End corporate welfare now!

A Republican Congress promised to attack head on federal spending that provides unique benefits to specific companies or industries. Instead the subsidies are increasing and creating a reverse Robin Hood effect.

Silicon Valley is the engine that drives the American economy. And what drives Silicon Valley is the spirit of invention at the heart of its thousands of engineer/entrepreneurs - and the tens of thousands of new products they make each year for the consumer, communications, networking, and automotive industries, all of which are increasingly dependent upon silicon to make their own products faster, cheaper, and better.

Take one of the newest memory chips manufactured by Cypress. We call it NoBL, short for No Bus Latency, because the computer that is accessing information from the device, or writing information to it, is able to complete both operations simultaneously, doubling the "throughput."

NoBL is used for data communications applications to power the "information superhighway." Cypress would benefit greatly if billions of taxpayer dollars were showered on the various IT projects favored by the Clinton administration. I could support this easily by going to Washington, spending a few minutes talking about our products, issuing a grave warning about the competitive peril we face from other countries - particularly the government-financed Japanese and Europeans - and concluding by asking for a dole to save American high-technology. I would probably get pretty much exactly what I asked for. It's called politics as usual.

But subsidies hurt my company and our industry. Why? Because they represent tax-and-spend economics, a brand of economics that is a known failure. I do not want handouts. Many of my fellow CEOs in Silicon Valley do not want handouts, as the ad pictured on p. 41 illustrates. And if Congress wants to help American high-technology, handouts are the wrong way to go - especially if they are funded with huge tax increases on individuals and corporations. Our forefathers knew that; that's why they declared their independence from Great Britain and threw in a war to emphasize the point.

STRIKING A BLOW FOR FREEDOM

Our forefathers hated taxes. They viewed them as confiscation of individual wealth. They threatened rebellion over the Stamp Act of 1765 - a British invention to raise money from the colonies by requiring a tax stamp on documents. They threw the tea into the harbor in 1773 rather than pay taxes on it, and they listed as a cause for rebellion in the Declaration of Independence: "for imposing taxes on us without our consent." The Constitution turned on its head the basic premise of all prior world governments, where the sovereign owned the land, the citizens, their property, and their wealth - and individual rights came through the benevolence of the sovereign.

The U.S. Constitution created a bottom-up country by ensuring the people's right to be free. They owned themselves and their intellectual and physical property. The markets were to be free, and the new government was to be given only limited, enumerated powers. Those powers not enumerated were reserved for the people. The new government made it unconstitutional to levy income tax on individuals. The real Americans who founded our country wanted "the government off our backs and out of our pockets," as former-President Ronald Reagan said.

Running under an almost identical philosophy, for the first two centuries of our nation, the common man became better off more quickly than at any other time in history. Per capita U.S. GDP grew to $28,540 in 1996 from just $919 (in '96 dollars) in 1776. Mankind took 30,000 years to get to $919, but only 220 more years to reach $28,540. But today the American Dream is being eroded. Since 1976, annual GDP growth per capita (expressed as a 20-year rolling average) has steadily declined, to 1.5 percent from 2.5 percent.

Why the drop? In part because federal, state, and local taxes now consume a whopping 35 percent of our national output. Current peacetime spending is higher than the 29 percent peak during World War I; the all-time record was 49 percent during World War II. The first federal income taxes were modest in scope and magnitude. Since then, the federal income tax system has grown more rapidly than the economy.

Something special happened in America in 1776: When the common people decided to stop serving government and to mandate government to serve, they prospered as never before.

TAX AND SPEND JUST DOESN'T WORK

U.S. companies should lead in the reduction of destructive government spending. Eliminating corporate welfare is a moral imperative: We should not be asking senior citizens and the poor to tighten their belts while our government subsidizes the sale of American chardonnay to the French.

Taxing and spending to support U.S. industry creates a vicious cycle. With corporate taxes high, companies lobby for give-backs to remain competitive. Congress faces extreme pressure to "bring home the pork" to home-state corporations. That requires even higher taxes - and the circle continues.

Corporate subsidies are often known by euphemisms such as "government investments" or "government-industry partnerships." Such Washington-speak notwithstanding, Americans are compelled to pay for silly programs like the proposal by the Commerce Department's Advanced Technology Program to genetically re-engineer cotton, making its fibers more like polyester. Technology subsidies to companies are sold using technobabble to camouflage unjustifiable investments, which typically fall into one of four categories:

* Subsidizing the rich. In 1986, the Japanese were gaining market share in the semiconductor industry, once dominated by U.S. companies. Washington and the Semiconductor Industry Association created a consortium called Sematech, which they justified with all the familiar arguments: Japan has subsidies; we need subsidies. We're creating jobs and protecting a critical industry. When the smoke cleared, taxpayers had given $800 million over eight years to 14 electronics companies that today make $800 million in profit every month - and they don't even have to pay the taxpayers back.

* Competing unfairly with private industry. C-Cube Microsystems Inc. is the leader in video compression, the technology that made digital TV and small-dish satellites possible. C-Cube lost money for years while its investors waited for the technology to take off. But one day C-Cube woke up to find it had a $1.2 billion rival, funded by the Commerce Department's Advanced Technology Program. The venture capitalists who supported C-Cube paid full fare.

* Spending without benefit. Vitesse Semiconductor is the premier manufacturer of gallium arsenide chips, which are the world's fastest. The company sees no value whatsoever in the $500 million NASA program that has produced gallium arsenide wafers in space. The space wafers cost $1 million-plus each to produce, with an optimistic projection of $10,000 per for future space wafers. Back on Earth, Vitesse makes wafers at a cost of $175 to $1,000 each. Vitesse's president, Lou Tomasetta, calls the NASA program "a solution looking for a problem."

* Spending at the expense of Industry. The European Union long ago put a stiff 14 percent tariff on imported semiconductor chips to protect its fledgling chip industry. Result: Higher chip prices decimated the continent's computer industry. ICL, Britain's biggest computer company, had to sell a 50 percent stake to Fujitsu to stay afloat. Olivetti, Europe's largest PC maker, recently shut down manufacturing, triggering big layoffs. The European semiconductor industry lost market share anyway - declining to 5.4 percent in 1996 from 10.2 percent in 1988, according to industry analyst In-Stat. After all this, the EU is finally removing the tariff.

It is immoral and un-American for the government to tax working people, who straggle to make ends meet, to subsidize corporations - or anything else. And taxing the rich to fund poorly conceived government programs is self-destructive: It does nothing more than take money and investment decisions away from proven moneymakers and job producers and give them to Washington amateurs.

One common argument for corporate welfare is that Japan and Europe subsidize their corporations, compelling U.S. corporate subsidies in order to remain competitive. But the facts prove this rationalization false. Objectively viewed, Japan's Ministry of International Trade and Industry programs have been consistent losers. TRON, Japan's fifth-generation computer project, was supposed to kill our computer industry, but it failed miserably. Even MITI's fabled attack on the American semiconductor industry has stalled: Japan's chip market share peaked at 50.6 percent of worldwide revenue in 1989, but fell to 32.5 percent in 1997, while the U.S. is now back in first place with more than 49.2 percent market share. That's up from a historical low of 35.9 percent in 1989, according to San Jose-based industry analyst Dataquest, of Gartner Group.

END WELFARE NOW

To be very frank: The choice to take money from citizens to pursue the government's "good ideas" is socialism, pure and simple, which has been consistently destructive to the economies of those countries that have pursued it. America has moved 35 percent of the way from its no-tax origins toward the 100 percent wealth control of the Soviet Union.

As I testified recently before Congress: "Corporate welfare does not work anywhere in the world. It does not work because it penalizes a country's winners with excess taxes in order to fund that country's losers with inefficiently run government programs. America will be much more competitive on a relative basis if we allow the nations with whom we compete to squander their taxpayers' money while we encourage our companies to win without subsidies. It's like the Olympics: There comes a day when athletes must walk alone into the arena of competition. The government cannot lift the weights and run the miles required to be a champion - only individuals can."

The same applies to companies, and senior management here in Silicon Valley underscored that point not long ago with an ad in The Wall Street Journal entitled "End Corporate Welfare." It was signed by 61 top Silicon Valley executives, myself included. In calling for government to end corporate pork-barrel politics, we were taking a moral stand. Standing in contrast - and sometimes in direct opposition-are the lobbying groups that participate in Washington politics as usual, supposedly on behalf of the high-tech industry. The American Electronics Association (AEA) is one of them. I have testified before the Senate and House against corporate welfare five times since 1989, and I have often found AEA lobbyists playing for the other team. I fired the AEA; we are no longer members. We fired the National Association of Manufacturers as well; NAM recently threw its support behind export financing government subsidies of corporate exports - a cause endorsed by the current administration. The Japanese, French, and Spanish do it, NAM argues, why don't we?

We should end corporate welfare now. Morally as well as economically, it's the right thing to do. The first Americans knew that. And it's probably not very surprising to any CEO that, 200 years later, things haven't changed all that much.

T.J. Rodgers is president and chief executive of San Jose, CA-based Cypress Semiconductor, a $600 million manufacturer of computer chips.