In April 2011, the Heritage Foundation published a guide to spending cuts in the Department of Energy (DOE). The Information Technology and Innovation Foundation (ITIF) (along with the Breakthrough Institute and Americans for Energy Leadership) responded by pointing out an array of wrongheaded assumptions, illogical arguments, and empirical inaccuracies in this misguided plan. In 2016, Heritage reprised many of these same ideologically based errors and added even more in other areas of federal policy, including trade and competitiveness, in its so-called Blueprint for Balance. In this report, ITIF updates and expands its 2011 response. The stakes are much higher now, however. Numerous reports suggest that the Trump administration is considering adopting Heritage’s Blueprint as its own. Doing so would harm U.S. competitiveness, productivity, and innovation.
There is no doubt that many federal programs, including some that support business, could be cut, or even eliminated, with little or no negative effect on economic growth. But that doesn’t mean that most could. In fact, many programs are intended to compensate for serious market failures and effectively advance one or more of three key national goals: competitiveness, productivity, and innovation. Rather than being cut or eliminated, such programs should be improved and expanded.
Such nuance and pragmatism, however, are not Heritage’s strengths; doctrinaire ideology is. Heritage’s analysis to support its efforts to cut $10 trillion from the deficit over 10 years is marked by profound misunderstandings about markets, technology, and the global economy. Markets sometimes work wonders, but they sometimes fail. They fail to provide sufficient incentives for innovation and knowledge creation. In an environment marked by financial market short-termism, markets fail to foster long-term investments in people and capabilities. And even if markets acting alone did maximize economic welfare, that doesn’t mean that maximization will occur on U.S. shores.
The appropriate role of government is to provide help to correct those market failures. Of course, governments, too, fail. They don’t always act appropriately. When government fails, reformers, including at Heritage, should try to fix it. But Heritage wants to kill government programs, including some that might be fixed and others that are working wonderfully. To foster an innovative and competitive economy in a turbulent and sometimes hostile world, the U.S. government must have access to an array of tools, but use them judiciously. Heritage’s kit contains only one tool: the axe.
It is ironic that Heritage would have the federal government abandon its role in economic and business development. As the report shows, most of America’s most conservative Republican governors not only accept but actively champion the very same kinds of programs in their states. So there is nothing particularly conservative or free-market in slashing government’s role in economic development.
The United States has suffered from underinvestment, both public and private, for more than a decade. This combined failure of the public and private sectors to invest sufficiently is undermining the national economy. All sectors in American society need to work together to revitalize research, technology, industry, education, and infrastructure. Crippling key functions of the federal government, which would be the consequence of adopting Heritage’s Blueprint, will set the nation back even further. The remainder of this report lays out key mistakes underlying Heritage’s wrongheaded recommendations in trade and competitiveness policy, and in energy and research and development (R&D) policy.