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Page 1 Foreword The National Institute of Standards and Technology (NIST) asked the National Research Council's (NRC) Board on Science, Technology, and Economic Policy (STEP) to review the operations of the Advanced Technology Program (ATP) to ascertain if the program is achieving its legislated objectives and to recommend potential improvements in its operations. 1 The ATP is a program administered by the Department of Commerce's National Institute of Standards and Technology to provide cost-shared funding to industry to accelerate the development and broad dissemination of challenging, high-risk technologies that promise broad-based economic benefits for the nation. 2 The program seeks to support emerging and enabling technologies facing technical challenges, which, if overcome, would contribute to the future development of new and substantially improved products, industrial processes, and services in diverse areas of application; 1 In Senate Report 105-235, the Advanced Technology Program was directed to arrange for a well-regarded organization with significant business and economic experience to conduct a comprehensive assessment of the ATP, analyzing how well the program has performed against the goals established in its authorizing statute, the Omnibus Trade and Competitiveness Act of 1988. In January 1999 NIST requested that the Board on Science, Technology, and Economic Policy conduct this assessment as part of its broader review of Government-Industry Partnerships for the Development of New Technologies (described in the Preface). 2 The ATP was established in 1990 under the Omnibus Trade and Competitiveness Act of 1988 (P. L. 100-418), as amended by the American Technology Preeminence Act of 1991 (P. L. 102-245).
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Page 2 technologies whose development often involves complex “systems” problems requiring a collaborative effort by multiple organizations; technologies that, because of their risk, or because firms are unable to fully capture their benefits, are unlikely to be developed by individual firms, or may proceed too slowly to compete in rapidly changing world markets without the impetus of an ATP award. 3 The ATP provides a leading role for industry, balanced by government and outside expert review. Companies conceive, propose, co-fund, and execute all of the projects. The ATP role is to identify the most promising projects that require outside support and contribute to their development on a cost-shared basis. This review of the ATP is being conducted under the auspices of the STEP Board's broader study of Government-Industry Partnerships for the Development of New Technologies, a study designed to review and address the policy issues associated with public-private collaboration to bring new technologies to the market. It is widely recognized that new technologies make an important contribution to economic growth while enhancing the capacity of the government to perform major national missions in areas such as defense, the environment, and health. The NRC analysis in this report constitutes the second phase of the review carried out under the Government-Industry Partnerships study. The first phase report summarized a workshop designed to lay out the goals of the ATP, its method of operation and evolution, the views of the program's critics, and the experiences of its users, that is, the winners of its competitive awards. This second report includes five chapters in addition to the Executive Summary which follows. Chapter I, the Preface , provides background information and describes the Partnerships project and the goals of this study. Chapter II, the Introduction, places the ATP in the context of U.S. technology policy and summarizes the symposium and the commissioned papers. Chapter III provides the Committee's findings and recommendations concerning the performance and operation of the program. Chapter IV provides a detailed summary of the proceedings from the most recent National Research Council conference on the Advanced Technology Program, which includes the perspective of administrators, company participants, and analysts of the program. Chapter V includes six independent analyses illustrative of the ATP assessment program as well as a description of the current selection process by NIST officials. 3 The ATP funds technical research but not product development.
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Page 3 Executive Summary BACKGROUND In response to a Senate mandate, the National Institute of Standards and Technology (NIST) asked the National Research Council (NRC) to review the performance of the Advanced Technology Program (ATP) in light of its legislated goals and to make recommendations for improvements, where appropriate, in the operations of the program. This task was addressed by a committee previously formed under the direction of the National Academies' Board on Science, Technology, and Economic Policy (STEP) to carry out an assessment of governmentindustry partnerships. The Committee responsible for this analysis was not charged with a review of questions of principle with regard to the desirability of government-industry cooperation. Recognizing that partnerships are an integral part of the U.S. innovation system, the Committee has taken a pragmatic approach focusing its work on the operation and assessment of government-industry partnerships. 1 Government-industry cooperation to achieve national goals has played a key role in U.S. economic development. 2 Continued U.S. leadership in technological 1 The scope of the Committee's work is described in the Preface. 2 See the overview of the history of government-industry collaboration in the Preface of this volume. As discussed in the Introduction, the U.S. government has played a significant and supportive role in advancing technological progress in industries ranging from aircraft and biomedicine to information technology and the Internet. The ATP is a public-private partnership to develop new technologies with broad applications. The program makes competitive awards on a cost-share basis to individual companies and larger awards to joint ventures.
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Page 4progress is essential for the long-term growth of the domestic economy at a rising standard of living. 3 Substantial domestic U.S. investment in research and development—both public and private—is the prerequisite for sustaining U.S. economic growth in a global economy. 4 A leading role for the United States in the development and commercialization of new technologies is essential to the continued competitive success of U.S. industry in global markets. Governments around the world have recognized the importance of new technologies to their economies and have encouraged public-private partnerships to develop and anchor them within their national economies. The long-term goal of these programs is to achieve greater productivity growth through the creation of knowledge that can be applied to industrial processes, products, and services. 5 The logic behind government funding of certain types of R&D activities is that government awards provide incentives to firms to undertake high-risk R&D projects with substantial potential benefits for the economy as a whole. 6 In the middle of the 1980s the United States began focusing more attention on cost-shared partnerships as a means of developing new technologies. As noted in the Introduction, the Committee's assessment of the Advanced Technology Program is contributing to the Committee's review of governmentindustry partnerships programs in the United States and abroad. This assessment of the ATP should thus be understood as one element of the Committee's multi-year study of a wide variety of partnerships. Carrying out this analysis of the ATP 3 See Michael Borrus and Jay Stowsky, “Technology Policy and Economic Growth,” in Lewis Branscomb and James Keller, editors, Investing in Innovation: Creating a Research and Innovation Policy, Cambridge, MA: MIT Press, 1998. The contribution of technology to economic growth is now well recognized. See P. Romer, “Endogenous Technological Change,” Journal of Political Economy, 98(5):71-102, 1990. See also G. Grossman and E. Helpman, Innovation and Growth in the Global Economy, Cambridge, MA: MIT Press, 1993. 4 Romer, “Endogenous Technological Change,” op. cit.; Borrus and Stowsky, “Technology Policy and Economic Growth,” op. cit. See also National Research Council, Allocating Federal Funds for Science and Technology, Washington, D.C.: National Academy Press, 1995. The report notes that federal investments in R&D have produced enormous benefits for the nation's economy, national defense, health, and social well-being. Ibid, p. 3. 5 See the paper by Maryann P. Feldman and Maryellen R. Kelley, “ Leveraging Research and Development: The Impact of the Advanced Technology Program,” in this volume. 6 As noted by Feldman and Kelley in this volume, “The logic for public investment is that, in the long run, the economic benefits to consumers, other firms and the larger national economy will exceed the private returns realized by the firm that received the research award, and thus justify the public investment.” Ibid. The rationale for government funding of certain types of R&D activities, as articulated by Zvi Griliches, is that this funding encourages firms to undertake R&D projects in which the public rate of return exceeds the private rate of return. This includes, for example, the case in which an industry as a whole may benefit from the development of an enabling technology. Private firms typically use some predetermined benchmark rate of return known as a hurdle rate. The project will only be acceptable if the expected rate of return is above that benchmark. By reducing the cost of the project, government funding will increase the expected rate of return and may make private companies willing to pursue them. See Z. Griliches, “The Search for R&D Spillovers,” Scandinavian Journal of Economics, 94(Supplement):29-47.
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Page 5has informed the Committee's deliberations and allowed for comparative points of view on a range of partnership activities. As part of this assessment, the Committee organized two major symposia and a workshop to review the program's operation and also drew on the substantial body of independent analysis of the program. The initial symposium provided an overview of the program in terms of its goals, operations, assessment, achievements, and challenges while providing an opportunity for critics to voice their views. The symposium summarized in this volume focused on possible improvements to the program, findings from the ATP assessment effort, issues such as “crowding out” and the relationship of the ATP to venture capital, the roles and needs of large companies in such a program, and feedback from users, some of whom have received other types of awards. The collection of papers included in this volume provide insights into the operation and impact of the ATP and are illustrative of the substantial program of external and internal research it has under way. The meetings and research are of course complemented by the exceptional expertise of the Committee responsible for the NRC review of government-industry partnerships. 7 Keeping in mind the limitations and advantages of the Committee's analysis, the core findings and recommendations of the study are listed below. CORE FINDINGS AND RECOMMENDATIONS 8 1. The Committee finds that the Advanced Technology Program is an effective federal partnership program. The selection criteria applied by the program enable it to meet broad national needs and help ensure that the benefits of successful awards extend across firms and industries. Its cost-shared, industry-driven approach to funding promising new technological opportunities has shown considerable success in advancing technologies that can contribute to important societal goals such as improved health diagnostics (e.g., breast cancer detection), developing tools to exploit the human genome (e.g., colon cancer protection), and improving the efficiency and competitiveness of U.S. manufacturing. 9 7 The members of the Committee are listed in the front matter. 8 These summary findings and recommendations are elaborated and documented in Chapter III of this volume. In addition to the papers and proceedings in this volume, the Committee issued National Research Council, The Advanced Technology Program: Challenges and Opportunities, Washington, D.C.: National Academy Press, 1999. The ATP assessment program also provides extensive documentation regarding the contributions of the program. See Annex D in this volume. See also William F. Long, Advanced Technology Program: Performance of Completed Projects: Status Report Number 1, NIST Special Publication 950-1, March 1999. 9 See Section I in Chapter III of this volume. For a summary of the differentiating characteristics of the ATP, see Maryann Feldman's analysis in Section C of the Introduction and the study by Feldman and Kelley, “ Leveraging Research and Development: The Impact of the Advanced Technology Program,” both in this volume.
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Page 6 2. The program's peer review of applicants for both technical feasibility and commercial potential supports its goal of helping advance promising new technologies that are unlikely to be funded through the normal operation of the capital markets. 10 3. The program has set a high standard for assessment involving both internal and independent external review. The quality of this assessment effort lends credence to the program's evaluation of its accomplishments. 11 4. The extensive assessments of the program show that it appears to have been successful in achieving its core objective, that is, enabling or facilitating private sector R&D projects of a type, or in an area, where social returns are likely to exceed private returns to private investors. 12 , 13 10 With regard to the ATP selection process see the presentation by former ATP Director, Lura Powell, in the first volume of this study, National Research Council, The Advanced Technology Program: Challenges and Opportunities, op. cit., pp. 53-56; with regard to the role of venture capital finance and the need for a bridging mechanism, see the statement by Todd Spener of Charter Financial in the same volume, pp. 90-91, as well as the presentation by Joshua Lerner of the Harvard Business School, pp. 88-90. See also the presentation by venture capitalist David Morgenthaler in Panel I of the Proceedings of this volume and the summary of his statement in Section C of the Introduction to this volume. See also Lewis M. Branscomb and Philip E. Auerswald, Taking Technical Risks: How Innovators, Managers and Investors Manage Risk in High-Tech Innovation, Cambridge: MIT Press, 2001, Chapter 5 and passim. 11 See Section I in Chapter III of this volume and the description of the program, its current results, and the ATP assessment effort by Rosalie Ruegg and the positive review of the assessment program by Irwin Feller of Pennsylvania State University in Panel II in this volume. See also the panel discussion led by Richard Nelson of Columbia University, including the description of the ATP assessment, its early beginnings, and its focus on tools for assessing technology spillovers in National Research Council, The Advanced Technology Program: Challenges and Opportunities, op. cit., pp. 71-80. 12 See, for example, the paper by Maryann Feldman and Maryellen Kelley, “ Leveraging Research and Development: The Impact of the Advanced Technology Program,” in this volume. The study by Albert N. Link, “ Enhanced R&D Efficiency in an ATP-funded Joint Venture,” documents the impact of an ATP joint venture designed to reduce the costs and timing required to develop a suite of new technologies for the U.S. printed wiring board industry. The study finds a dramatic effect on R&D efficiency, resulting in cost savings on the order of $35 million while reducing cycle times for new product and process development. The project resulted in productivity improvements for member companies, diffusion of new technology to other producers, and improved competitive positions for and retained employment at participating companies. The study by David Austin and Molly Macauley, “ Estimating Future Benefits from ATP Funding of Digital Data Storage,” estimates substantial consumer welfare gains from ATP-funded innovations in digital data storage although the final impact is dependent on the adoption of the technologies. Similarly, the paper by Tayler H. Bingham, “ Estimating Economic Benefits from ATP Funding of New Medical Technologies,” projects substantial social returns, much larger than the projects' private returns, primarily due to the projected positive spillovers to patients treated with new technologies. These technologies focus on the diagnosis and treatment of cancer; the treatment of diabetes, damaged ligaments and tendons; and the transplanting of xenogenic organs. The overview of the progress of ATP awards by Rosalie Ruegg, “ Taking a Step Back: An Early Results Overview of Fifty ATP Awards,” documents both commercialization progress and
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Page 7 5. The Committee does recommend a series of operational improvements designed to make this program more effective and suggests several measures designed to bring the benefits of the ATP to other national initiatives and to state technology programs through enhanced cooperation. 14 knowledge creation and dissemination. The latter is documented through outside recognition of the project's technical accomplishments, patents filed and granted, patent-tree citations, collaborative relationships, and knowledge disseminated through new products and processes. Ruegg records substantial evidence that benefits are extending well beyond those captured by award recipients. The papers cited above are included in this volume. 13 For an excellent review of the factors affecting the generation and impact of social returns or spillovers, see Adam B. Jaffe, Economic Analysis of Research Spillovers: Implications for the Advanced Technology Program, NIST GCR 97-708, December 1996. For additional ATP-supported research on social benefits, see Edwin Mansfield, Estimating Social and Private Returns from Innovations Based on the Advanced Technology Program: Problems and Opportunities, NIST GCR 99-780, January 1996; William F. Long, Performance of Completed Projects, Status Report Number 1, op. cit.; Wesley M. Cohen and John Walsh, R&D Spillovers, Appropriability, and R&D Intensity: A Survey-Based Approach, Gaithersburg, MD: National Institute of Standards and Technology, Forthcoming; and Michael S. Fogarty, Amit K. Sinha, and Adam B. Jaffe, ATP and the US Innovation System: A Methodology for Identifying Enabling R&D Spillover Networks with Application to Microelectro-mechanical Systems (MEMS) and Optical Recording, Gaithersburg, MD: National Institute of Standards and Technology, Forthcoming. 14 See Section II and Section III in Chapter III of this volume.
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