End of Cold War cuts technological advances.

There was a silver lining to the Cold War: The free world got cheaper and better products as a result of U.S. taxpayer support of research into technologies that might be used to fight the "Evil Empire." Now that the war is over, American economic competitiveness often is touted as the reason for Federal research, but it lacks the political urgency of the old national security mission, maintain economists Roger Noll of Stanford University and Linda Cohen of the University of California-Irvine. "Our conclusion is that the United States has not yet found a politically workable and economically attractive means of encouraging technological progress." As a result, Federal government support of research and development can be expected to continue the decline that began in the late 1980s.

Research and development are the engines of economic growth, but who pays for it and who benefits from it are questions that remain problematic for American politicians. "Competitiveness is not a politically powerful substitute for the Cold War in forging a durable, bipartisan coalition for supporting R&D." In addition, political problems in implementing these competitiveness-based programs "are likely to undermine the economic performance of the programs. Eventually, that will further reduce political support for [them]."

The Japanese sustained a massive research effort without a Cold War enemy to motivate them, Noll and Cohen concede, but that won't work for the U.S. "The key lesson from the experience of Japan is that although policies providing extremely high financial incentives for private investment [in research] will produce rapid economic growth, the economic benefits of that growth will not be widely shared."

By keeping out foreign competition and facilitating the formation of domestic industrial cartels, the Japanese government "produced a system that ranks first in the world in its fraction of gross domestic product invested in R&D. It has a higher rate of sustained growth than any other advanced, industrial economy, and it has consistently low unemployment. The other side of Japan's remarkable performance is that the ordinary Japanese citizen has a standard of living far below that of citizens in other nations with approximately the same per capita gross domestic product. Although on average Japanese employees work substantially more hours per year than American workers, the real purchasing power of the average annual take-home pay in Japan is only...