Lessons from Computers and Helium; J. S. Shaw

357 Lessons from Computers and Helium by Jane S. Shaw I n the continuing debate over the proper roles of government and the private sector, advocates of the market sometimes seem to imply that the private sector does no wrong. Of course, this is absurd. In fact, it is likely that the private sector makes more-perhaps many more-mistakes than the public sector does. The saving grace of the market process is that, unlike government, private individuals and corporations catch their mistakes. They do not-cannot-perpetuate them for long. If the market tells them, through mounting losses, that their dreams and visions are wrong, they cut short their plans and stop pouring money into losing propositions. It may hurt, but they do it. One dramatic example of a private sector mistake is the failure of the major computer companies to anticipate the personal computer. Two firms, Digital Equipment and Hewlett Packard, at least considered the idea of a per sonal computer, says Stan Augarten in his his tory of computers, B it by B it (Ticknor & Fields, 1984). But most computer companies didn't. They envisioned a future of giant ma chines providing brainpower on a time-shared basis for multiple customers. With that vision, Augarten explains, they "couldn't imagine why anyone-any ordinary person, that is would want a computer. ' , It was electronic hobbyists, not experts, who figured out how computers could be put to gether cheaply enough for an individual to own one. The first crude personal computers ap peared as computer kits sold through popular science magazines. And in 1977, two young hobbyists, Stephen Wozniak and Steven Jobs, Jane S. Shaw is Senior Associate of the Political Economy Research Center in Bozeman, Montana, and was formerly Associate Economics Editor at Business Week.

formed the Apple Computer Company and in troduced the Apple II. The industry has never been the same since. The dazzling growth of personal computers has shattered forever the concept that the world would simply progress step-by-step to ever larger computers. The future will be much more diverse! IBM, which introduced its own personal computer in 1981, landed on its feet. But the big old companies that made giant "main frame" computers gradually retreated into narrow niches in the face of burgeoning com petition. By 1983, Financial World called the main frame companies "dinosaurs" headed for ex tinction and warned that a couple of the big ones might not be around in the 1990s. By mid-1986, two of the behemoths, Sperry and Burroughs, announced a merger. Even though the stock market was booming, Wall Street valued some of these companies-Control Data, Data General, and Honeywell-at less than their annual revenues, and a Wall Street analyst quoted in Business Week called the in dustry "ripe for consolidation," with many companies up for sale.

We are seeing a multi-billion dollar transfor mation in the computer industry. The striking thing is that it has been occurring quietly and peacefully. You don't read about it in the head lines, except in places like The Wall Street Journal,. no one has called congressional hearings, no political coalitions have formed to save the industry. Stockholders have quietly bought and sold their shares. Those who in vested in winning firms made money; others lost it. Doing their daily business, they com pletely changed a major segment of the corpo rate world.

358 THE FREEMAN. SEPTEMBER 1987 In contrast, when government makes a mis take, true corrective action is rarely taken, and then only when the situation has reached scandal proportions and a politician is able to make hay out of exposing it. All too often, the commotion dies down and taxpayer money continues to flow for years into misbegotten projects. An example: Twenty-five years ago, influen tial scientists worried that the nation might run out of helium. Inert and lighter than air, helium has "space-age" properties and, at the time, scientists feared there were no substitutes. By usual standards, helium is nonrenewable. If it is not extracted when natural gas is pumped out of the ground, it disappears into the atmosphere and can be recaptured only at high cost. So, under pressure from experts and some private firms, Congress established a helium storage program. Helium would be extracted, purified, and re-injected into natural gas wells.

Congress gave the Interior Department au thority to borrow from the Treasury up to $47.5 million each year in loans to be paid back through helium sales. But very quickly the project began to show signs of trouble. The sales that had been counted on to provide funds dried up. Substi tutes were found after all. Moreover, new sources in the ground-promising enough he lium to last hundreds of years-were found, making government storage superfluous. The program became embarrassing enough for Congress to hold hearings. One con gressmen called the continual borrowing from the Treasury an "albatross around our necks" and in 1973 the Interior Department stopped adding helium. But it continues to store billions of cubic feet of helium at taxpayers' expense. It now has in storage 140 years' worth of pro cessed helium (assuming present rates of usage), and a recent count showed that it owed the Treasury $790 million!

Even so, suggestions that part of the helium stock should be auctioned off to help repay the Treasury were firmly rebuffed, year after year, by the Interior Department. Finally, in 1987, in an effort to cut the deficit, the President pro posed selling the processing facilities (while keeping the helium). Congress has yet to take any action on that plan. The helium programis only a small exampleof the failure of the government to correct its mis takes. The taxpayercontinuesto pour money into the farm program, even though it aids millionaires and increasesratherthan decreasesthe instabilityof the "family farm"; into subsidizingAmtrak, a per petual moneyloser that transports affluent cus tomers along the Northeastcorridor; into environ mentallyunsoundcuttingof timberthat can only be sold at a loss; and into the BonnevillePower Ad ministration, whose policies brought about the $2.25 billion default of the Washington Public Power Supply System and currentlycost the tax payers severalhundredmilliondollarsevery year.

Contrast these examples with the experience of the computer industry. One by one, the man agers of the computer companies recognized that their image of the future was not the way it was going to be and they adjusted their compa nies in the light of that new reality. They may still think that the future should have gone their way, but the message from investors on Wall Street got through. Government managers have little incentive to recognize reality. The taxpayers, not the managers, pay the losses, and few taxpayers re alize they are doing so. Even when the losses become so visible that politicians can attract media attention by exposing them, the projects survive in less obvious form for decades. Un like mistakes in the private sector, government errors haunt us generation after generation. 0 359 A REVIEWER'S NOTEBOOK The Silk Road by John Chamberlain I f there is one big lesson to be derived from Irene M. Franck's and David M. Brown stone's The Silk Road: A History (New York: Facts on File Publications, 294 pp., $24.95), it is that people will trade with each other despite all the man-made and nature made difficulties in the world.