From Technology Politics to Technology Policy
The nation needs--and can have--a multifaceted bipartisan policy to promote innovation.
One of the most contentious issues in the 1995-96 congressional session was the Clinton administration's technology policy priorities and programs. Although one might expect Republicans to support efforts aimed at improving the performance of U.S. companies, many conservatives opposed these programs as "corporate welfare," called for the abolition of the Commerce Department's Technology Administration (and the department itself ), and criticized many of the administration's high-profile R&D partnerships with the private sector.
The vehemence of the attacks came as a surprise to many observers. The evolution of a bipartisan policy for U.S. science and technology (S&T) that seemed to be emerging by the end of the Bush administration had collapsed. President Bush had endorsed federal cost-shared investments in private firms to create "precompetitive, generic" technology in his technology policy declaration of September 1990 and had sought modest increases in funding for the Commerce Department's Advanced Technology Program (ATP), which he had signed into law. When President Clinton took office in 1993, he called for big boost in ATP funding, plus federal cost-sharing with the private sector in programs such as the Partnership for a New Generation of Vehicles, the Defense Department's Technology Reinvestment Program (TRP), and later the Environmental Technology Initiative. Most of these programs were designed to help agencies achieve their specific missions, but the ATP had as its sole purpose the strengthening of U.S. high-technology industry, and the TRP had the mixed objective of smoothing defense conversion and increasing defense use of commercial technologies. ATP was the flagship of the Clinton technology policy, but by 1994 it had become a lightning rod for Republican conservatives.
When their party gained control of Congress in the 1994 elections, many Republicans became more outspoken in their opposition to the Democrats' agenda. They demanded a halt to ATP and to many other technology programs such as TRP. Some called for nothing less than a return to the 1960s, when military R&D dominated government spending and the private sector was expected to exploit the spinoffs that trickle down from defense research and academic basic science.
Fortunately, the most strident voices did not prevail. To reverse course to that extent would have had disastrous consequences for the United States. Commercial technology, driven by bigger and more competitive markets, has outstripped defense industry in many areas. With declining defense budgets, neither a captive defense industry for the military nor reliance on spinoffs for commercial economy is a credible strategy. The nation needed to find a new way to promote technology innovation.
The Clinton administration continued to focus on R&D spending as the primary instrument of technology policy. It began an effort to shift the emphasis from military to civilian technology by promising to move from a federal R&D budget that was 60 percent military and 40 percent civilian to one that was evenly split. Progress has been made in this direction primarily through reductions in defense spending. Although the spending shift is a step in the right direction, the administration has failed to link this action to a comprehensive innovation-based economic policy.
The need for a consensus policy for S&T can be seen in the extraordinary changes that have swept over private industry all around the world. New patterns of innovative activity and new multifirm industrial structures are emerging. Many of the largest firms have cut back on corporate research and are outsourcing more and more of the components that go into their final products. As a result, the focus of innovation is shifting from the multinationals, with their university-like central laboratories, to the dozens of hungry firms in their supply chains. This is unleashing a wave of opportunity for creativity and entrepreneurship in the smaller, technically specialized firms, but their sights are set on relatively short time horizons. Thus, just at the time when the new U.S. economy is in a position to take advantage of new technology, the big corporate laboratories that provide private support for basic S&T research are cutting back their internal spending and are oursourcing more of their innovation.
Furthermore, large firms seeking collaborative innovation from their supply chains are not confining their search to U.S. suppliers. If the United States should fade as a leader in technological creativity just at the time that Japan, Korea, and China are dramatically accelerating their public investments in S&T infrastructure, the big companies will simply look abroad for those innovative suppliers. Today the United States is still an attractive place for small-firm innovation. But in the longer term, it is essential for U.S. policymakers to take a global view of the innovation process and seek to maintain the United States in its position as the most attractive location for innovation and advanced research. This requires renewal of the basic technological research on which innovation rests and an acceleration of the rate of adoption of new technology by all firms, small and large.
While all this change is sweeping over the private sector, U.S. government policies are mired in controversy that cannot break free of 40 years of Cold War policy. I wish that I could say that the light at the end of the tunnel is visible, but for now the best news is that there is light at the beginning of the tunnel. A new spirit of bipartisanship seems to have gripped the president and Congress. They now have a unique opportunity to set a new course that could endure for at least a decade and make a huge contribution to U.S. capability and well-being. Unfortunately, the first round of proposals for bipartisan action does not include technology policy. Perhaps the politicians believe that this policy potato is still too hot, too surrounded by ideological passions on both sides. That view seems defeatist; a window of opportunity may in fact be at hand.
Moving through the tunnel
The principles to guide government's role in helping the nation innovate are easy to understand and entirely acceptable to most Americans: Government should try to help U.S. firms respond to the competitive challenge of a fast-changing global marketplace and should be able to do it without meddling in domestic markets or favoring selected competitors.
Why be optimistic? First, because despite concerns about government distortions of a free market and the necessity to cut the discretionary budget, almost everyone in Congress believes U.S. ingenuity and research have made our nation strong and prosperous. The Republicans' first-day legislative package for the current congressional session included a widely praised, if unexpected, authorization bill introduced by Sen. Phil Gramm (R-Tex.) that would double government investment in nondefense basic scientific and medical research over the the next decade, implying an annual growth rate of about 7 percent. What a dramatic change from the 1996 projections by both the president and Congress that federal nonmilitary R&D might have to shrink by as much as 20 to 30 percent in the outer years of their budget-balancing plans! In a similar spirit, the blanket condemnation of all public-private R&D partnerships as corporate welfare has been replaced by the plans of several congressional committees to review programs carefully in order to differentiate waste from legitimate government investment. In addition, a newly formed bipartisan Science and Technology Caucus in the Senate will provide a valuable forum for developing consensus.
Can the ideological differences of last year be so easily papered over? At heart, probably not. Both conservatives and activists may well agree on the economic principles that should determine the legitimacy of federal investment in commercially relevant research. There is wide support for government research investments where private institutions underinvest because they cannot capture the benefits but the returns to society as a whole might far exceed the public cost. This, after all, is the rationale for public support of basic research, where the benefits are widely diffused. Deeply held differences arise, however, over the competence of federal agencies to manage such investments and over their ability to resist the temptation to distort the selection of private partners for political ends. Even the most ardent interventionist will admit that some federal technology programs are much better managed than others, and earmarking and pork-barrel spending by Congress and the administration prove that the temptation is often irresistible among elected officials.
Although the differences are real, the actual source of much of the conflict is rooted in misconceptions about the way innovations come about and how firms access, use, and share with others the research government pays for. Much of the problem is rooted in confusion about the language used in the debate. Some conservatives feel comfortable supporting basic research in universities and national laboratories while rejecting all other categories of work such as applied research or development (except for health and defense), especially when the work is to be performed in industry.
What is basic research?
We all know that some basic research is highly abstract and speculative, far from any kind of practical application or economic value. No one is going to commercialize theories about black holes any time soon. But must basic research be useless to qualify as basic? Surely that would be an absurdity. Basic research is best thought of as research to create knowledge that expands human opportunities and understanding. It may be a new scientific observation that raises new questions. It may lead to understanding that suggests a technological possibility or informs a choice among alternative technologies. Or it may be the discovery of a new material, the understanding of a new process, or the creation of an idea leading to a new kind of instrument. Thus, basic research may lead to scientific or technological progress, or both.
"Basic technology research" should be understood as the complement to basic scientific research and should receive bipartisan support for the same reasons. The problem is mislabeling. Much of the basic and exploratory research funded by the Departments of Defense and Energy and by the National Aeronautics and Space Administration is of this character but is misnamed applied research in government statistics.
Is applied research actually "demonstrably useful basic research?" Is it called applied simply because besides being a creative addition to human knowledge, it also is useful for solving environmental or health problems, or is likely to be commercialized and thus create economic value? Or is applied research merely a narrowly defined task in which limited time and resources are devoted to a specific problem for an identified user who gets all the benefit and should pay all the costs? Both uses are common, but the first definition reflects high public returns, whereas the second delivers benefits primarily to the sponsor of the work. Thus, this ambiguity in meaning has rendered the phrase applied research almost valueless in policy discussions. For this reason I prefer the term "basic technology research," which highlights the similarity to basic scientific research and the understanding that both are of broad value to society.
When the political debate divides the world of R&D into basic scientific research on the one side and lumps everything else-from basic technology research to product development-together on the other side, we lose sight of a huge and vitally important area in between: the world of need-driven creative research into new kinds of materials, new processes or ways of exploring and measuring, and new ways of doing and making things.
Former Rep. Robert Walker (R-Penn.), who chaired the House Science Committee, repeatedly insisted that although he opposed the ATP program, he supported academic science. Those who fail to recognize the importance of the grey area between science and commercial development may make the facile and erroneous assumption that if the work is not basic science, it must be commercial development and therefore the government has no business investing in it. Much of the congressional attack on the ATP program seems to take this line. This same simplistic thinking is sometimes echoed by academic scientists who are fearful that expanded basic technology research will be at the expense of their science. It need not and should not be. The criteria for investing in basic technology research, like that for investment in science, must be originality, intellectual rigor, and practical value. And, again like science, if technology research is to be creative, it must not be micromanaged by government.
If the consensus behind federal support of basic scientific research is extended to basic technological research, and it is understood that the federal government subsidizes development of products and services only when these outputs are required to fulfill federal missions (such as defense, health, and environment), then it should be relatively easy to come to a general understanding about federal support for basic research that is relevant to commercial as well as public purposes.
What is "corporate welfare"?
The engine of U.S. innovation and productivity growth is the private sector; the fuel is private investment. The primary federal role should be to foster an economic climate that favors private investment in R&D and promotes the effective and innovative use and absorption of technology by firms, while ensuring a vital and productive infrastructure of people, ideas, and institutions to draw upon. When government looks to private firms to address public needs through cost-shared partnerships, it should work with market forces rather than compete with them. Government and commercial firms have a common interest in advancing technological frontiers. The idea of pursuing technology of value to commercial as well as government markets is now beginning to work in the military, where it is referred to as dual-use technology, and the same principle can be used to meet environmental and other public goals.
Where market forces provide sufficient incentive, no government funding of firms is needed. In this situation, the government should look to indirect policies to encourage private innovation. When the public interest requires more aggressive investment than the market justifies, tax or regulatory incentives or cost-shared public-private partnerships may be appropriate.
If one is persuaded that government should fund technological as well as scientific research, the next question is when, if ever, should private firms be funded to perform the work. Here policymakers confront a dilemma. If one is to avoid politically sensitive choices of "winners" among competing firms, the safe way out is to fund research only in government laboratories, universities, and other not-for-profit institutions. But avoiding this Scylla of choice delivers one to the Charybdis of needlessly isolating the research from its ultimate users in private industry.
The common sense criterion for who should be the performer of government-funded research is simply this: The performing institution that is best qualified to do the work should be selected, taking into account the ease with which the results can find their way to users who can benefit from it. The most effective mechanism to foster commercialization of new ideas is to have the ideas arise inside industry itself. Universities are also effective diffusers of technical knowledge through their graduates who take jobs in industry. National laboratories seek to transfer knowledge through Cooperative Research and Development Agreements.
Another strategy that can help in the politically sensitive area of performer selection is to turn to the states. Congressional nervousness about government expenditures on research to support economic development is not shared by most state governments. Many states have active programs of investment in innovation-based economic development, a fact that federal policymakers have yet to fully exploit. The ATP program might be substantially strengthened if the states played a more active role in the creation and even funding of participating industrial consortia.
The third strategy is for the government's civilian technology programs to work with consortia, preferably comprising highly innovative, small-to-medium-sized firms, rather than selecting single firms as government partners. This may accelerate information diffusion and decrease the likelihood of anticompetitive effects.
A large number of people have committed themselves to creating the intellectual framework that will make it possible to develop a consensus technology policy. The Competitiveness Policy Council (CPC), a bipartisan, legislatively mandated organization that was established to provide advice to the president and Congress on policies to enhance U.S. industrial strength, in cooperation with Harvard University's Science, Technology, and Public Policy program, sponsored a national study project to help craft a broadly acceptable approach to technology policy. An early product of the project is a set of six principles that can form a foundation on which to build specific policies.
- Encourage private innovation. Leverage private investment in innovation to spur economic growth, improve living standards, and accomplish important government missions by creating incentives for and reducing barriers to technology development and research-based innovation. State and federal government should create the knowledge and education infrastructure on which the private sector draws.
- Emphasize basic technology research. Focus government direct investment in S&T for economic purposes on long-range, broadly useful research in basic technology as well as basic science, both of which produce benefits far in excess of what the private sector can capture for itself. In research, the useful is not the enemy of the good.
- Make better use of available technology. Promote effective use and absorption of technology across the economic spectrum, with special attention to the role of higher education and the states in technology diffusion.
- Use all policy tools, not just R&D support. Take advantage of tax incentives, regulatory reform, standards, intellectual property rights, and other government policies, recognizing that different industries, technologies, and regions may call for different mixes of these policy tools.
- Leverage the globalization of innovation. Encourage U.S.-led innovation abroad as well as at home, and enable U.S. firms to get maximum benefit from worldwide sources of technological knowledge.
- Improve government effectiveness. Make government-state and federal-a stable and reliable partner in a long-range national research effort through more effective institutions for policy development, strong and stable bipartisan support, and stronger participation by the states in policy formulation and execution.
To make a practical difference, these principles must be incorporated into specific programs and policies. The political process will determine exactly how consensus on the principles will be carried through in practice, but here is a brief overview of the project steering committee's vision of what following these principles would mean for particular agencies and programs.
National Science Foundation. As companies cut back on their long-term, basic technological research to pursue more immediate goals, it is imperative that the federal government step in to fill the void. The National Science Foundation (NSF) has already taken some steps in this direction by sponsoring the Engineering Research Centers and supporting computer networking. The federal budget should include additional funding for NSF to devote to research leading to new and promising basic technological knowledge and capabilities.
National Institute for Standards and Technology. The agency's ATP effort should stress basic technology in its award choices and should encourage participation by firms organized into consortia to foster the diffusion of resulting innovations. To avoid the charge that it is picking economic winners, ATP should delegate to individual states or regional coalitions of states the responsibility for nominating industries that are critical to their economic development goals and then pulling together a team drawn from industry, universities, labor, and state officials that would apply to ATP for support. ATP's role would be to focus on technical merit in making the awards. The states would also be expected to make post-project evaluations of the economic impact of the program.
Manufacturing Extension Partnership. By placing more emphasis on technology diffusion, including the development of a capable and competitive workforce, the U.S. economy extracts much more value from its aggregate research investment. The Commerce Department's Manufacturing Extension Partnership (MEP), in collaboration with state governments, has developed a nationwide network of 70 manufacturing extension partnerships supporting 300 field offices to promote the diffusion of industrial technology. This effort should be further leveraged by incorporating work force training and other activities that promote diffusion of these skills. Federal support for MEP is scheduled to decline to zero in the near future, but it would be better to continue providing a core of federal support for networking among the centers.
Environmental Protection Agency and the Department of Energy. Many industries have the potential to develop process technologies that would reduce polluting effluent as well as enhance productivity. The government could bring an imaginative and flexible approach to pollution abatement in industries that commit to a partnership program to explore science-based process innovations with environmental promise. EPA's Environmental Technology Initiative program was a move in this direction, but the results were disappointing-largely because EPA is a regulatory agency with no experience in this area. A better approach would be to have DOE, which has much greater experience in S&T project management and a large R&D budget, manage the carrots and to have EPA manages the sticks in a well-coordinated program to induce private commitment to pollution reduction through process change.
Partnership for a New Generation of Vehicles. When PNGV began in 1993, the government's primary partners were the Big Three auto companies. The administration has since wisely shifted its emphasis toward the technologically specialized and innovative first-tier suppliers in order to accelerate the development of more aggressive technology options, together with the array of complementary assets needed to make the transition to the new technology. With a focus on basic technology, public-private partnerships such as PNGV should look to the most qualified institutions-consortia of firms, universities, or government-funded labs-to do the work, provided that they can offer the linkages with industry to encourage diffusion of the benefits.
Small Business Innovation Research. SBIR requires all agencies to reserve a percentage of their R&D purchases for small business. Now that Congress had doubled this percentage, the program will direct more than $1 billion a year to small companies. Because the agencies fund not only research but commercialization as well, SBIR should follow a dual-use strategy, in which technological goals are demonstrably related to the agency's main mission as well as having possible broad application. NSF, for example, should focus its SBIR program on technologies such as instruments, new materials, sensors, platforms and systems for data acquisition, and information technology that will enhance the nation's S&T research capacity.
National Information Infrastructure. The fourth principle recognizes that every industry and region is different, and federal agencies must be sensitive to these differences when choosing policy tools. Especially important is the need to emphasize the use of tools other than direct spending and to use them in a coordinated fashion. The National Information Infrastructure Task Force, which is characterized by decentralized authority, the participation of a variety of governmental and nongovernmental actors, and the use of a variety of policy tools, clearly called for this integrated policy approach. With the maturing of the Internet, policy leadership in this area should be placed in an Information Technology Policy Council in the Executive Office of the President. President Clinton's new executive order creating an Advisory Committee on High-Performance Computing and Communications, Information Technology, and the Next Generation Internet (a very long name for a body very short on authority) can be a fruitful step in this direction if there is a strong mechanism for implementing its advice.
The research and experimentation tax credit. Having limped along without permanent authorization for years, the research and experimentation tax credit is a blunt and expensive instrument that is now a tired idea politically. It offers the same tax benefit to every industry and region, regardless of need or effectiveness in stimulating innovation. If the tax credit is to be continued, it should be more narrowly targeted and given a long enough life to be effective. Industries that increase their R&D spending more strongly for every dollar of tax reduction should be favored over industries that respond weakly to the tax credit incentive. In no case should an industry receive a tax credit where the increase in R&D spending is less than the loss to the government of tax revenue.
Foreign and trade policy. The fifth principle proclaims that the United States must learn to cooperate as well as compete. How well it serves U.S. interests must remain the fundamental test of any policy, but policymakers should recognize that investments in transnational collaboration and international cooperation in the development of technology can result in impressive benefits to U.S. citizens. The United States should aim for an international investment code, such as that being developed by the Organization for Economic Cooperation and Development, that allows foreign-owned R&D establishments located in the United States to participate in domestic technology programs, such as public-private partnerships, provided that foreign subsidiaries of U.S. firms enjoyed equivalent access to foreign technology-development programs.
The states. Many state governments have taken the lead in exploring ways government can leverage modest investments to encourage the creation of new firms and the health of research-based industries. The U.S. Innovation Partnership (USIP), a new mechanism announced by Vice President Gore in February, which invites state government input to federal technology policy at the White House level, could be a vital tool for enhancing state and local support for and engagement in technology policy. The 50 states have different needs and different approaches to collaboration with federal agencies. If the federal agencies are to get the support of state government for their economic and technological development activities, they must realize the futility of "one size fits all" technology policy.
Executive Office of the President. The president should ensure that the National Economic Council (NEC) incorporates the role of technology and innovation policy into its economic strategy. The NEC should work with the U.S. Trade Representative, the Office of Science and Technology Policy, and the Technology Administration in the Department of Commerce, as well as with state governments through the USIPand the private sector to develop technology policies that are required to reach national economic goals.
Department of Commerce Technology Administration. Although the implementation of technology policy and the initiative for new policy ideas should be decentralized, federal and state governments must understand the views of industry and gather information on U.S. industry performance and needs. At the federal level, this responsibility should be placed in the Technology Administration at the Department of Commerce. The Secretary of Commerce should appoint an Innovation and Technology Advisory Board (ITAB), composed of entrepreneurs, innovators, and experts on innovation incentives. Like the Commerce Technology Advisory Board in the 1960s and 1970s, such a board could be the focal point for building the appropriate relationships between private innovators and federal policy.
Americans cannot assume that the scientific and technical achievements of the past, so effective in winning the Cold War, will be sufficient to sustain rising living standards in the future. High tech was once a description of particular industries such as computers, biotechnology, and aircraft. Today, high tech is a style of work applicable to every business, however unsophisticated its products may appear. It simply means using all the skill, imagination, and knowledge that can make products and services more effective and productive. Thus, technology policy must be user-centered; in other words, demand-based in contrast to a supply-side approach that starts and ends with the funding of R&D.
If using the full range of available policy tools and working in collaboration with state governments enables the federal government to help firms become more innovative, the private sector will not only increase its own investment in technology but will express its demand for expanded federal investment in research and education. That expressed appreciation for the value of public investments in research would then create the conditions for a business-based political constituency in both parties to sustain a farsighted technology policy.
Building a bipartisan consensus for technology policy requires a recognition that science and technology are deeply intertwined and often indistinguishable, whereas research and development are quite distinct activities calling for different institutional settings and different expectations from their sponsors. The government's sphere is research, education, and the building of a knowledge-based infrastructure; industry's sphere is development, production, and delivery of user benefits. If the sharing of costs in public-private partnerships reflects the relative expectations for public and private benefits, if the participating firms are encouraged to share the fruits of the government's investment (but not necessarily of their own), and if the government uses rigorously professional and fair merit review as the basis for performer selection, the use of public-private partnerships can join research universities and national laboratories as a powerful institutional mechanism for innovation.
This new way of working with the private sector puts heavy demands on government officials. It was easy to run a technology policy when government decided what research was needed, agreed to pay for it, and picked the people to do it. Now government must work more by indirection and must understand the way the new economy works, sector by sector, much more profoundly. If it succeeds, the public and the business community can build their confidence in a new way for government to relate to the institutions and people in our society. This will be liberating for innovation, just as it is liberating for personal freedom.
Lewis M. Branscomb, ed., Empowering Technology: Implementing a U.S. Strategy. Cambridge, Mass: MIT Press, 1993.
Bill Clinton and Al Gore, Technology for America's Economic Growth, A New Direction to Build Economic Strength. Washington, D.C.: White House, 1993.
NSTC Committee on Civilian Industrial Technology, Technology in the National Interest. Washington, D.C., 1996.
Lewis M. Branscomb is Aetna Professor in Public Policy and Corporate Management, emeritus, at Harvard University and chair of the Harvard Technology Policy Assessment Project.