NCPA - National Center for Policy Analysis

Cato Briefing Paper: End Subsidies, Say Silicon Valley Execs

April 27, 1998

T.J. Rodgers, the president and CEO of Cypress Semiconductor, has issued a plea to Washington to end the hundreds of millions of dollars in subsidies the federal government lavishes on Silicon Valley high-tech firms each year. He is being joined by 78 other area CEOs, who argue that the subsidies are bad investments.

Here are a few of their arguments:

  • The 35 percent federal corporate tax rate creates a downward economic spiral, forcing companies to "lobby for givebacks to remain competitive."
  • Projects with high risk, but ordinary return, get foisted off on government.
  • While the argument is often advanced that American businesses need the subsidies since other countries offer them to their firms, those countries are making a mistake that we need not copy.
  • For example, Japan backs 13 industries but focuses its attention on four -- which came in 13th, 12th, 10th and 9th in relative performance, an illustration of the weaknesses of Japan's failed industrial policy.

Within the U.S., the history of government subsidies to industry is not much better, Rodgers claims. Sematech is a consortium of big electronics makers that has received $800 million in federal payouts. The recipients of this largesse are far from needy -- including the likes of Intel, Motorola, Digital Equipment, Texas Instruments and AT&T.

Rodgers proposes that Congress appoint an independent commission to study corporate subsidies and recommend which should be eliminated. Its recommendation would be subject to a straight up-and-down vote to continue or eliminate the subsidies.

Source: T.J. Rodgers, " Silicon Valley Versus Corporate Welfare," Cato Briefing Paper No. 37, April 27, 1998, Cato Institute, 1000 Massachusetts Avenue, N.W., Washington, D.C. 20001, (202) 842-0200.

 

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