Government Programs and General Purpose Technologies

In his book Is War Necessary for Economic Growth?, Professor Vernon W. Ruttan of University of Minnesota analyzes the question, posed in the title, whether war is necessary for the US economy and other economies to grow. Ruttan himself provides the answer to this question, saying that war and preparations for war may not be necessary, but that large-scale government-funded projects are necessary in order to drive economic growth through the development of general purpose technologies. The six general purpose technologies that are analyzed by Ruttan are as follows

1. interchangeable parts and mass production,

2. military and commercial aircraft,

3. nuclear power,

4. the computer industry,

5. the Internet, and

6. the space industries.

In conclusions to the book, Ruttan argues that the private sector can never be expected to develop the general purpose technologies that are necessary in order to drive future economic growth. The reason for this is that companies do not have access to the "patient" capital, which is needed in order to run 10- or 20-year technology development projects. The only possible source of such capital is the government. Ruttan even believes that efforts by the private sector to develop new general purpose technologies in the biotechnology and molecular biology sectors need support from large-scale public sector projects, in order to produce new general purpose technologies by mid-twenty-first century. Ruttan also finds it less likely, with the lack of a major military threat to the safety of the United States, that future investments of the scale of previous development efforts in military technology can be justified.

Thus, the most probable answer to the question whether war is necessary for economic growth is "No," but large-scale government spending is. In the next few decades, there will be a need for a number of new general purpose, energy-efficient technologies in diverse sectors of society, such as transportation, energy production and distribution and housing. In the face of massive investment needs over the next decades, society will need to allocate very large volumes of capital and other resources to the transformation effort. The total amount of investments will not only have to cover the development, production and implementation of new technologies but also the development of new business processes and the implementation of these in companies. In addition, there may be a need for other investments in public transportation and the remodeling of cities, based on the implementation of new transportation systems.

Since some alarmist analysts of the peak oil issue expect resource wars, because of a shortfall of oil, I need to point out that a large-scale transition to renewable fuels and sustainable energy technologies would constitute a better long-term solution to the problem of an energy shortfall, than warfare to "secure" resources that will last for only a short period in any case. Large-scale transformation efforts would represent both more humane and financially more lasting investment alternatives, than a war effort.

We must hope that the transition could be run in the same way as the space program, but if we, as a society, wait too long with the transformation efforts, we may have too little time available for it to be possible to run the transition program in parallel with other activities. In this case, the program may need to more resemble the single-minded effort of the Second World War than the effort of the Apollo program.

I have chosen the three above examples, in order to illustrate the fact that planned government programs could be given different forms, and that different programs could include different amounts of planning, and different types of goals and mechanisms. Depending on the urgency and the financial constraints on the transformation challenge, different types of programs could also provide different amounts of space for the mechanisms of the market economy to play their roles. Because of the urgency of the situation, the Second World War represents the case in which planning takes the most prominent place and the market mechanisms were given an insignificant role. In the case of the Marshall Plan, the market mechanisms were given a central role. Through the strategy process for a transformation program, we can determine how the program needs to be run in the present case.

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