Research & Technology
What's Next for Technology Policy??
By the summer of 1991, there was no doubt that the Cold War was over and the United States was unchallenged militarily. But the nation's commercial high-tech industry was still facing a decade-old struggle to compete with innovative Japanese products of superior quality, lower cost, and faster time to market. How would the U.S. government respond? Would the shift from Cold War to hot competition lead to a national industrial policy that would enable the nation to secure the benefits of science?
In 1988, President Reagan had signed the Omnibus Trade and Competitiveness Act, which contained a radical change in public policy: the Advanced Technology Program (ATP), intended to promote high-tech commercial competitiveness. Managed by the Commerce Department's National Institute for Standards and Technology, ATP was designed to reduce the risk of private investment in innovations with great commercial promise by supporting cost-shared early-stage R&D projects. The first President Bush had permitted ATP to be funded at modest levels, and he had publicly endorsed the program's intent in half a dozen speeches, primarily on the advice of his science adviser, physicist D. Allan Bromley. After 14 months of adroit maneuvering by Bromley and his staff, the White House in 1990 issued a formal policy statement entitled "The U.S. Technology Policy," which proposed tripling the budget for ATP.
Some observers said that the most remarkable part of this statement was its title, which suggested that the White House actually acknowledged the legitimacy of technology policy. During the Cold War, government proposals for federal technical activities in the civil sector were constrained to R&D. As I wrote at the time, Bromley's success "in substituting a policy based on investment in technology for one that emphasizes only investment in R&D is a more significant change than many people recognize."
New directions for research
The difference between R&D and the creation of technology was, perhaps, too subtle for most politicians to grasp. But it had not escaped the sharp minds of either Bromley or Sen. Jeff Bingaman (D-N.M.). Technology is a capability to employ the fruits of research in the creation of innovations. New technology requires not only research knowledge but also the skill and experience to use it, the production and test facilities to create it, and the management and organization that together represent technological capability. Although familiar in defense contracting, technology creation in the civil sector would take government agencies far beyond the support of research for the sake of new knowledge.
Bingaman had insisted in 1989 that the Office of Science and Technology Policy generate for Congress a list of "critical technologies" deserving of federal investment. What started out as an attempt to build a capability-based investment strategy for defense morphed into a way to identify the key technical capabilities required for commercial high-tech competitiveness.
The passion for identifying critical technologies faded somewhat in subsequent years, but its legacy has endured. The National Science Foundation now rewards grantees working in the area of nanotechnology not only for discovering new scientific principles but also for creating prototypes of devices that may have significant commercial applications. Government policy also accepts, at least implicitly, the use of public-private partnerships as a preferred mechanism for technology creation. The government has become more comfortable with investment in research, and even in technology, to accelerate economic growth.
Conservative objections to government programs such as ATP have not disappeared, of course. President Bush announced, on assuming office in 2001, his intent to close down the program pending a Commerce Department review. Deputy Secretary of Commerce Sam Bodman (a former chief executive officer of Cabot Corporation) made the review and concluded that ATP had merit and needed only modest changes. Notwithstanding this positive evaluation, the administration proposed terminating the program in its fiscal year 2004 budget.
Conservatives object to ATP because specific firms may benefit from the program, raising the fear of either political patronage or market distortion from subsidized commercial R&D. But they are more comfortable with the idea of federal investments in technological infrastructure, such as the high-speed Internet or the Human Genome Project, and even with investments in some more speculative ideas, such as hydrogen fuel to replace fossil fuel for powering cars and trucks. Thus, the concept of a demand-side policy for new technology has gained a considerable degree of acceptance.
Indeed, the federal government no longer relies on hoped-for spinoffs from defense research to stimulate commercial competitiveness. Even basic science, which is entitled to a supply-side justification for public investment, is now frequently coupled to specific public goals, such as finding ways to prevent cancer or heart disease. Sponsoring agencies seem to have learned how a practical, even urgent, public need, such as medical progress or understanding climate change, can best be pursued through highly creative efforts in basic scientific understanding--a policy that Gerald Holton, Gerhard Sonnert, and I have called Jeffersonian Science.
Congress has also felt the need to understand not only what outputs (in terms of papers published, patents filed, and students trained) result from federal research expenditures, but also what beneficial outcomes the research will have for society. Through the Government Performance and Results Act, Congress insists that these benefits be documented.
In 1991, the federal government had only a general sense of how commercial innovations are stimulated by research, both public and private. But by the latter part of the decade, the nation was in the midst of a creation frenzy of new high-tech companies. Suddenly, academic scientists and engineers no longer disdained entrepreneurship. Indeed, they enthusiastically embraced it. Graduating engineering students no longer sought employment at Hewlett Packard or IBM; they wanted to start their own companies. There seemed to be an inexhaustible source of venture capital and an equally inexhaustible number of investment banks ready to sponsor the public stock offerings.
The dot-com business bubble was, of course, inflated by its own irrational exuberance, as Federal Reserve Chairman Alan Greenspan called it. Astonishingly high market capitalizations of firms with no products (and thus neither sales nor profits) were fueling the creation of other companies. The bubble was not entirely without justification. Extraordinary advances in biomedical sciences led very quickly to patentable drugs and diagnostics of great promise. The low barriers to entry into the dot-com software market also helped to create many valuable new Internet-based services. None of this could have been foreseen in 1991.
Today, as an anemic economy casts off jobs, policymakers are searching for a source of renewed growth. How can government recreate the conditions for rapid and sustainable growth?
Science is still roaring ahead with dramatic progress, especially on the biomedical front, although in some sectors, such as engineering and environmental research, the administration exhibits lackluster interest at best. But venture capital expenditures are drastically down from highs in 1999 and 2000. There are still substantial amounts of private money looking for deals, yet few new high-tech firms are being launched. The problem is a serious lack of seed capital to create attractive new business opportunities. Venture capital firms invest other people's money in firms they can buy cheaply and sell dearly in five to seven years. They are not in the seed-capital business, sponsoring the transition from an invention to an innovation.
Thus, it is imperative that federal research and innovation policy address this gap between the science and technology community and the management and investment community--a gap often referred to as the Valley of Death. Philip Auerswald and I have found that high-tech entrepreneurs may struggle for 5 to 10 years before their product specifications, production process, and market definition are well enough defined to attract venture capital.
Who funds this transition from invention to innovation? Our research points to the critical role played by "angel" investors: technical entrepreneurs who invest the fruits of their own success in new ventures, providing them not only seed capital but also access to the networks that are essential for new firms to succeed. Some corporations, such as Intel, also are investing seed money in smaller high-tech firms with interesting technology as an alternative to broadening the scope of their own internal corporate research. And, surprising to some people, even the modest budgets of two federal government research partnerships--ATP and the Small Business Innovation Research program--make significant seed investments in new high-risk technologies that hold prospects for yielding high rewards.
Overall, then, the most important development in federal-civil technology policy in the past dozen years has been twofold. There has been a shift toward encouraging vigor in private markets, through support of ATP and other experimental programs, as well as support for efforts to develop promising new technological infrastructures; and there has been a growth in support for mission-justified basic research, notably the astonishing growth of biomedical research committed to the diagnosis and cure of diseases.
The next challenge will center on how the nation will respond to the threat of catastrophic terrorism. Science and technology can make a vital contribution, according to studies by the National Academies and other groups. The institutional structure of a major effort in the new Department of Homeland Security is in place, but the budget is not. Nor is it clear how the agencies that traditionally have funded science and technology will collaborate with the new department. It is hoped that ironing out such matters will not wait for final settlement of a new government for Iraq--or for a new attack by al Qaeda terrorists.
Lewis M. Branscomb (firstname.lastname@example.org) is professor emeritus of public policy and corporate management at the John F. Kennedy School of Government at Harvard University.