or not we provide the 
environment that creates the opportunity for people to invest 
here in the United States, and invest at the high end of the 
market, if you will, in terms of R&D and advanced 
manufacturing.
    That will require all of these issues. It will require an 
appropriate business climate, and the issues you are talking 
about all fit in that. But it, at the same time, will require a 
technology base which is absolutely necessary, and it will also 
require an educated workforce to be able to take advantage of 
it. So I don't think one is taking one's eye off the ball at 
all. I think what you need to do is to look at the whole.
    I agree with you that ATP in and of itself won't salvage 
the world. It is a part of the portfolio we are going to need, 
however, to really be successful. So the technology base and 
what we are spending on the R&D in this country is a very 
important piece of that. So I would argue with you the other 
way around. If you really believe the fact that about 50 
percent of our economic growth over the last 50 years--and most 
economists do--has been based upon the development and the 
utility of technology, then not to worry about the technology 
portfolio--it is as important as worrying about the business 
climate. I would argue you must look at both of them. You can't 
ignore one or the other. It is not an either/or.
    I would also argue that when my total investment in the 
United States for all of the technology development and basic 
research and underlies that is $28 billion, which is less than 
what is spent in

some of our competitors, we are not talking about wasteful 
money. We can argue about whether the programs are the right 
ones, whether they are being managed properly. Those are the 
issues. We are surely not over-investing.
    So the question here is how to get the whole, so it is not 
a question of looking at the parsley. This is one of those 
cases where if you ignore the technology base--and we are using 
the seed corn today in our high-flying industries, and the 
high-tech industry is using the seed corn we planted with lots 
of investment over the last 25 years. These things come to 
fruition over time. So unless you make the investment now, in 
the year 2015 there will be no seed corn to have. So it is a 
question of both of them.
    The business climate issues that you talk about are 
absolutely important, and we need to look at them and we need 
to try to make them work and we need to make them as attractive 
as we can. At the same time, these technology issues are 
equally important, not just the parsley.
    Senator Brownback. Senator Lieberman.

             OPENING STATEMENT OF SENATOR LIEBERMAN

    Senator Lieberman. Thanks, Mr. Chairman. Thanks to both of 
you, Dr. Good and Dr. White.
    I have an opening statement which I would like to ask be 
printed in the record as if read.
    Senator Brownback. Without objection.
    Senator Lieberman. Thanks, Mr. Chairman.
    [The prepared statement of Senator Lieberman follows:]

                PREPARED STATEMENT OF SENATOR LIEBERMAN
    Mr. Chairman, it is a pleasure to join you at this afternoon's 
hearing on the Department of Commerce's technology grant programs.
    Before proceeding with my brief remarks, I would like to take a few 
moments and pay tribute to our first witness Dr. Mary Good as this is 
her last official appearance as Under Secretary for Technology at the 
Department of Commerce. Dr. Good has been an extremely articulate 
promoter for a continued Federal investment in science and technology. 
While doing so, she has won respect from all parties for her 
refreshingly direct and candid style. My own State of Connecticut has 
benefited from companies and partnerships resulting from the Federal 
programs under her charge at the technology administration. Dr. Good's 
leadership has benefited America as well, during our period of 
transition from the cold war to a global economy where a Nation's 
ability to compete is heavily influenced by its ability to generate 
technological innovation. Dr. Good has now served four Presidents and 
led successful careers in academics and industry. My office and I wish 
her the best of luck in her new choice of endeavor. Thank you again.
    Turning now to the task at hand which is an examination of the 
Department of Commerce's technology grant programs--namely, the 
Advanced Technology Program or ATP and the Manufacturing Extension 
Program or MEP. As most of the scrutiny concerns the ATP, I will 
restrict my comments to that program.
    The ATP was designed to bridge the ``innovation gap'' that exists 
between fundamental research on enabling technologies and the shorter 
term development activities of U.S. companies. In order to achieve this 
goal, the program supports broad, partnership based efforts that 
expedite the transfer of new knowledge from laboratory to general 
public usage. I believe the program to be an effective one. Some points 
to consider in this debate:

     LBy statute, the ATP funds only projects that are pre-
competitive in nature--which means technologies at the stage of 
development prior to where the forces of the free market come into 
play. As a result, the true success of the program will be seen 5 or 10 
years from now in the long term economic

growth that will come from the introduction of new technologies and 
industrial processes based on ATP supported R&D.

     LThe overwhelming majority of ATP funds are directed at 
consortia involving industrial, university and Federal partners. Such 
partnerships are essential, both for leveraging scarce Federal funds 
and for creating the connections that enable faster technology 
introduction. Without the creation of such conduit programs like ATP, 
the results of exploratory research often end up on the shelf or worse, 
exploited by other countries.

     LThe Coalition for Technology Partnerships, a group of 
small, medium and large businesses, trade associations and technical 
societies, recently wrote that it was the experience of many of its 
members that the major alternative source of funding--venture 
capitalists--normally does not provide ``patient capital'' for the type 
of high risk, enabling R&D for which ATP applicants are seeking 
funds.'' Venture capitalist are usually looking for a relatively quick 
return on their investments and so, justifiably search for ``ready for 
market'' products. In funding high risk, longer term research, the ATP 
addresses an important aspect of technology development.

    The ATP has drawn fire in the past as an example of government 
meddling in the marketplace or corporate welfare. In my opinion, these 
charges display a lack of understanding concerning the complex nature 
of technological innovation. For years policy makers and scientists 
have referred to a linear or pipeline model of discovery with basic 
research at one end pumping out ideas to be grabbed by those in applied 
research. Of these advances, a select few seep out into the market. 
Testimony by noted scientists, industry leaders and directors of 
national laboratories before the Senate Science and Technology Caucus 
has convinced me that the pipeline model is not accurate today. 
Moreover, it is arguable that there ever really was a clear delineation 
between basic and applied research.
    Rather, the research enterprise represents a continuum with little 
distinction to be made between basic and applied science. Every level 
within the continuum provides returns--economic, social and 
intellectual gains for the society as a whole. Specific examples of 
innovation emanating from the research continuum represent a complex 
web of scientific discovery, industrial interest, serendipity, 
availability of funds and individuals willing to risk their personal 
fortune on the basis of a new idea. The Federal Government, with a 
fundamentally different perspective than industry has a clear role to 
play in this process. Generally, the scope of government involvement 
should be limited to potentially useful technologies that are pre-
competitive. In the case of a strategic technology which has 
implications for our national defense, obviously the role of the 
Federal Government must be extended. As with most policy debates, 
flexibility and pragmatism are to be encouraged, especially in the 
arena of innovation which encompasses such a broad spectrum of human 
activity.
    The Advanced Technology Program was designed to suit our new 
understanding of the innovative process. The expert collection of 
witnesses before this panel contains representatives from key 
participants in this process. I look forward to a frank exchange of 
ideas.

    Senator Lieberman. I want to thank both of you and, Dr. 
Good, thank you as you are leaving Federal service for your 
extraordinary service and advocacy. I think you have won the 
respect of people all around. I was interested to note in 
looking at your biography that this is the fourth President you 
have served in one or another capacity, which is a remarkable 
record. In a sense, you are the basic research-to-marketplace 
continuum in one person, having had a remarkable career in the 
academic community, in industry, and in government, and I 
congratulate you for that and thank you very much. I wish you 
well in the next chapter of your career.
    Dr. White, thanks for your service in starting this program 
and in some sense reminding us, which I think most people 
around here know, that this was a program, ATP, that started in 
the Bush administration and in that sense has had bipartisan 
support over the years, and I hope it will continue to enjoy 
that.
    I have been a supporter of these programs. I should admit 
my bias at the outset. I don't think they are corporate 
welfare. From

all that I know about them, they are industry-driven. It is not 
a bunch of bureaucrats up here in Washington, spinning a wheel 
and deciding what is going to win and what is going to lose. 
They have followed a scrupulous line so that they have entered 
this continuum from laboratory to marketplace before the forces 
of the market take hold, and I think your example, Dr. White, 
was an excellent one.
    But I do want to ask you some questions around that because 
I think the fundamental question we have to answer is whether 
the ATP projects make development happen that would not 
otherwise happen. I mean, let me step back very briefly.
    Senator Brownback and I are in embarrassing agreement, on 
most things, but we agree on the capital gains and product 
liability reform all being part of an economic growth climate. 
When I go home, people want to know, what are you going to do 
to help us hold our jobs, create new jobs? We are going through 
a remarkable transition, but what jumps out is this work that 
has been done and seems to be broadly accepted now that if you 
ask the question what gives us economic growth, job creation, 
more than 50 percent of it is up here, is brain power, 
innovation, creativity, technology. Now, obviously, we need 
capital to make that happen, etc.
    So the question is can we, looking at the ATP projects, say 
that to facilitate the innovation we needed government 
involvement? Or to put it another way--and Dr. Rodgers does 
this in his testimony which I have looked over--if these ideas 
are so good or if the products that emerge from these ideas are 
so good, why doesn't the market take care of it without 
government having to come in through a program like ATP to 
facilitate this move from basic research to marketplace? Do you 
want to take a first shot at that, Dr. Good?
    Ms. Good. Yes, let me do it, and then I would sure like Dr. 
White to have a chance to comment on it as well. I have asked 
that question of a lot of people. The SBA has done a study 
recently which would suggest that if you have a project, new 
business, new project, new idea that you want funded, if it is 
less than $250,000, you can get it funded one way or another. 
You can mortgage your house or borrow from your neighbors, or 
whatever, and people do that all the time and it works OK.
    Senator Lieberman. Maybe get an SBIR grant, too.
    Ms. Good. You can get an SBIR grant.
    Senator Lieberman. Yes.
    Ms. Good. If it is over $5 million and it is to the point 
where there is some market availability and you can do a market 
study, and so forth, there really is venture capital out there 
today which is available and for the most part, if you work it 
hard, can be had. The problem is in that middle, between the 
$250,000 and the $5 million kind of activity, and the reason is 
that that funds ideas, not prototypes. They are at a time when 
I can't put anything on the table for the venture capital 
people.
    So I have talked to the venture capital people and I have 
argued with them that they ought to be willing to put money at 
this level as well. And I had a long conversation with one of 
them about 3 months ago who has a very large venture capital 
fund, and he made two comments. He said, there are so many 
opportunities for

venture capital around the world today--and he said around the 
world today--that for me to bother with these sorts of small 
start-up ideas that I have no concept of where they are going 
is not worth my time and it is not fair to my investors.
    And I said, well, then, how do you get these things 
started? And he said, well, I don't know, but if you get them 
up to this point, then I will talk about them. And he said, let 
me explain to you why this is the case. He says somebody has to 
look at these and decide whether the technology makes any sense 
or not, and he said, I don't have people on my staff to do 
that; I would have to hire consultants; these are small deals; 
it would cost me more money to do it. He said, I can do a $50 
million deal with the same kind of cost that I can do a $5 
million, so I don't want to do that.
    He said, furthermore, I would have to babysit these 
companies early on and I don't want to do that either. He said, 
right now there are too many other opportunities where it is 
already up to the level where I can look at it, make a 
judgment, and it has a 3- to 5-year payout. He said, I am 
looking for 3- to 5-year payouts in my venture capital problem. 
So, that means the money available for those which are ideas to 
let a person with a high-risk idea get it to the point where I 
can do a prototype and then really look at the market is really 
interesting.
    Now, what has happened, which I find very fascinating--we 
have had a number of ATP projects that, once they have been 
through the screening process, and so forth, couldn't get a 
nickel when they first started and wrote the proposal. But once 
they got through the screening process--in other words, we had 
now done--the process had done for them the consulting work, if 
you will. Then they could get a venture capitalist to come in 
and put up half the money.
    Senator Lieberman. Interesting.
    Ms. Good. So the point is ATP is a catalyst to get this 
sort of thing off the ground. For small companies in many cases 
who have just this idea that they brought out of a research 
laboratory, it is all that is available.
    The other case which has been extremely valuable in ATP is 
the opportunity that a couple of the examples that I gave and 
the ones that Dr. White gave. It is an umbrella where a group 
of different companies can come in to look at what a new idea 
might do for them at a pre-competitive stage.
    Senator Lieberman. So it is a facilitator, in a way.
    Ms. Good. It is a facilitator and an umbrella and it really 
does work. That works extraordinarily well. So for both of 
those kinds of examples, there just isn't private capital 
available.
    Senator Lieberman. Dr. White, I am sorry. Between my long 
introduction and Ms. Gqood's excellent answer, I have used up 
my time on the first round. I will come back.
    Senator Brownback. If you want to give a short answer to 
that, that is fine.
    Mr. White. Yes. A short answer, I think, is that what ATP 
also helps do is reduce the risk that is involved. As Mr. 
Rodgers says in his testimony, companies base decisions on 
return on investment, and that depends on what you think the 
risk is on getting a return. And in many of these cases, the 
risk is so high that companies themselves are not willing to 
invest, but if they can share

that risk with ten other companies, and then on top of that get 
a matching from the Federal Government, that is a big 
enticement and many companies will do that.
    It's analogous to being asked to donate to an alma mater 
when some donor is going to match your donation. While it is 
only 50 percent, I am more inclined to contribute.
    Senator Lieberman. That is the way we feel about the 
capital gains tax. If we lower it, people will naturally 
respond to maximize their position.
    Ms. Good. I would simply remind you that, also, if you 
remember, at the end of the war--and Dr. White is a really good 
person on this issue--at the end of the war after the Defense 
Department had built the first major computer, they showed that 
to Mr. Watson of IBM and his evaluation and market was that 
perhaps they would see three around the world and he wouldn't 
touch it. The end result was the government continued the 
development of that technology to the point where it was clear 
that there would be a lot more sold, and all of a sudden the 
companies were interested. It is that piece of the innovation 
piece that we hope to address by ATP. We need to do more, not 
less of it.
    Senator Lieberman. Thank you.
    Senator Brownback. Dr. Good, GAO has concluded a study in 
January of 1996. I am sure you are familiar with this study.
    Ms. Good. I am, right.
    Senator Brownback. It is critical of a number of the areas 
in the Advanced Technology Program.
    Ms. Good. Right.
    Senator Brownback. And I want to go through a couple of 
those and I want to hear your response about them. They say 40 
percent of the applicants receiving ATP grants said they would 
have pursued their projects had they never received the funding 
in the first place--40 percent.
    Now, I have a couple others here I want to put out for you, 
if I could. It says 65 percent of ATP grant awardees never 
bothered to seek funding from other sources before applying for 
an ATP grant. And then they also said after ATP declined to 
fund their proposals, half of the near-winners continued their 
projects with other funding sources anyway.
    Now, I think you have answered that last one by saying that 
the ATP program is a catalyst that encouraged them to go on 
forward, and I will accept that. Those other two are very 
troubling numbers and they suggest more of a first-stop shop, 
corporate welfare type of program, if you look at those 
numbers, and those are substantial and they are large and they 
are GAO-based.
    Ms. Good. I understand that, but the 40 percent--if you 
really look at the numbers, however, what you do find, of the 
40 percent that said they continued, you also find that they 
continued at a much lower level and much less pace than they 
would have had they gotten the funding. So it is not a black-
and-white here.
    In fact, of the 40 percent who said they would have 
continued anyway, they also said--over half of them said it 
would have been a much smaller program and would have been much 
longer, drawn-out, which means you may have actually missed the 
window for the technology altogether. So the 40 percent, I 
think, is overdrawn. I

don't think that they have actually looked at all the data and 
it is just a hard number and when we followed that up, it just 
doesn't hold.
    The group that did not look for other funding--I think the 
issue there is many of them already knew that it was very 
difficult to get. And as I have just told you, the SBA, who has 
really done a good study of that, will tell you that for the 
folks who are looking for money for this kind of activity 
within the range I gave you, their ability to find it is pretty 
close to zero.
    Senator Brownback. Now, 40 percent of the ATP grants go to 
large companies; what I have here, the AT&Ts, GM, GE, IBM, 
Phillips Petroleum, and 3M, all companies that have received 
ATP program funding. Now, you are looking at a budget of $225 
million.
    Ms. Good. For this year, right.
    Senator Brownback. It was a $10 million program under the 
Bush administration. I guess they were a little cheap on it as 
a program. But if you look at the Fortune 500 companies, the 
aggregate net income of those companies reached $325 billion, 
the Fortune 500 companies, and I just want to put these numbers 
in a little bit of perspective. You know these numbers.
    Ms. Good. I know the numbers.
    Senator Brownback. Three hundred and twenty-five billion 
dollars for the Fortune 500 companies. Two hundred and twenty-
five million dollars of ATP programs represent less than one-
tenth of one percent of that figure, of their net income. So we 
are talking really on the very smallish end of this sort of 
money and dollars.
    Ms. Good. That is correct, which is why I don't understand 
why we spend so much time on this program.
    Senator Brownback. Well, maybe it is because of a 
philosophy involved here. When you get to philosophy, you can 
talk a long time of whether or not the government really can do 
this. And not that we won't pick some good winners or losers, 
but wouldn't it truly be better if we just cut the taxes 
overall and let the winners sort themselves out?
    Ms. Good. I don't think you would get this activity at all 
if you did that, Senator. That is the problem.
    Senator Brownback. You don't think if we----
    Ms. Good. No, sir, I don't.
    Senator Brownback [continuing]. Zeroed capital gains and 
had a very strong product liability environment that we 
wouldn't attract this sort of activity?
    Ms. Good. You won't attract most of this activity and the 
reason is, again, as I told you, if you talk to the people who 
are going to spend that money, there are so many opportunities 
today for investing which are relatively short-term. These are 
high-risk, long-term issues and the money would not necessarily 
go there at all, and to make that conclusion just doesn't wash. 
Talk to the people who are going to invest it and you find out 
where they want to invest it. It is not in these high-risk, 
longer-term issues.
    The other point I would make is that, looking at this 
business about 40 percent went to large companies, you also 
have to take that apart. The majority of those by far went not 
to a single large company. They went to groups of companies 
where the large company, frankly, we coerced in, not the other 
way around. And you

want them in because they have the capability and the people to 
do some of these cutting-edge issues that the smaller companies 
who are part of that consortium just don't have. And they bring 
to that the ability to move some of these ideas at a much 
faster rate.
    So if you look at those numbers, what you find is these are 
not single companies. General Electric by itself doesn't have a 
project. General Electric, in a consortium with some university 
people and some small companies, does. That is a very different 
idea. See, I look at it very differently than you do. If I can 
get IBM or DuPont, for example, to bring their expertise to the 
table at 40 to 50 cents on the dollar to get into a totally new 
technology which they are not in today, wouldn't do without 
some encouragement, and get them to share their expertise with 
three or four smaller companies to get that new technology 
going in the United States, I think that I have taken them, 
that they have not taken me.
    That is a different opinion about that because what I have 
done is coerced them into doing something they wouldn't do on 
their own. But what they have done is given the country and 
these smaller companies and universities they are working 
with--they have given us their expertise and their resources to 
get at a cutting-edge problem that they would not do and would 
not share, by the way, if they had funded it all on their own.
    So we are talking about getting these technologies shared 
with small companies, getting small companies up and running. I 
have visited one of the DuPont spin-offs here about 3 weeks 
ago, this Hard Core, DuPont Hard Core, which has gone from 
about 5 people to 75 people in the last 2\1/2\ years. We were 
able to get DuPont to bring their resin technology to the table 
and have a small group of entrepreneurs take that and move into 
some new composite materials to build infrastructure, things 
like piers and things like that, which will not have the usual 
environmental impact that the ones we build today will have.
    This would never have happened. DuPont would not have done 
that. It is not their business. They wouldn't have been a part 
of that, and they will spin it off. It won't be a part of their 
business. But we were able to get them to bring their 
expertise, and without that this company would never have 
floated.
    So I look at it very differently. If we can con those 
people into putting their expertise and the kind of value that 
they have on the table to help with these kinds of programs, I 
have helped the country a lot and I have conned them into doing 
something they wouldn't do on their own. That is to our 
benefit. It is to the benefit of all those guys, those young 
people. The guy running that company for Hard Core is about 35 
years old. He started running it when he was 30. That would 
have never happened in DuPont itself.
    Mr. White. I would like to underscore what Dr. Good says. I 
mean, the capital resources that are available to us in 
universities through some of these ATP programs is enormous. We 
have had access to billion-dollar fabrication lines to try out 
ideas, and so forth, and that would never have happened.
    Senator Brownback. Well, I appreciate your comments and 
your testimony on this. We will have the next panel to explain 
to us a little bit whether they think you are right that we 
need these ver

sus cuts in capital gains and product liability environment is 
the better----
    Ms. Good. Remember, I didn't say we didn't need some of 
those, too.
    Senator Brownback. And Senator Lieberman may have a couple 
more questions, too. Also, I would like to remind you of a 
statement you said that the administration should work, as 
well, on product liability reform and capital gains cuts, that 
you think those are important things. And, frankly, I don't see 
a whole lot of help on those, so----
    Ms. Good. What I said is we really need to work on business 
climate in its entirety, and I still believe that.
    Senator Brownback. Well, I hope as you are parting from the 
Department of Commerce, you may urge them a little more in that 
area.
    Senator Lieberman.
    Senator Lieberman. Thanks, Mr. Chairman. I would second 
that.
    Dr. Good, I want to tell you that you are probably the 
first witness I have heard come before the Subcommittee and 
proudly proclaim themselves to be a con artist. [Laughter.]
    But you have done it in a good cause.
    Ms. Good. Listen, if we can make it work for the country, I 
am perfectly happy to do it.
    Senator Lieberman. This has been interesting, and I think 
Senator Brownback's questions are very important. They go to a 
point of concern and vulnerability of the program, which is why 
are we giving these big companies that make all this money more 
money to get involved in these areas?
    I think you both gave the answer, and you gave it earlier, 
Dr. White. Because of return on investment questions, they 
might not get into these areas--they wouldn't get into these 
areas otherwise. What you are doing in, as far as I know, more 
than 80 percent of the cases of the grants is you are bringing 
them together with a bunch of companies to pool their 
resources, and then work with the universities to see whether 
some of these technologies are plausible.
    But let me take you back one step in the process here and, 
Dr. White, maybe you want to start this. We say that this is an 
industry-driven program, and I am not going to do this 
correctly. I want to give you my impression and ask you to help 
me fill in the blanks. As I understand it, you bring together 
in the ATP program committees or task forces of folks from 
university, industry, and in some cases government. If I am not 
mistaken, sometimes the DoD will sit in and say, hey--I will 
give an example of one I have been interested in lately from my 
service on the Armed Services Committee--we need work in 
advanced x-ray lithography that is not going on now, and can 
you bring a group together and stimulate this work?
    Am I right about that. Otherwise, how do you decide when 
you see DuPont or IBM or AT&T is not doing--how do you decide 
what you want to tell them to do? What is the basis of that 
judgment, Dr. White?
    Mr. White. Well, I am going to have to let Dr. Good wrestle 
with that a little bit because you are talking about focus 
programs

which did not exist during the Bush administration. 
Incidentally our program ended up at $50 million at the end, 
not $10 million.
    I think that the way it worked during our period was that 
it was simply announced that one could compete for this 
funding, and the conditions under which that funding was 
available were announced and that stimulated companies 
themselves to come together to take advantage of this 
opportunity. Because it was being, in a sense, driven by the 
government, there was an implied blessing that it was all right 
for these companies to work together, which in the past they 
would be reluctant to do.
    Senator Lieberman. For antitrust reasons?
    Mr. White. For antitrust reasons.
    Senator Lieberman. Yes.
    Mr. White. And so there was an acceptance of this process. 
And it also brings together the technical people. We talked 
earlier about other mechanisms for stimulating the economy. At 
one point there was debate between whether you have an ATP or a 
R&D tax credit. ATP brings together the technical people to 
develop ideas and make proposals. Some of the other kinds of 
mechanisms that will help the innovation process deal with 
other aspects of it, but not necessarily the technical people. 
So I think that is one of the big strengths of this program as 
well.
    Now, I think I will let Dr. Good address the issue of these 
focus programs.
    Senator Lieberman. Yes, Dr. Good, please explain those and 
what you mean when you say that ATP is industry-driven.
    Ms. Good. The focus programs were put together for two 
reasons. One was that in the general programs, after it got 
over the $50 million level, the question was how to organize it 
in a way that it could be managed, if you like, in some 
rational way.
    For example, if you look at the research programs across 
the government, even at the National Science Foundation, you 
fund areas, if you will, in different kinds of things and you 
try to do that by talking to all the peers to find out where 
there are areas that make sense. So the focus programs were 
designed in the following way.
    There was an RFP put out which said that we were going to 
run these workshops and we would like for the industry groups 
to come in and talk about what it is that they see over the 
next 10 or 15 years that are going to be technical barricades 
to where they would like to be. And those were done in a whole 
bunch of different industrial areas and the issue was to get 
them together to talk about that and to think about what was 
going on in the basis research community today, where there 
were some what you might call idea breakthroughs that might 
really have a big impact on their industry.
    So they wrote white papers, if you will, and those white 
papers then were used to generate the focus programs. They were 
totally industry-driven. They were totally industry-organized. 
Let me just give you one quick example. It turns out that over 
the last 15 or 20 years, we funded a lot of work in the 
universities on computer algorithms and on software 
development, and what have you.
    The software industry came in and said that one of their 
biggest problems was that it was still a very inefficient 
industry. Something like at that time--this has been about 5 
years ago; it hasn't

improved a lot, but it has some. They made the comment that 
about 85 percent of all the custom software that is written is 
never used because it is not done well enough to make the cut. 
It is a very inefficient business. So their concept in their 
minds was if you could somehow have blocks of software which 
could then be manipulated to build these systems, you would 
have an opportunity to move this ahead faster.
    Well, no one was willing to start with fundamental applied 
mathematics algorithms to try to do that, but one focus program 
was put together to do exactly that and it simply said to all 
the little companies out there who wanted to try and thought 
they had an idea about how to do that, you can propose it any 
way you want. There are no restraints in a focus program on how 
your proposal is written or which piece you want to work on.
    So the whole idea was for them then to figure out ways of 
doing this block construction, if you will, for software 
development. And that is moving along rather well and the 
question was how to take these ideas that had been done by 
these rather inscrutable mathematicians and turn that into 
something that could be manipulated to make software more 
efficient more quickly and with less errors, and more usable.
    Senator Lieberman. But there again, none of the individual 
companies were prepared to invest in that?
    Ms. Good. No.
    Senator Lieberman. That seems like a very basic investment 
that they should have made.
    Ms. Good. The reason they were not is that no one knows 
whether it will work. It is probably one of the riskiest 
programs in all of the ATP pieces. You don't know how to put it 
together yet. You don't know whether the artificial 
intelligence is going to be available to actually manipulate 
the blocks, even if you can do them. So it was truly a research 
program to see whether you could drive that fundamental 
mathematics concept to a practicality.
    Senator Lieberman. Time is up. Thanks very much to both of 
you.
    Senator Brownback. Yes, thank you both very much.
    Ms. Good. Thank you for inviting us.
    Senator Brownback. Yes, and good luck.
    Senator Lieberman. Good luck.
    Senator Brownback. Our next panel is Dr. T.J. Rodgers, CEO 
and founder of Cypress Semiconductors, which is one of Silicon 
Valley's leading chip-makers, and then Tim Draper, Managing 
Director, Draper Fisher Associates, a venture capital firm in 
California. He has helped raise, and has raised millions of 
dollars for high-tech start-ups, and Mr. Draper is a third-
generation venture capitalist. I didn't realize we had that 
many generations even yet taking place, so that is good to 
have.
    We are delighted to have both of you gentlemen here. I 
believe both of you have a 5:30 flight back to California. Is 
that correct?
    Mr. Draper. I do.
    Senator Brownback. And it is out of Dulles, so we want to 
be conscious of your time, and I am sorry we have taken longer 
than we perhaps should have on the first panel.

    Mr. Rodgers. Actually, I have a backup flight, so if you 
would let Mr. Draper go first, we would both be better off.
    Senator Brownback. OK, we will do that. So, Mr. Draper, 
thank you very much for joining us and coming out. He didn't 
know his way to Washington. He doesn't usually come out this 
way and I told him that is good if that is the case.
    We are delighted to have you here in the Subcommittee. You 
can summarize your testimony, if you would like, and we can 
have questions and answers, or present it however you would 
like to. The microphone is yours.

 TESTIMONY OF TIM DRAPER,\1\ MANAGING DIRECTOR, DRAPER FISHER 
                           ASSOCIATES

    Mr. Draper. OK, terrific. I appreciate being here. Thank 
you very much.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Draper appears in the Appendix on 
page 61.
---------------------------------------------------------------------------
    Shut it down, shut it down. It is a waste of money. In 
fact, I have $10 that I am going to save here in taxes and I 
will leave it right here for you guys and you give it back if 
you don't shut it down.
    Senator Lieberman. Take it back right now. [Laughter.]
    Mr. Draper. Now, I understand that it is a tradition for 
witnesses to appear before Congress in hearings like this to 
ask you to spend Federal tax dollars on their behalf on some 
very important program, and this program would theoretically 
help my business, help my portfolio companies. Every time a 
portfolio company runs into an ATP option, I advise against 
wasting their time.
    It takes 6 months, at the very minimum, for them to make a 
decision. It takes 3 weeks for venture capitalists to make 
their decision, and even that is frustrating for the 
entrepreneur. So I am actually going to stand here and ask you 
to not spend Federal tax dollars on my behalf.
    Senator Brownback. Thank you.
    Mr. Draper. I fund in the $250,000 to $5 million range. I 
just heard that there are none of us out there. In fact there 
are many of us out there. There is more competition than I 
would like to have. I heard them say that they saved a $7 
billion PC board industry. I don't buy that. We, at Draper 
Fisher Jurvetson, actually created a $7 billion company out of 
a $120,000 investment.
    This saving of the PC board industry--the PC board industry 
was basically created by a need, the need to put chips 
together, and the need was a marketplace need. Hard disks were 
created by the private sector. In fact, my father funded Priam 
and Quantum. Quantum invented the 5-inch disk drive and Priam 
invented the 9-inch disk drive. So the idea that the ATP people 
are saying that they have created all of this technology or 
that they are a real benefit to all of us is hogwash.
    The venture capital business is everywhere now. It is all 
throughout the country. There are start-up venture funds 
throughout the country. The only things that are limiting them 
are government regulations. Sure, if you can get the capital 
gains tax down to zero, boy, there will be a lot of capital for 
these things.
    The private individual is allowed to gamble. They are able 
to play the lottery. They are able to do all these things with 
their

money that have an expected value, below one. But anybody who 
is worth less than $1 million is not allowed to invest in a 
venture fund. So, if you really want these start-up venture 
funds to proliferate everywhere, make the lottery illegal and 
allow investments.
    The government has done its damnedest to keep money away 
from entrepreneurs, and we still seem to have plenty of them 
and there are plenty of great ideas out there and there is 
still plenty of money out there. The venture business is right 
in the inflection point of a boom because we have seen that 
there was this non-market force keeping people away from 
investing in venture funds. So we have been able to benefit 
from this in a big way. We have been able to generate returns 
that are so far above the S&P, they make your eyes water, and 
the reason is there are non-market forces at work and we are 
continuing to benefit from them.
    Now, people are recognizing that, for some strange reason, 
these venture capitalists are making a lot of money for their 
investors, so we are getting an awful lot of interest in 
investing in venture capital. In fact, I think 3 years ago we 
had $2 billion in the venture capital industry. There is now 
$10 billion. Last year, $10 billion came into our industry.
    Senator Brownback. Ten billion dollars last year alone came 
in?
    Mr. Draper. Last year. So it is booming and people are 
recognizing that this is a great way to invest their money, and 
they are leaving the safe harbors of the 3Ms and the GEs and 
they are moving into sort of this dense forest of venture 
capital where they are not quite sure which way to go, but it 
seems to be able to generate great returns for them.
    Then I heard them say something about it is too early to 
determine the long-term benefits of their programs. Well, it is 
no surprise to me. As a venture capitalist, my partners and I 
specialize in providing seed money to start-up companies. To 
date, we have invested in more than 150 high-tech companies 
involved in everything from Internet content and services to 
flexible semiconductors and software applications.
    In fact, we funded a company that had technology that, even 
the government wouldn't have looked at, and we took a risk on 
something that we thought might really make a big difference 
out there in the world and now we have attracted a whole bunch 
more money to it. There has been $20 million dedicated to this 
new integrated circuit that uses light rather than electrons 
and they move a lot faster. That is just sort of an example of 
the risks we'll take. We will take a risk, but it has to make 
sense in the marketplace. And if it doesn't make sense, no one 
has any reason to do it. The ATP says, well, these are programs 
that no one would have funded before, and you look at it and 
you say, well, if no one would have funded it, there is a 
reason.
    So I would like to accomplish three things today. First, as 
a founder and chairman of a venture capital firm, I will give 
you my sense of the health of the high-tech market, which I 
think I may have already. Second, I will share with you my 
personal experience in dealing with the ATP program, or ATP, as 
it is known, and I will give you my perspective on what high-
tech start-ups are accomplishing without government dollars. 
And I will encourage you

to proceed with great energy in the direction you are headed, I 
hope.
    So, first, how is the high-tech business doing? Well, last 
year we had more IPOs--those are initial public offerings--than 
ever before. A lot of money is being channeled into our 
industry, so that is very promising. Investors can't seem to 
get enough of the high-tech stocks and that is because they 
generate good returns. Technology wins in most situations. 
Technology won the Gulf War. Technology wins in all wars, and 
technology matters. But if there is no marketplace for 
technology, there is no reason to do it.
    Our industry accounts for 11 percent of the United States 
gross national product--11 percent--and 25 percent of our 
Nation's manufacturing output. We employ more than 4.2 million 
people who earn about double the average wage. Our industry 
represents the biggest reason that the United States has the 
most competitive economy. So we are the envy of the world, and 
the heroes of the world are actually the entrepreneurs. At the 
World Economic Forum in Switzerland, the people that they 
wanted to see most were Bill Gates and Steve Jobs. Nobody cared 
about the heads of state.
    Now, I know that you and many of your colleagues applaud 
the economic successes of the high-tech industry, and I know 
the government is trying to use tax dollars to pick winners and 
losers among high-tech ventures. Now, I am going to be polite, 
but I must say that it is headed wrong. It is bad policy, it is 
a complete waste of money. The reason it is a waste of money is 
that those decisions are made by people who don't really care 
that much.
    I mean, we care a lot about how our companies do from an 
economic standpoint. Our success, sometimes our livelihood, 
depends on their success. Government employees care in the 
global sense. But they don't really work to make these 
companies successful. There is no financial reward to 
government officials to really create a success out of one of 
their investments, so they don't bother, but I don't want to 
encourage more attention by the government either. The less our 
government gets involved, the better.
    So here is my personal experience. I had to run one of our 
portfolio companies for about a year. It was called Amtel. It 
was back in 1990. It was an HDTV company, and during this time 
the HDTV world got a lot of hoopla, from ATP's interest in 
HDTV, so we thought that was great because then we could get a 
lot of press for free. But then we realized that all the 
investors were waiting for the results of the ATP program to 
make a decision on who they would fund, who they would back, in 
HDTV. So we were almost forced to put in an ATP proposal. So we 
did that and we worked very hard on it and we came to 
Washington and we had lots of meetings and we did everything we 
could. All told, we spent about $200,000.
    We hired a consultant who was really good at working these 
ATP angles. We took the engineers off the project in order to 
do the technology section of the ATP program, and then we 
waited. It went on and on. We waited. We raised $1.5 million in 
contingent matching money which was going to come in if the ATP 
came through. So we waited 6 months, and the venture 
capitalists went

on to the next thing. They weren't really interested in us that 
much anymore. It had a lot to do with just the time that went 
by.
    And it was supposed to be a proposal for advanced 
technology in HDTV, high-definition television, and we looked 
around at all the technologies. There were about 40 companies, 
roughly, and of those 40 companies there were 3 that we thought 
were real solid-state, digital, exciting companies that we 
thought were real competition, and I have got to say Zenith was 
not one of them. Zenith was doing sort of a refurbished CRT 
technology that still hasn't found the market. It has been many 
years, and we knew that their technology was hopeless. But 
Zenith got the grant.
    Now, not only did we lose our opportunity to get funding 
there, but so did five or six other start-up companies with 
promising technologies. Zenith was not even a digital 
technology, and if you are a technologist at all, you know that 
digital technology is clearly the direction the whole world is 
headed.
    Anyway, it had a devastating effect on our company and so 
we reluctantly declared defeat and moved on. Ironically, now 
there is a whole lot of interest in our technology, so the 
company may yet recover, but it's probably over. And Zenith 
without any novel technology had been working for years with 
those good folks in government, had applied for many grants, 
and they had won many grants. So they won this one. All we had 
was better technology.
    And these are just the facts. We understand the world and 
the market. And, with that grant or without that grant, Zenith 
is still getting its lunch eaten by Sony and the other imports. 
So I would say that was at least one example where the ATP 
program was a total fiasco.
    Simultaneously, all the venture capitalists were waiting 
for the response from the ATP to decide for themselves and they 
kind of hung in there even though it took 6 months for the 
program to finally come up with a decision, after three or four 
false starts. Once the decision came in, they basically killed 
our company and several others like it.
    Today, as a venture capitalist myself, I know that there is 
just plenty of private money available for good entrepreneurial 
ideas that play well in the marketplace. We compete for 
companies with other venture capitalists in bidding wars. A lot 
of money, $10 billion, went into our industry last year. That 
is 1,000 $1 million start-ups, and the venture capitalists that 
I compete with are generally brilliant technologists with good 
business skills and keen strategic sense, and I would take a 
mediocre venture capitalist over the best in the ATP program in 
a heartbeat.
    And I do not buy any of this argument about basic research 
versus applied research. We have had many successes that came 
out of basic research. In fact, Parametric Technology was one 
guy in a garage, a Russian immigrant with a new idea for how to 
develop an algorithm that could make you look at a three-
dimensional object in two dimensions and three dimensions and 
flip back and forth. And it is now worth $7 billion in the 
marketplace, and that is a lot of great jobs and a lot of great 
wealth, and that was created out of a raw idea.
    And when we fund a company, we let them go; we let them do 
what they wanted to do. When the ATP funds a company, they

point them into some odd direction. And for what reason? I 
mean, what supreme being came up with that list of ideas that 
the ATP feels should be funded? It certainly wasn't the 
marketplace.
    So I say this with great respect. There is a lot the 
government does well. In fact, I can think of very few private 
alternatives to the Department of Defense, although they could 
use some competition internally. My grandfather, General 
William Draper, served as Under Secretary of the Army during 
World War II. He was responsible for helping oversee economic 
construction of Germany and Japan under the Marshall Plan. My 
dad was the chairman of the Export-Import Bank and then worked 
as the head of the United Nations Development Program for 7 
years.
    So I have a lot of respect for the awesome powers of a 
well-functioning government. However, picking winners and 
losers in the high-tech industry should not be the domain of 
the government.
    We in the venture capital business try to provide 
everything to a little entrepreneur that we possibly can. We 
become his financial strategist. We become his head-hunter. He 
needs people. We have a wide network. We find great people for 
him. So we try to hire the right managers and engineers for 
him, get him going, get him moving. An entrepreneur is a lonely 
job and in some ways we are the corporate therapist, trying to 
make people feel good about what they are doing and get them to 
work together. We understand the entrepreneur's soul.
    The government cannot touch the soul of these 
entrepreneurs. They can't get in there and help these guys who 
are going to just do everything in their power to change the 
world in the way that they want to change the world. All the 
government does in their meddling is tweak the vision of the 
entrepreneur, which is the cruelest thing you can possibly do.
    In evaluating whether to provide seed capital for a start-
up, we look at two factors, and both are fuzzy. It is the 
individual entrepreneur and the markets. We look for 
entrepreneurs who want to change the world in some way. We 
invest in their enthusiasm, their fire. We are looking for an 
entrepreneur with a real sparkle in his eye, or her eye, and 
with some real fire in their belly. And then we are looking for 
markets that are extraordinary, changing, moving, markets that 
are going to change. And large markets, markets that affect a 
lot of people. And so that is what we look at. No government 
form I know of can properly evaluate people or markets.
    We also look at technologies. If a technology is 
significant enough, it can make important changes if we tweak 
the market, if we tweak the management, if we bring in some 
good management to help an entrepreneur in a certain market. 
Sometimes, a great technology will help that to happen. So we 
are looking for significant improvements and our time horizon 
is different from that of other venture capitalist's, some are 
longer, some shorter.
    Ours is 5 to 10 years. We are looking for very big winners 
in 5 to 10 years, and we look for things that can become 
billion-dollar enterprises and we don't find them every time. 
In fact, we make lots of mistakes along the way, but a few of 
them make up for all the ones that don't work, and that is the 
way it has been historically.

    And we go through a rigorous due diligence process, and it 
is one where we do it with the heart and the soul and the brain 
rather than just purely an ivory-tower look. We are 
interviewing the entrepreneur over and over and over 
intensively. We work with them. It takes about 3 weeks and then 
we make a decision and we don't fool around. We tell them no 
very quickly, we tell them yes very quickly. If we don't act 
quickly we will lose the best deals to other VCs. ATP does not 
face competition, so they don't need to act quickly or 
responsibly.
    What kind of bureaucrat would perform this type of 
subjective due diligence before picking winners and losers? 
They do extensive due diligence, but it will be a whole 
different kind. Have you filled out the form correctly? Have 
you had 15 consultants look at this technology, and what do 
they say about it? They are all very theoretical, but not 
direct. They don't matter; they aren't deciding based on things 
that really matter.
    Would a bureaucrat know, or even care whether the market 
was ripe for this? Would he know about the timing of the 
market? Would he have been investing in this business for many, 
many years? Would he know when to throw in the towel? There are 
certainly times when we have got to cut the entrepreneur off. 
There are businesses that don't work.
    So what I am saying is that the free market works. 
Government is no substitute for the free market, and I could go 
on and on about that. There is no better system than the market 
for choosing worthy new technologies and products, and 
government subsidies distort this market and damage the 
marketplace. It hurts, it hurts. It does not help. It hurts. So 
the government's job should be to let the market do its job.
    I understand that Congress is under a lot of pressure to 
work toward a balanced budget. If you are looking to save the 
$275 million dedicated to ATP, I would do it right now, and 
take my 10 bucks too, and if you want to save another $4 
billion, I think you could look all the way throughout the 
Department of Commerce. I think there are a lot of places there 
you can save a lot of money, and I know there are a lot of 
other corporate welfare programs that are not doing us any 
good.
    So I would like to finish on a high note. I am pleased to 
say that the future of the high-tech industry is very bright. 
Things are going very well, and as long as we are basically 
left alone, things will continue to be successful throughout 
the high-tech sector. We bring you jobs. We bring you high-paid 
employees. We bring you wealth. We bring you all these great 
things, even high tax dollars. So leave us alone.
    Senator Brownback. Well stated, and we appreciate you 
bringing us those things. I wish you didn't bring us as much 
from the standpoint that I want to get those taxes cut down so 
you can go do more and bring less tribute to Caesar.
    Mr. Rodgers, CEO and founder of Cypress Semiconductors. It 
is one of Silicon Valley's leading chip-makers. You have lived 
the life of the hero entrepreneur, and I appreciate your coming 
here and testifying and look forward to your testimony. The 
floor is yours.

  TESTIMONY OF T.J. RODGERS,\1\ PRESIDENT AND CHIEF EXECUTIVE 
     OFFICER, CYPRESS SEMICONDUCTOR CORPORATION, SAN JOSE, 
                           CALIFORNIA

    Mr. Rodgers. Thank you, Mr. Chairman. First, a couple 
comments. I heard earlier about this disk drive consortium from 
Dr. White that needed the government to get done. I know that 
since I read that proposal this last weekend, IBM and Seagate 
are two big participants and I know, for example, that Seagate 
is the largest disk drive company in the world. And I know Al 
Shugart, founder, chairman and CEO of Seagate. So I ran out of 
here after I read Mr. White's testimony and called Al and said, 
Al, tell me you don't believe in corporate pork. And he says, I 
don't. And I said, Al, I have got a statement here signed by 51 
CEOs that if an independent commission similar to the military 
base-closing commission identified a fair and substantial 
government spending cut in the area of so-called corporate 
welfare, I would support that cut even if it meant funding cuts 
to my own company. And Al said, sign me up, and I will, and 
there are 50 other CEOs on this list and many of them currently 
get grants from ATP. So they are, if you want to say, 
negatively biting the hand that feeds them. But, in reality, 
they don't believe taxing the country is worth the benefit even 
to their own companies.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Rodgers appears in the Appendix 
on page 65.
---------------------------------------------------------------------------
    Senator Brownback. I want to submit that statement that you 
have--I have a copy of it here--for the record. What do you 
have, 50 CEOs that have signed?
    Mr. Rodgers. Well, it turns out I called 5 of my friends 
and the one that is stapled to my testimony has 5 or 6 on them. 
And then they called their friends and I got 25 more last 
night, and then they called their friends and I got 6 more this 
morning. So I will give them all to you. They are still 
probably coming in over at the Hyatt.\2\
---------------------------------------------------------------------------
    \2\ The information referred to appears at the end of Mr. Rodgers 
prepared statement on pages 82-84.
---------------------------------------------------------------------------
    We in Silicon Valley don't believe in socialism. We believe 
in capitalism, we believe in paying our own way. I just want to 
make that point.
    The second point: We don't fund risky developments. That is 
absolutely not true. A good example is Conductus. Conductus is 
a superconducting company that not only was venture-funded, but 
is now a public company being funded by the public, funded 
partly by Kleiner, Perkins, Caulfield and Byers, and again got 
ATP grants for superconduction. The fact is John Doerr, another 
signatory on my document here, one of the partners of Kleiner 
Perkins, a well-known venture capitalist, has signed up and 
said cut off the corporate pork, we don't need it, it doesn't 
do that much good.
    I would like to bounce back from my formal testimony to 
give--I apologize for the 8,500 words I handed in, but I am 
passionate on this topic--a shortened version of why I see 
corporate welfare as a direct threat to what I call the 
American dream or American free-market capitalism. Even though 
it comes to us in Silicon Valley, I believe it is a problem.

    Going back to colonial times, our forefathers didn't like 
taxes. They thought they were immoral. They thought they were 
confiscation of wealth. They rebelled at the Stamp Act in 1765 
and caused it to be canceled. They threw the tea in the harbor 
in Boston in 1773 not to pay taxes on it. They declared against 
the kind in the Declaration of Independence that one of the 
reasons for going to war was that ``you have taxed us without 
our consent.''
    When they formed a new Constitution, they made it 
constitutionally illegal for the Federal Government to tax 
individuals. Unfortunately, in 1913, we made a big mistake with 
the Sixteenth Amendment and turned that around. They turned the 
world on its head. The reason we are so rich is what they did, 
and it was a moral start to this economic--not economics 
driving morality. We don't do it because it makes money. We 
make money because we are good and we did the right thing.
    They said we are free. We own ourselves, our property, our 
intellectual property. We are free to pursue our interests in 
free markets, with limited government, and that is what drove 
the so-called American dream. I have been studying the 
economics of the American dream a little bit and I would like 
to show you just three charts quickly.
    Senator Brownback. Please.
    Mr. Rodgers. They are in the testimony.
    Senator Brownback. Mr. Rodgers, would you mind standing off 
to the side here so maybe some people in the audience could see 
the charts as well?
    Mr. Rodgers. Good idea. Chart No. 1 is gross domestic 
product per capita, and it says in 1996 the average American 
produced $28,540. Now, it turns out that 85 percent of GDP per 
capita becomes personal income, so when you are looking at this 
curve, you are also looking at what Mr. and Mrs. Average make 
in the United States.
    This is Commerce Department data, all this noisy line here, 
going back to when the government started keeping statistics in 
1869, when the GDP per capita was $3,100. That is now in 1996 
dollars, so this is all in today's dollars. I went to the 
history of economics group at Stanford and got a data point for 
1776 when we were founded. GDP per capita then was $60, which 
translates to $919 per capita in 1996 dollars.
    Now, think about that for a minute. Here is America, $919, 
$3,000, $28,000. This is 1776, when America was founded, to 
today. Here is zero, and back there is minus 30,000 when we 
came on to the Earth. It took us, mankind, 30,000 years to get 
to $919, and in 220 years America, because we made the 
fundamentally right decisions and took the common man--I am not 
talking about the fat cat here, the common man--from $900 to 
$28,000. This is an economic miracle driven by a moral, good 
decision to turn men free in their own self-interest and limit 
the government from taking their money.
    By the way, the graph here shows a slope of 458 percent per 
century. The slope here is 3 percent per century. So there is 
definitely something good that happened when America got 
started. This 458 percent per century, if you turn it around 
and say how long does it take to double, the answer is 40 
years. And what do we talk

about in the American dream? Every generation is going to be 
better off--2 generations, 20, 40 years, twice as well off. My 
grandchildren will earn twice as much as I did.
    This is the economic slope of the American dream, but it is 
slowing down. If you look at the last 20 years and you look at 
GDP per capita in the last 20 years, so now we are talking 1976 
to 1996. The yearly growth rate, which was at a 2.5-percent-
per-year clip, is winding on down, and these are 20-year 
averages. This is real data. This is not good quarter/bad 
quarter kind of stuff. Now, we are down to 1.5 percent.
    Well, does this mean that we are in trouble and the 
American dream is dead? No, but the engine of our prosperity is 
slowing down and we have to worry about that. Well, why in the 
last 20 years, after that rocket ride, is it slowing down? 
Well, there is another curve that I think explains that, and 
that is this curve.
    Where does the money come to fund all these good ideas, 
these consortia, these getting-together of good, well-meaning 
people? Well, it comes right out of the pocket of the American 
taxpayer--me and my company, as well. This is a graph of gross 
domestic product as a percentage of GDP. So it adds up the 
Federal, State, and local take on the economy and says what 
fraction of the economy is controlled by the government.
    Well, this is 1900; this is now. It says for the first 30 
years of this century, the take was about 10 percent. So even 
after the income tax got turned on right about there, the 
government didn't take more. There was a spike to fight World 
War I, another spike to fight World War II. But look at what 
has happened in our modern welfare state. It has gone up and 
up, and now for the last 20 years, exactly the 20 years when we 
are starting to ail, we have been spending 35 percent of our 
gross domestic product, what everybody does, on good ideas from 
the government.
    Well, the scale is real simple. Zero is where the Founding 
Fathers started the company, or a few percent State levy, no 
Federal levy, and 100 percent is about up here. It is called 
the Soviet Union. They own everything, they take everything, 
they control everything. That is socialism that collapses on 
itself. We are 35-percent of the way from where we started to 
where we have got to go. You know this. You are both against 
higher taxes and greater invasion of government into our lives, 
our economic lives in particular. We all know we have got to 
cut. The question is how to do it.
    I am a Silicon Valley CEO and I am here to tell you I 
volunteer to be first, and these 50 other CEOs from Silicon 
Valley volunteer to go with me. Please cut our welfare. We 
don't want it. We don't want you to take money from people and 
give it to us.
    I looked at the ATP grants. I studied them. I studied the 
grants from 1992, 1993, 1994 and 1996 this weekend. They are 
compelling the way they are written. They are amazing--laser-
based welding, super-hard coatings of boron nitride. But they 
really beg the big question which you have asked earlier today. 
If you look at General Motors and say, General Motors, you make 
$160 billion a year and you may have $20 billion in the bank, 
why don't you just fund this wonderful idea yourself instead of 
asking Mr. Average to fork up a few dollars to do it, well, the 
answer may be--I heard a new one today--they got tricked into 
taking the government money.

    It may be some long-term research, but the General Motors 
grant I looked at was to help paint automobiles more 
efficiently. It doesn't seem to me like that is long-term 
research. It seems to me like that is what exactly the ATP 
grants generally are, a little kickback to help lower the R&D 
budget, the little rebate on your taxes because your taxes are 
too high.
    That is one of the reasons companies come to Washington. We 
pay 37 percent taxes. Sometimes, it is reasonable to come back 
and try to get back a point or two. Wouldn't it be better just 
to lower our taxes and let us spend and invest our own money 
rather than doing the grant game that we have been talking 
about?
    I was going to rant and rave about all the big companies. I 
have got them listed in my report. The one you missed when you 
listed all the big ones, and my favorite, is Time Warner, and 
apparently----
    Senator Brownback. I didn't know they got any.
    Mr. Rodgers. Time Warner, yes, they are there. Apparently, 
Bugs Bunny needs the taxpayers' money somehow. I haven't 
figured that one out.
    Most of the corporate welfare I have looked at is a bad 
investment for the taxpayer, and I will list three general 
reasons. One, it is welfare for rich companies. We have heard 
some statements today. I will pick another one, Sematech. We 
had a crisis. Andy Grove had this crisis. By the way, his 
company, which is now not a colony of Japan, I will point out, 
made $2 billion of profit last quarter and Andy Grove took down 
$95 million in salary last year. So he is hardly a person about 
to be subjugated by foreign technological powers, so I don't 
quite understand that comment in the light of reality.
    We gave to Intel and AT&T and IBM $800 million for 
Sematech, $800 million out of the taxpayer over an 8-year 
period. Guess what? The ten companies in Sematech, if you add 
together their earnings, make $800 million a month. If Sematech 
were so important, they simply could have said to their 
shareholders, we are going to give 1 month's salary, we are 
going to have smaller earnings this quarter, we are going to 
give 1 month's earnings to Sematech. And they would have funded 
it for 8 years and not stuck the American taxpayer with an $800 
million bill.
    The second reason why corporate welfare is a bad idea is 
competition. You already heard one thing, ATP programs 
undercutting the venture capital industry. I will tell you a 
story where I come from, and I also come from Silicon Valley. 
C-Cube Microsystems is one of those true digital television 
companies, not the Zeniths of the world and not the HDTV that 
the FCC is talking about, both of which are losers.
    C-Cube enabled the first real digital video television 
broadcasts. Those little satellite disks that carry all those 
channels and don't have to move around are enabled by digital 
television. I am a member of the board of directors of C-Cube. 
We fought for years, and lost money for years, to get that 
technology accepted. It is a labyrinthine government process to 
get a new kind of TV going. We got it done and we finally 
started to make money.
    Now, in one of those supposed short-term grants that the 
ATP funds, they gave money to LSI Logic, a $1.2 billion 
corporation,

which then took the money and entered into digital video 
compression and put out a chip. This wasn't a long-term chip. 
This chip was done in a few months. It came head-on to the C-
Cube chip and LSI announced they were going to attack the 
digital video market with a new chip, short-term R&D to get 
into that market.
    By the way, Wilf Corrigan is the CEO of LSI Logic, the one 
who received the grant to attack C-Cube. His signature is here. 
He says, cut it off even if I lose grants to my own company. He 
was one of the ones that signed up front. So this ATP grant 
hurt C-Cube, which had struggled the right way to make money, 
and it hurt the venture capitalists who had put money in 
without government subsidies.
    The third reason why corporate welfare is bad is that most 
of the spending is to no benefit. Most of those grants I read 
in my area where I can get past the techno babble are jokes. 
They wouldn't get funded in real companies. That is why, of 
course, they are going to the ATP. Let me tell you about one 
and let me tell you how they get sold.
    I presume you gentlemen are lawyers, perhaps. How do you 
evaluate this when they come to you and say the following? This 
is through a NASA program to grow gallium arsenide crystals, 
``molecular beam epitaxy'' doing ``ordered growth'' in an 
``atom-by-atom manner'' of ``near-theoretical'' atomic quality 
in an ``ultra-vacuum of 10 to the minus 14 torr.'' And this is 
what I really liked about NASA, in a ``cost and time-efficient 
program'' which ``could be a model for future commercial space 
endeavors.''
    Well, what do you do while you hire an expert, and maybe 
the expert is good and maybe the expert is not? If he is good, 
he is working for me. If he is not, he is maybe your 
consultant. [Laughter.]
    No insult intended. Excuse me. I don't mean to be flippant 
here.
    The point is NASA spent $200 million in gallium arsenide. 
Meanwhile, I am the director of a gallium arsenide company. 
Gallium arsenide are super-fast chips that truly make the 
electronic data superhighway, not the one talked about around 
here. You can put 250,000 pages of information through a 
gallium arsenide chip per second, and we make those chips at 
Vitesse.
    So 1 day, I called up Lou Tomasetta, a Ph.D. from MIT, the 
president of Vitesse, and said, Lou, these space chips, what 
are we missing here? He said, it beats me; they never talked to 
me; it is useless; it is a ``solution looking for a problem.'' 
So I was figuring maybe Lou was a little bit too cocky and me, 
too, so I called the president of America's second largest--
Vitesse is first--gallium arsenide company, Steve Sharp, and 
said, tell me about these space chips. He said, ``I tend to 
ignore these sort of requests.'' Those wafers cost $10,000. I 
buy my wafers for $175.
    So we took from the taxpayers hundreds of millions and 
spent it on an industry that neither knew nor cared about that 
technology program. There is a money-waster, and there are a 
lot of those in the ATP programs as well. Corporate welfare is 
a bad investment. We should end it. Corporate welfare, taking 
the working man's dollar to give it to companies that should be 
fending for themselves, is immoral when we are asking our 
senior citizens to forgo Social

Security and Medicare so we can do paint projects at GM for the 
good of America. We should end it.
    Our government did the best for us during that period I 
showed earlier when we stuck to our founding principles of free 
markets and limited government. Starting with the Sixteenth 
Amendment and working our way forward, our government now 
controls 35 percent of America's output. Those grants, not just 
ATP but those grants in general, are sold to America with 
Washington-speak about government-industry partnerships and 
industry policy and with techno babble like I read you from 
NASA, and they do not stand up to logical scrutiny.
    We are at a crossroads right now where we have to make a 
decision what we are going to do. Are we going to purge 
corporate welfare and pork barrel from our vocabulary and get 
back to the higher plain this country once enjoyed or are we 
going to stay where we are?
    American business is ready to help. We are ready to cut 
subsidies to ourselves and revitalize the American dream. We 
don't want you to take money from Americans and give us 
socialist subsidies. We don't want that kind of money. 
Capitalists are people who take money from people who give it 
to them because the capitalists give back to those people 
something of higher value.
    If you compare corporate welfare to the American free 
market system, it is like comparing taking from people to 
giving to them immorality to morality and wealth to poverty. We 
need to choose the free market system and end these grants to 
corporations, corporate welfare.
    Thank you.
    Senator Brownback. Thank you very much, Mr. Rodgers, and 
thank you for the presentation and the charts. I want to get 
some copies of those. I use some different ones as a percent of 
GDP, but it is----
    Mr. Rodgers. You can have them. I don't want to carry them 
back on the airplane.
    Senator Brownback. Thank you. If I can receive them, I will 
take them.
    It has been my fundamental thesis as well that if we create 
the right atmosphere in the United States, you guys do fine. It 
is when we try to manipulate things out of here that we all get 
in trouble, long term, and it is real tempting to do. Let me 
tell you, you sit here behind this place in this chair and on 
this riser and you feel like, well, I want to help you guys. I 
want to make sure we have more jobs; I would like to see a few 
of them in Kansas. And then pretty soon, that all takes over in 
the process and away we go and we don't end up producing things 
well in the process when we do that. So I appreciate your 
testimony and I appreciate what you have both done, as well, in 
creating these.
    I have worked on the other side of this, too, where I have 
said, well, wouldn't it be nice if we could create some jobs 
with this, bringing in some government money to create jobs. My 
sense, though, Mr. Draper, is what we end up doing here--and 
you correct me if I am wrong on this--is that in the venture 
capital business you generally tend to go for homeruns. You 
would rather

strike out or hit a homer. Either one is preferable to a base 
hit because it just drags you around for a long time.
    Mr. Draper. Right.
    Senator Brownback. But we in government tend more to focus 
on making a base hit because we don't want a failure and the 
homeruns may be too risky to do, and if we are occupied with a 
base hit, so be it. That is fine. We hit a base hit on it. What 
damage does that do in the marketplace, or you could put your 
money in a better place?
    Mr. Draper. I think limiting risk-taking in all forms is a 
crime because the way we look at it is this. We will invest in 
10 companies. Five of them will fail completely. Three might 
get us our money back. And then two might make 20 to 100 to 
even 1,000 times on our money, and the one that makes 1,000 
times on our money doesn't just make us a lot of money, it 
created a huge company; it created an enormous company.
    When government says they create jobs, those are all sort 
of temporary until the next government decides we are going to 
create different jobs. Government jobs are not real jobs. These 
are real jobs. I mean, Parametric employs, I don't know, how 
many people? How many do you guys employ?
    Mr. Rodgers. Two thousand, two hundred.
    Mr. Draper. Two thousand, two hundred, and Parametric 
probably employs 25,000 people and those people are very well-
paid and continuing to grow, and there are going to be 30,000 
people next year and it just continues to grow. Those are real 
jobs that continue, and there is a huge difference between a 
job created by a market need and a job created by a government 
official. Whenever I hear government is creating more jobs, I 
think, oh, God, they are killing us again.
    Senator Brownback. Let me ask, what should we be doing? If 
we want to create high-tech jobs and we want more high-tech 
jobs in this country, what should we be doing?
    Mr. Draper. OK, this is a perfect opportunity. Shut down 
the ATP program. It is the beginning of a series of dominoes 
that need to happen. I mean, people in Silicon Valley are going 
to start making the make-versus-buy decision on government. 
They are going to move out. They are going to create their own 
government. This is really dangerous. It is dangerous, from 
3,000 miles away, to tell those guys what they should be doing. 
So, that is issue No. 1.
    The capital gains tax--I don't know how many times I have 
mentioned cutting that in my life. But if you lower capital 
gains taxes, it is going to make a huge difference. If you shut 
down parts of government that are trying to help us, that would 
also help.
    Senator Brownback. Do you have other nominees? I mean, ATP 
you have mentioned.
    Mr. Draper. Department of Commerce, Department of Energy.
    Mr. Rodgers. Transportation.
    Mr. Draper. Transportation. Education.
    Mr. Rodgers. Education, in particular.
    Mr. Draper. Slam that one quick. The reason for this is we 
have it duplicated out in Sacramento, for one. We have plenty 
of laws, regulations, taxes that we pay back there. Why are we 
paying both

State and Federal to do the same thing is a big question that 
we continue to ask ourselves.
    The other thing that I think really needs to happen is some 
big deregulation. Individuals who are not worth $1 million 
cannot invest in the venture capital business, period. I mean, 
that hurts. That is $5 trillion or something that can't be 
invested in risky ventures, and the government is protecting 
the individual. They are saying to the individual, ``we will 
protect you from your own actions.'' Now, go ahead and play the 
lottery, it is State sanctioned and will help education. We 
will protect you from taking a risk and losing money to these 
shysters, we'd rather you risk it to us even though it won't 
help our economy any. ``Risktaking is why our economy works.''
    Senator Brownback. Mr. Rodgers, what would you do if you 
were in the government and truly wanted to actually help create 
an atmosphere where more high-tech jobs could be created?
    Mr. Rodgers. It is the simplest of all answers. The best 
analogy is Gulliver. The giant is in Silicon Valley and he is 
tied down by thousands of little threads and you need to cut 
them all. We are quite capable of being extraordinarily 
successful. We have managed to be illusive enough so far to 
have the average income in San Jose to be $42,000 a year, 
double the average income in the United States. So we are 
getting rich as a group, all of us, the little guys included, 
because we are free and we act like we are free. So releasing 
those other things that restrict our freedom and take our money 
would just make us more competitive. We would win more 
victories.
    ATP is small potatoes, and I want to reinforce that the 
problem with it is it is like that first few viruses that get 
in your bloodstream and then later on it grows. You already 
said yourself it was a $10 million program. Now, we have got 
$200 million, on the way to $275 million, and the bigger it 
gets the more it controls, and the more it controls the more 
threads are tied on Gulliver and prevent him from fighting the 
battles for us.
    Capital gains is very simple. It is the mantra, and let me 
talk about the issue of capital gains. I am the issue. To quote 
the line in the movie ``Scarface,'' I am the bad guy. I am 
rich. If you cut capital gains, you are going to make me 
richer. I will tell you that right here. So I am rich and going 
to get richer, so therefore capital gains is a tax cut for the 
rich.
    But the fact is if you look at me as an individual, what 
does it mean to cut capital gains? I just bought myself a new 
Acura to replace my 3-year-old Honda, and it is a small one, an 
Integra. I don't consume a lot of money. Most of my wealth, 90 
percent of it, is invested back in Silicon Valley. I own stocks 
in hundreds of companies, not just the one or two I told you 
where I am actually a member of the board of directors. I 
invest in those companies because I know they have a chance to 
succeed because I know the venture capital network.
    When you tax me with capital gains, when the government, 
not you--I know your mind set--all I do is go sell those stocks 
and send the money to, let us say, Al Gore. He is a big fan of 
the electronic data superhighway. So what we are talking about 
is unused money; that is, money that is invested, not being 
consumed, going

from my bank account and my investment control to the Federal 
Government's bank account and the Federal Government's 
investment control.
    It is Dr. Rodgers versus Dr. Good. Where do you want to bet 
your money to get invested to make America stronger and create 
jobs? So cutting the capital gains tax rate will leave the 
money with the people who earned it to begin with and the 
people who were smart enough and savvy enough to make money, 
and those are the people that create jobs. But you are going to 
have to break through the mantra ``tax break for the rich'' 
because it really is leaving the money that the rich have 
earned, techno rich in my case, with them so that they can 
create more jobs with it.
    It is a tough nut to crack. I will pay my taxes. I always 
have, but that is the problem you are going to have. That is 
the biggest one. That little rocket ride I showed, that 1776 
thing, would kick up into yet another higher orbit if we could 
actually, in a technological society as opposed to a colonial 
society, turn loose the money to be invested in the smartest 
possible way. That is the biggest one I can think of.
    We also hurt our companies, high-tech in particular, with 
export controls. So, for example, even though you can buy 128-
bit encryption all over the world from multiple countries, a 
high-tech company that exports encryption today gets treated in 
the exact same law, by the exact same law, in the exact same 
way, as someone who ships the makings of nerve gas to Iran. It 
is a munition, according to our laws.
    Now, we have the FBI worried that other countries will get 
encryption. Wake up, guys. They have already got it, in one of 
the most brilliant maneuvers I have ever seen. One of the 
reasons I am not that worried is that things change faster than 
laws can get made. So you make a law to restrict something. By 
the time you make the United States carburetor act of 1996, we 
are on to fuel injectors, and by the time you get to fuel 
injection, we will be on to nuclear engines.
    Scott McNealy of Sun Micro, who by the way has also signed 
this document--and he, by the way, is also a recipient of 
numerous ATP grants. I put a little pencil mark here. I will 
give you this copy of all the CEOs who have gotten ATP money 
who are saying shut it down.
    Scott McNealy said, ``I can't ship onto the Internet 
because the encryption I can use is so weak. People can decode 
credit card numbers and commerce on the Internet can't 
happen.'' So he said, ``no problem.'' He went to Moscow, hired 
a bunch of mathematicians, $2,000 a year for a Ph.D., and he 
said, guys, make me some encryption, 128 bits, please. So they 
did, because they can do it. So can everybody else in the 
world.
    Now, when you want encryption, it comes from Moscow and you 
encrypt your stuff and nobody can read it with 128-bit 
encryptions. Commerce is going wild talking about export 
problems of high technology. McNealy is saying, which high 
technology? We made it in the Soviet Union. So these are the 
kinds of things where, shall we say, the slower paradigm shift 
of government cannot keep up with the real world and you need 
to just sever those ties and let free

people do the right thing for the country. None of us is going 
to screw up America to make a buck.
    Senator Brownback. Thanks. You are both very compelling and 
do a great job with your presentation. Let me ask you, Dr. 
Rodgers, because we need to get on to the next panel, when you 
get everybody that wants to sign or that will quickly sign that 
letter, I hope you guys will hold a press conference. As well, 
if you will ship me a copy of that letter when you get your 
final signatures, I will put it into the senatorial record and 
speak about it on the floor because I think that is the sort of 
statement we need to have people putting forward.
    Dr. Good and Dr. White were up here earlier. These are good 
people and they believe they are doing the right and good 
thing. I have worked with Dr. White on some of these things 
before. They believe this is what we need to do to help. I 
mean, this isn't out of any sort of evil intent that people are 
operating in the government. It is not out of your part that is 
evil intent.
    What I am just trying to look at and what we are trying to 
consider is----
    Mr. Draper. Except for that ``con'' thing.
    Senator Brownback [continuing]. How do we be most 
productive in determining what our role is and how to best 
fulfill that role. So I would hope you would be willing to hold 
a press conference on that, and we will sure put publicity on 
it here as well. I appreciate you guys coming forward.
    Mr. Draper. By the way, we can get 100 companies to sign 
that petition, if you are interested.
    Senator Brownback. Let us do it because I think that is an 
important statement, as we move back toward more limited 
government, that those people are willing to stand up 
themselves and say I will take it first.
    Thank you very much.
    Mr. Draper. And you are going to make sure this gets to the 
IRS, right?
    Senator Brownback. No. You run into all sorts of ethical 
issues. I would appreciate if you would take that because 
otherwise I don't know where--I am not touching the thing.
    The next panel up will be Steve Moore, Director of Fiscal 
Policies at Cato Institute, and Dwight Carlson is an 
entrepreneur and founder of two high-tech firms, and co-
chairman of the National Coalition for Advanced Manufacturing, 
and a member of the Visiting Committee for the National 
Institute for Standards and Technology.
    So, gentlemen, welcome. Thank you very much. I apologize 
for the delay, but we have had a lot of questioning and a lot 
of comment. You probably could help us all if you would really 
summarize your testimony--it would be appreciated--and maybe 
react to some of the statements from earlier. That might be the 
best way to go.
    Mr. Moore, please, the floor is yours.

   TESTIMONY OF STEPHEN MOORE,\1\ DIRECTOR OF FISCAL POLICY 
            STUDIES, CATO INSTITUTE, WASHINGTON, DC.

    Mr. Moore. Senator, that was a very tough act to follow. 
That was really extraordinary. I have never seen testimony like 
that before, and I hope you take that to heart. It is hard for 
me to add much to that.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Moore appears in the Appendix on 
page 85.
---------------------------------------------------------------------------
    Let me first say, in keeping with the Truth in Testimony 
Act, the Cato Institute does not receive a penny of government 
funds.
    Senator Brownback, I appreciate your leadership on this 
issue of corporate welfare. You and I have talked about this in 
the past and let me just say from a political standpoint, I 
think it is very difficult for the Republicans or the Democrats 
or for any of the Members of Congress to go to their 
constituents and say that we are going to balance the budget by 
cutting programs like welfare or cutting programs like Medicare 
for seniors, cutting programs like veterans benefits, and then 
saying but we can't cut programs like the ATP that are giving 
out million-dollar grants to AT&T, Amoco, General Electric, and 
GM.
    We just did a little analysis of eight of the largest 
companies that received ATP money since 1994 when this program 
was started. Just eight companies alone--AT&T, Citicorps, and 
MCI, and so forth--had $25 billion in profits in 1994--$25 
billion. Now, I think it is very hard to see how you can go to 
your constituents in Lawrence, Kansas, and say, well, we have 
to cut Medicare, but we can't cut these small grants to 
companies that made $25 billion in profits.
    Again, you know that I am not someone who bashes big 
business. I want to see America have global leadership in the 
very kinds of industries that T.J. Rodgers talked about, but I 
simply reject the idea, and I think that this Congress ought to 
reject the idea that the way to be pro-business is to be pro-
business one at a time. You would be much better off cutting 
these taxes.
    If you look at my testimony, Senator, the point that I make 
is that if you look at the total pie of corporate welfare, as 
we define it, it comes to in the neighborhood of $65 billion 
right now in terms of total corporate welfare spending. Now, to 
put that number into perspective, right now the budget deficit 
for 1997 is expected to be just a little bit over $65 billion. 
So if you could cut the corporate welfare out of the budget, we 
could essentially balance the budget today.
    Or to put it alternatively, a better way to think of this 
is that if you took that $65 billion, Senator--and we heard 
some pretty compelling evidence earlier today about the good 
things that ATP has done, and I won't deny that some of these 
grants have certainly led to some exciting innovations. But if 
you took that $65 billion that we spend on corporate welfare 
today, you could entirely eliminate the capital gains tax and 
the estate tax in this country. That is pretty incredible.
    I think it would be hard for anyone--Senator Lieberman, who 
I have great respect for--to say that if we were left with 
these two choices, either to have these corporate giveaway 
programs or entirely eliminate our capital gains and estate 
tax, which would be

better to create high-paying jobs in this country, to create 
more growth and more employment? I don't think there is any 
question which of those two choices would be better.
    It is getting late. Let me just make one last point and 
then I will turn it over to my colleague, and that is I think 
one of the most insidious features of these types of programs, 
Senator, is that I think it does create a kind of climate of 
corruption in Washington. These programs like ATP do create a 
kind of cash in/cash out system.
    If you look at the last chart in my testimony, Table 4, we 
look at just some of the major recipients of ATP since 1992, 
and looked at companies like General Electric, BP America, Dow 
Chemical, AT&T, Boeing, Chevron, United Technology, MCI. And it 
turns out that in 1996, these companies made literally hundreds 
of thousands of dollars in contributions to both parties, not 
to the Republicans, not to the Democrats, to both parties.
    I think Americans really find this kind of sickening, 
actually, that essentially what we are doing is finding that 
these very companies that are saying we can't possibly invest 
in these new technologies unless you give us money are then 
turning around and giving that money right back to the parties. 
This is not free enterprise. This is not free markets. I think 
Mr. Draper said it best. Shut it down.
    Senator Brownback. Thank you very much, Mr. Moore.
    Mr. Carlson, thank you for joining us and for waiting so 
long. I appreciate your being here and look forward to your 
testimony.

   TESTIMONY OF DWIGHT D. CARLSON, VICE CHAIRMAN, PERCEPTRON 
               INCORPORATED, ANN ARBOR, MICHIGAN

    Mr. Carlson. Mr. Chairman, thank you for this opportunity 
to share my experience with the Advanced Technology Program. I 
began my career in the auto industry in 1962. In 1968, I 
founded Xycom, a high-technology company, in Michigan. In 1971, 
we licensed Hewlett-Packard to sell Xycom products in Europe 
and Asia. So I have had an opportunity to be a supplier to 
Toyota, in Japan, since 1971 and develop some insight into how 
international competition is conducted. In 1981, we founded 
Perceptron, which today is a successful public company 
supplying three-dimensional machine vision technology 
worldwide.
    After 35 years involved in the industry and in 
international competition, I have drawn the conclusion that 
international competition is truly a team sport. The auto 
industry is a fiercely competitive business which impacts the 
economies of many industrialized nations. As an example, 1 out 
of 7 jobs in the United States are related to the auto 
industry.
    In 1992, I had the opportunity to lead an ATP project to 
improve the competitiveness of the domestic industry. I believe 
I am the only panel member who has had actual experience in 
putting together an ATP consortium and managing an ATP project.
    Our first project was focused on building of automobile 
bodies. Much like the foundation of a house, if you get the 
automobile body correct and square, the doors go on right, the 
windows go up and down, and so forth. What the ATP did was to 
enabled us to put together the auto body consortium, which is 
something I personally

had tried to do unsuccessfully for 10 years in the private 
sector. What the ATP did was break down a number of the Federal 
barriers to collaboration. As you know, venture capital does 
not fund consortia.
    The ATP also enabled us to team big auto companies, with 
small companies like my own. ATP also enabled us to team the 
small companies with universities. As you know, universities 
typically do not work with small companies unless they have ATP 
grants, and I understand why. ATP also enabled us to team the 
industry with the Federal laboratories, which is something that 
holds a lot of potential.
    Most importantly, ATP enabled us to focus research on 
improving manufacturing processes. Japan invests 80 percent of 
its research on improvement of manufacturing processes, only 20 
percent on product. We in American turn that right around and 
spend 80 percent of our research on product and only 20 percent 
on process.
    Also, venture capital in America does not invest in 
manufacturing process improvement. Michigan is one of the 
leading States in the Nation in research and development. 
However, we are an absolute disaster in venture capital. So 
over the last 2 years, our governor worked very diligently to 
put together our first venture capital fund. It was just 
announced a few weeks ago, $170 million of venture capital in 
one fund.
    Its first investment of $12.5 million was to expand the \1/
2\-off card shop retail chain in Michigan. I called up the 
manager of the venture capital fund and I said, what happened? 
He said, well, we don't invest in start-ups and we don't invest 
in product-oriented companies; we only invest in service 
companies. That was yesterday. So I can tell you in Michigan, 
venture capital does not fund industrial technology and we are 
a leading industrial State.
    A car body today is made up of over 300 parts. In most 
plants, 60 car bodies are assembled in an hour, 1 every 60 
seconds. It is a very complex, real-time process which requires 
management with real-time data in order to compete. The ATP 
enabled us to do the research on technology and the techniques 
to reduce variation in the auto body to plus or minus one 
millimeter--it is called the two millimeter program--which 
significantly improved the quality of the domestic industry, 
reduced costs, and shortened time to market.
    Because we were working as a team, we were able to increase 
both the knowledge of the industry leaders and also empower the 
workforce. It was an uplifting experience to be involved in 
plants where we implemented the two millimeter program and to 
see the improvement in the lives of the workers. I mean, people 
basically want to improve quality, reduce waste, and they want 
to be on a winning team.
    So why was the two millimeter ATP program so successful? 
First, I attribute the success to the way the Advanced 
Technology Program was thought out. It was a very well-thought-
out approach which enabled Americans to compete as a team. I 
understand the credit for the wisdom of the ATP program belongs 
to people right here in Congress, and I congratulate you.

    The second key to success is the way that NIST administers 
the program. NIST allows the private sector to determine what 
technologies will be researched. It gives the private sector 
the complete responsibility for the success of the project. 
NIST serves as a facilitator, not a bureaucratic controller.
    The third key to success is it enables small innovative 
technologies companies to team with major research universities 
in America. As I travel around the world, those are the two 
cultural advantages of America. One is innovative small 
companies, and, second, are major research universities. 
Nowhere else in the world do you see these two cultural 
advantages.
    Who benefited from the success of the two millimeter ATP? 
Well, certainly the automakers benefited from their quality 
improving, their costs going down, and shortening their time to 
market. Certainly, smaller companies such as Perceptron. We 
were able to do research and test new ideas in plants very 
rapidly, with the support of the auto industry and with the 
help of university researchers. The workforce was empowered, as 
I mentioned. The university researchers got funding to do 
worthwhile research and they saw the results of their work.
    The Federal Government also received tens of millions of 
dollars in additional taxes as a result of eliminating hundreds 
of millions of dollars of waste in the auto industry. Most 
importantly, U.S. consumers benefited from higher-quality 
vehicles. We received a $5 million grant from ATP and matched 
it with $7 million of private sector funding. Where did the $5 
million of ATP money go? It did not go to General Motors, Ford, 
and Chrysler. It did not go to Perceptron or any other company. 
We used the entire grant to fund 32 researchers for 3 years to 
work with smaller companies to solve tough problems in the auto 
industry.
    GM, like Perceptron and all the other companies, paid into 
the ATP project so we could perform as a team to solve problems 
which benefited everyone. And the auto industry is not the only 
industry that benefits from the technology and techniques that 
we developed. The appliance industry and the aircraft industry 
all benefit as a result of this work.
    The question is whether America can compete. I would like 
to point out this front-cover article in Business Week, April 
9. The CEO of Toyota points out that ``we plan to dominate, 
really dominate, the world auto market.'' Can Toyota do it. As 
a supplier to Toyota in Japan since 1971, I believe they can. 
Today, the financial markets place a higher value on Toyota 
than General Motors, Ford and Chrysler combined. Yes, one 
Japanese auto company is worth more than the entire U.S. auto 
industry. Now, if you believe in financial markets and their 
ability to assess value, that should be a very scary thought. 
The 1997 J.D. Power customer satisfaction ratings just came 
out. The Japanese models captured 9 out of the 10 top 
positions.
    Can America compete? I believe we can. However, it will 
take the best and the brightest we have in industry, the best 
and the brightest we have in our universities, and the best and 
the brightest we have in the Federal Government, and it will be 
a real battle.
    The reason that I support the Advanced Technology Program 
is that I saw firsthand it enabled Americans to function as a 
team

and significantly improve the competitiveness of industry. The 
responsibility of the success of the Advanced Technology 
Program lies squarely in the hands of the private sector. We 
must lead and perform in order to make the Advanced Technology 
Program, which was expertly conceived here in Congress and is 
professionally managed by NIST, successful. You cannot do it 
for us. We have the ball. You have enabled us to succeed, but 
now it is up to us.
    Thank you.
    Senator Brownback. Thank you, Mr. Carlson. I appreciate 
that. You mentioned in your testimony that the ATP program 
helped you break down barriers. And don't let me misquote you 
on that, if that is accurate. Is that correct?
    Mr. Carlson. That is correct.
    Senator Brownback. What barriers did it help you break 
down?
    Mr. Carlson. In the auto industry, for a number of years 
the Federal Government has been very clear. If we were ever to 
collaborate in Detroit, they would throw our butts in jail 
forever.
    Senator Brownback. Antitrust.
    Mr. Carlson. This is the only Nation in the world that has 
its auto industry concentrated in one city. That should be a 
tremendous advantage, but it is not an advantage unless you can 
collaborate, and we could not do this without ATP.
    Senator Brownback. So does ATP give you a waiver or secure 
a waiver, or does it give the government imprimatur that keeps 
everybody from being scared that there is going to be an 
antitrust suit? What does it actually do?
    Mr. Carlson. The latter. Essentially, we feel that when we 
are meeting together, the Federal Government, through ATP, is 
in the room with us.
    Senator Brownback. So that you can sit there and talk with 
each other?
    Mr. Carlson. That is correct, and we do not violate any 
antitrust laws or any laws of that nature. It is just a matter 
of being in the same room together.
    Senator Brownback. What other barriers did it help you 
break down?
    Mr. Carlson. The enablers, as I mentioned them, were 
primarily the ability to team the smaller companies with the 
universities. That is a key. Universities primarily work with 
big companies and the government because that is where the 
research dollars come from, and the ATP was wise enough to 
realize if they put the money in the hands of small companies, 
it would attract the university researchers, and it did.
    Senator Brownback. OK. So when you say enablers, these are 
the people paid for out of ATP funds, or are these actually the 
Federal Government employees that are going around and 
contacting universities and small companies to----
    Mr. Carlson. No. If the grants go to the small companies, 
the universities figure that out real quick. They know that.
    Senator Brownback. So the universities chase the dollars to 
the small companies?
    Mr. Carlson. Absolutely. I mean, I think universities truly 
do what is in the national interest. When President Kennedy 
wanted us to go to the moon, it was NASA grants and 
universities went

in that direction. When President Reagan wanted us to be 
militarily superior, the grants came out of DoD and the 
universities responded. If you want to be industrially 
competitive, give grants out of the Commerce Department and the 
universities will respond. I have to hand it to them. They are 
a very, very bright group of people and they are very agile.
    Senator Brownback. What else did it do in breaking barriers 
down?
    Mr. Carlson. This investment in manufacturing process 
improvement takes insight that was provided by NIST--the Bureau 
of Standards is part of NIST--and NIST has the understanding 
like the Japanese have that it is important to invest research 
money in manufacturing process improvement. In this country, in 
the private sector, we have had a difficult time really 
appreciating the importance of process improvements. And 
through the ATP, we were able to work on process improvement.
    Senator Brownback. Anything else of breaking barriers down?
    Mr. Carlson. No. That is it.
    Senator Brownback. It strikes me what you are describing 
here is a facilitator role by the Federal Government in putting 
this together that helped facilitate this consortium for the 
auto industry.
    Mr. Carlson. It is very important, yes.
    Senator Brownback. But you could do that without giving a 
dime to the industry to do that.
    Mr. Carlson. You could if indeed someone would fund 
consortia. No one funds consortia. For instance, supply chain 
optimization--we all know it would be very beneficial. General 
Motors, Ford, and Chrysler give speeches around the country of 
how much supply chain optimization could save, but no one puts 
out any money to do it. So it is a problem. We need to solve 
it.
    Senator Brownback. But they could. The industry itself has 
the wherewithal and clearly has the money to do this if they so 
chose to. I mean, the auto industry is profitable at this point 
in time and they could fund this. Particularly talking about 
the quantity of money we are talking about here, $225 million 
versus the profits of the Fortune 500, this is a minuscule 
amount of money that we are talking about.
    Mr. Carlson. Right, and the leadership has to come from 
some where, and it is unfortunate but true, because I am an 
industry person and an entrepreneur--I hate to say this, but 
the bright, creative leadership for this ATP came from the 
Federal Government. It did, and to the extent that good 
leadership is important and it comes from Washington, so be it.
    Senator Brownback. I guess what you are describing to me is 
a system that you saw the facilitator role as very important, 
particularly the antitrust issue, which I tend to believe is 
very important as an issue. But that is separate, really, and 
distinct from putting money into an ATP program. That means we 
ought to deal with our antitrust laws to get people to 
cooperate. We have created an atmosphere such that they 
couldn't cooperate back and forth, or didn't feel like they 
could without the possibility of being sued by the government.
    Mr. Carlson. That is correct, but I don't want to discount 
the intelligence that has been brought to this collaboration 
from people

who are here in Washington. I mean, contrary to popular belief 
out there in the hinterlands, there are some very smart people 
in this city.
    Senator Brownback. Good. I appreciate your saying that. I 
think it is good that people be recognized that they have done 
a number of good things. You heard our earlier panel. People 
here truly want to do the right thing. It is just, now is this 
the right way you do it? That is why when I was going down 
through your barriers, it struck me more that what we need to 
do is remove barriers more from here rather than putting in 
necessarily money to do a program like this. You are saying, 
though, as well, we have benefited from the expertise that the 
facilitators brought. I appreciate that.
    Mr. Carlson. That is correct.
    Senator Brownback. Thank you. Actually, I would like, Mr. 
Carlson, your reaction to this. If we eliminated corporate 
welfare and, in exchange, we zeroed out capital gains and 
estate taxes, would that be a better world?
    Mr. Carlson. I personally pay millions of dollars in taxes, 
so I would love to have my taxes reduced. However, I seriously 
doubt in the complex international competition we are facing 
that simply cutting taxes will do it. Unfortunately, government 
plays a very big role in safety standards, emissions standards, 
and whether we tax or don't tax gasoline, etc.
    As an example, we have a protective tariff on trucks. We 
wonder how the auto industry is making money because, in cars, 
the auto industry hasn't made a dime in 10 years, not a dime. 
Where is all the money coming from? It comes from trucks. Well, 
why is it that we can make money in the United States on 
trucks? It might be because the Federal Government put a 25-
percent protective import tariff on trucks.
    So whether we like it or not, this is a very complex world. 
You folks here in Washington have a real challenging job. I 
don't believe there are simple answers. The two gentlemen 
before me sort of insinuated that you do this and everything 
gets better. I wish that was true, but I don't believe it is 
that simple.
    Senator Brownback. Mr. Moore, anything else you wanted to 
add or respond to?
    Mr. Moore. Well, let me just respond to that. Actually, the 
three people who testified before you made that point. The fact 
is that when you look at the rationale for this--and I hear it 
said all the time that we have to do this to retain our 
competitive vis-a-vis Japan and Europe. The thing that is 
extraordinary about this is the model that ATP is based on is 
really a kind of European model industrial policy.
    Senator I mean I don't have to tell you this. Europe is an 
economic basket case; it is a disaster. The more these 
countries get involved in these programs, the worse they do 
economically. They are able to subsidize certain industries, 
but very much to the liability of the very sector of the 
economy that really is exploding in the United States, which is 
our small business sector. You cannot subsidize every small 
business in America. God forbid that you tried to, Senator.
    If you look in my testimony, I just compare the 
unemployment rate. The United States is doing well. We have 
sinned much less

than Europe in this regard. I mean, when you look at ATP, this 
is pretty small potatoes in the grand scheme of things. Europe 
does this on a vast scale and they have done it to their 
detriment.
    In fact, if you look at what is happening in countries like 
Germany and France and Sweden, they are having to dismantle 
these programs because they have no entrepreneurial sector that 
can compete with the United States. So I just don't see this as 
being a model that is worth emulating.
    Senator Brownback. Thank you, gentlemen, very much. I 
appreciate it. Thank you all for attending and we appreciate it 
very much.
    The hearing is adjourned.
    [Whereupon, at 4:21 p.m., the Subcommittee was adjourned.]



                            A P P E N D I X

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