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1
A Disturbing Mosaic1

In The World Is Flat: A Brief History of the Twenty-First Century,2 Thomas Friedman asserts that the international economic playing field is now “more level” than it has ever been.3 The causes of this “flattening” include easier access to information technology and rising technical competences abroad that have made it possible for US companies to locate call centers in India, coordinate the complex supply chains and work flows that enable manufacturing in China, and conduct “back office” service functions abroad. It is not uncommon for radiologists in India, for example, to read x-ray pictures of patients in US hospitals. Architects in the United States have their drawings made in Brazil. Software is written for US firms in Bangalore. Ireland has successfully put into place a set of policies to attract companies and their research activities, as has Finland. The European Union is actively pursuing policies to enhance the innovation environment, as are Singapore, China, Japan, South Korea, Taiwan, and many other countries.

Friedman argues that, despite the dangers, a flat world is on balance a good thing—economically and geopolitically. Lower costs benefit consumers and shareholders in developed countries, and the rising middle class in

1

Major portions of this chapter were adapted from an article of the same name by Wm. A. Wulf, president of the National Academy of Engineering in the fall 2005 issue of The Bridge, a journal of the National Academies.

2

T. L. Friedman. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus, and Giroux, 2005.

3

An alternative point of view is presented in Box 1-1.



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1 A Disturbing Mosaic1 In The World Is Flat: A Brief History of the Twenty-First Century,2 Thomas Friedman asserts that the international economic playing field is now “more level” than it has ever been.3 The causes of this “flattening” include easier access to information technology and rising technical competences abroad that have made it possible for US companies to locate call centers in India, coordinate the complex supply chains and work flows that enable manufacturing in China, and conduct “back office” service func- tions abroad. It is not uncommon for radiologists in India, for example, to read x-ray pictures of patients in US hospitals. Architects in the United States have their drawings made in Brazil. Software is written for US firms in Bangalore. Ireland has successfully put into place a set of policies to attract companies and their research activities, as has Finland. The Euro- pean Union is actively pursuing policies to enhance the innovation environ- ment, as are Singapore, China, Japan, South Korea, Taiwan, and many other countries. Friedman argues that, despite the dangers, a flat world is on balance a good thing—economically and geopolitically. Lower costs benefit consum- ers and shareholders in developed countries, and the rising middle class in 1Major portions of this chapter were adapted from an article of the same name by Wm. A. Wulf, president of the National Academy of Engineering in the fall 2005 issue of The Bridge, a journal of the National Academies. 2T. L. Friedman. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus, and Giroux, 2005. 3An alternative point of view is presented in Box 1-1. 23

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24 RISING ABOVE THE GATHERING STORM BOX 1-1 Another Point of View: The World Is Not Flata Some believe that although the world is certainly a more competitive place, it is not “flat.” It is more competitive because access to knowledge is easier than ever before, but the rise of scientific competence and the apparent flight of high-technology jobs abroad is no more likely to dis- lodge the United States from its science and technology leadership than were previous challenges from the Soviet Union in the 1950s and 1960s or from Japan in the 1980s. For example, Americans are alarmed to read of the large numbers of well-educated, English-speaking young people in India vying with US workers for jobs via the Internet. In fact, only about 6% of Indian students make it to college; of those who do, only two-thirds graduate. Just a small fraction of India’s citizenry can read English; of these, a smaller fraction can speak it well enough to be understood by Americans. In China, where the numbers of engineers and other technically trained people are rising, government skepticism about the Internet and aspects of free markets is likely to hinder the advance of national power. China and India indeed have low wage structures, but the United States has many other advantages. These include a better science and technology infrastructure, stronger venture-capital markets, an ability to attract talent from around the world, and a culture of inventiveness. Com- parative advantage shifts from place to place over time and always has; the earth cannot really be flattened. The US response to competition must include proper retraining of those who are disadvantaged and adap- tive institutional and policy responses that make the best use of opportu- nities that arise. aThis box was adapted from J. Bhagwati. The World Is Not Flat. Wall Street Journal, August 4, 2005. P. A12. India and China will become consumers of those countries’ products as well as ours. That same rising middle class will have a stake in the “frictionless” flow of international commerce—and hence in stability, peace, and the rule of law. Such a desirable state, writes Friedman, will not be achieved with- out problems, and whether global flatness is good for a particular country depends on whether that country is prepared to compete on the global play- ing field, which is as rough and tumble as it is level. Friedman asks rhetorically whether his own country is proving its readi- ness by “investing in our future and preparing our children the way we need to for the race ahead.” Friedman’s answer, not surprisingly, is no.

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25 A DISTURBING MOSAIC This report addresses the possibility that our lack of preparation will reduce the ability of the United States to compete in such a world. Many underlying issues are technical; some are not. Some are “political”—not in the sense of partisan politics, but in the sense of “bringing the rest of the body politic along.” Scientists and engineers often avoid such discussions, but the stakes are too high to keep silent any longer. Friedman’s term quiet crisis, which others have called a “creeping cri- sis,” is reminiscent of the folk tale about boiling a frog. If a frog is dropped into boiling water, it will immediately jump out and survive. But a frog placed in cool water that is heated slowly until it boils won’t respond until it is too late. Our crisis is not the result of a one-dimensional change; it is more than a simple increase in water temperature. And we have no single awak- ening event, such as Sputnik. The United States is instead facing problems that are developing slowly but surely, each like a tile in a mosaic. None by itself seems sufficient to provoke action. But the collection of problems reveals a disturbing picture—a recurring pattern of abundant short-term thinking and insufficient long-term investment. Our collective reaction thus far seems to presuppose that the citizens of the United States and their children are entitled to a better quality of life than others, and that all Americans need do is circle the wagons to defend that entitlement. Such a presupposition does not reflect reality and neither recognizes the dangers nor seizes the opportunities of current circumstances. Further- more, it won’t work. In 2001, the Hart–Rudman Commission on national security, which foresaw large-scale terrorism in America and proposed the establishment of a cabinet-level Homeland Security organization before the terrorist attacks of 9/11, put the matter this way:4 The inadequacies of our system of research and education pose a greater threat to U.S. national security over the next quarter century than any potential con- ventional war that we might imagine. President George W. Bush has said “Science and technology have never been more essential to the defense of the nation and the health of our economy.”5 4US Commission on National Security. Road Map for National Security: Imperative for Change. Washington, DC: US Commission on National Security, 2001. 5Remarks by the President in a meeting with high-tech leaders, March 28, 2001.

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26 RISING ABOVE THE GATHERING STORM A letter from the leadership of the National Science Foundation to the President’s Council of Advisors on Science and Technology put the case even more bluntly:6 Civilization is on the brink of a new industrial order. The big winners in the increasingly fierce global scramble for supremacy will not be those who sim- ply make commodities faster and cheaper than the competition. They will be those who develop talent, techniques and tools so advanced that there is no competition. This chapter addresses the relevant issues in three related clusters. Later chapters examine each cluster in more detail and recommend ways to ad- dress the problems that are identified. CLUSTER 1: TILTED JOBS IN A GLOBAL ECONOMY Is the world flat, or is it tilted? Many people who once had jobs in the textile, furniture, apparel, automotive, and other manufacturing industries might be forgiven for saying that world is decidedly slanted. They watched their jobs run downhill to countries where the workforce earns far lower wages. The movement of jobs has accelerated sharply in the past 5 years, surprising many employers and employees and disrupting the lives of those who have been underbid by “hungry,” skilled job-seekers abroad. Large companies use various criteria in making a decision to relocate administrative, production, or research and development (R&D) facilities, and they often have a number of options. Some reasons cited for relocations in past studies include capitalizing on: • Foreign R&D personnel (scientists, engineers, and programmers)7 who are highly skilled and eager to work.8 • New science and technology in fresh environments.9 • Technological developments abroad.10 • Joint and cooperative research products.11 6The President’s Council of Advisors on Science and Technology. “Sustaining the Nation’s Innovation Ecosystems.” Report on Information Technology Manufacturing and Competi- tiveness, January 2004. 7D. H. Dalton, M. G. Serapio, Jr., and P. G. Yoshida. Globalizing Industrial Research and Development. Washington, DC: US Department of Commerce, Technology Administration, Office of Technology Policy, 1999. 8G. Gross. “CEOs Defend Moving Jobs Offshore at Tech Summit.” InfoWorld, October 9, 2003. 9Dalton, 1999. 10Ibid. 11Ibid.

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27 A DISTURBING MOSAIC • Proximity to offshore manufacturing.12 • Lower costs of conducting R&D, particularly labor costs.13 • Reduced labor costs associated with employing foreign workers.14 • Proximity to growing markets. • US regulation and R&D climates, including strict regulatory regimes, high risks of legal liability, and technology transfer limitations.15 • High-technology centers with skilled personnel, world-class R&D infrastructure, vibrant research cultures, government incentives, and intellectual-property protection.16 • Lower corporate tax rates and special tax incentives. • Increasingly high-quality research universities. The global forces that affect employment have swirled into the service sector, once thought secure from international competition. First, there was outsourcing, which allows employers to reassign some jobs by contracting them to specialty firms that can do the jobs better or more cheaply. At first, jobs were outsourced within the United States, but “offshoring” soon sent jobs overseas, beyond the reach of US workers. That practice has become especially controversial, and there has been an outcry for measures to pro- tect those jobs for the domestic market. In some states, legislation has been proposed to curb outsourcing through such initiatives as Opportunity Indiana, the Keep Jobs in Colorado Act, and the American Jobs Act of Wisconsin.17 Offshoring has become established, however, and it is merely one logi- cal outcome of a flatter world. Furthermore, protectionist measures have historically proved counterproductive. For several years, US companies that outsource information-technology jobs have all but ordered their contrac- tors to send some portion of the work overseas to gain hiring flexibility, cut employment costs—by 40% in some cases18—and cut overhead costs for 12B. Mehlman, Assistant Secretary for Technology Policy, US Department of Commerce. “Offshore Outsourcing and the Future of American Competitiveness.” Speech to Business Roundtable Working Group presented on July 31, 2003. Available at: http://www. technology.gov/Speeches/BPM_2003-Outsourcing.pdf. 13Dalton, 1999. 14See, for example, “High Tech in China: Is It a Threat to Silicon Valley?” Business Week online, October 28, 2002. 15B. Callan, S. Costigan, and K. Keller. Exporting U.S. High Tech: Facts and Fiction About the Globalization of Industrial R&D. New York: Council on Foreign Relations, 1997. 16Dalton, 1999. 17D. C. Sharma and M. Yamamoto. “How India is Handling International Backlash.” CNET news.com, May 6, 2004. 18The Gartner Group, an organization that analyzes the information-technology sector, esti- mates that companies can achieve cost savings of 25-30% through successful outsourcing. But Gartner also warns that offshoring could produce lower savings than estimated if backup service and other costs are not considered.

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28 RISING ABOVE THE GATHERING STORM the home company.19 Employers also hire offshore workers to gain access to better-trained workers or those with specialized skills, to move the workforce closer to manufacturing or production facilities, or to gain ac- cess to desirable markets.20 In India, US companies can hire insurance-claims processors, medical transcriptionists, accountants, engineers, computer sci- entists, and other English-speaking workers for, on average, about one-fifth the salaries those employees would earn here. Because about three-fourths of all US jobs are now in the service sector,21 millions of US employees are at risk of losing their jobs to overseas workers.22 Offshoring also could place downward pressure on wages at home.23 Fewer than a million jobs have been sent overseas so far,24 but even that number could be broadly affecting the economy as displaced workers seek jobs held by others or are forced to accept lower wages to keep their exist- ing jobs. Because offshoring of service-sector jobs is a recent phenomenon, few analysts offer predictions about its long-term effects on the US economy. The classical view of free trade, as articulated nearly two centuries ago by British economist David Ricardo, states that if a nation specializes in mak- ing a product in which it has a comparative cost advantage and if it trades with another nation for a product in which that nation has a similar cost advantage, both countries will be better off than if they had each made both products themselves.25 But does that theory hold in a world where not only goods but many services are tradable as well? Will wages merely fall world- wide as more knowledge workers enter the jobs arena? Most economists believe that Ricardo is still correct—that there will be gains for all such nations. They acknowledge that there might be a transi- tion phase in which wages for lower-skilled workers in a rich country like the United States will fall. Some say that there is, however, no reason to 19J. King. “Its Itinerary: Offshore Outsourcing Is Inevitable.” Computerworld, September 15, 2003. 20R. Hira, Rochester Institute of Technology, presentation to Committee on Science, Engi- neering, and Public Policy, Workshop on International Students and Postdoctoral Scholars, National Academies, July 2004. 21G. Colvin. “Can Americans Compete? Is America the World’s 97-lb. Weakling?” Fortune, July 25, 2005. 22Forrester Research, a technology and market research company, estimates that 3.3 million white-collar jobs could be sent offshore by 2015. Tom Pohlman. “Topic Overview, Out- sourcing, Q3 2005.” September 12, 2005. Available at: http://www.forrester.com/Research/ Document/0,7211,37613,00.html. 23R. Freeman. It’s a Flat World, After All. New York Times, April 3, 2005. Section 6, Column 1, Magazine Desk, P. 33. 24Colvin, 2005. 25“Biography of David Ricardo.” The Concise Encyclopedia of Economics. Available at: http://www.econlib.org/library/Enc/bios/Ricardo.html.

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29 A DISTURBING MOSAIC believe that wages for highly skilled workers will fall in either the short run or the long run.26 Economist Paul Romer27 argues that technological change continues to increase the demand for workers with high levels of educa- tion.28 As a result, wages for US workers with at least a college education continue to rise faster than wages for other workers. The low wages for highly skilled workers seen in such countries as China and India are not a sign that the worldwide supply of highly skilled workers is so large that worldwide wages are now falling or are about to fall, says Romer. In those economies, wages for skilled workers are low because these workers were previously cut off from the deep and rapidly growing pool of technological knowledge that existed outside their borders. As they have opened up their economies so that this knowledge can now flow in, wages for highly skilled workers have grown rapidly. With the collapse of the high-technology bubble, some highly skilled workers in the United States have experienced a fall in their wages from the values that prevailed at the peak. Moreover, at every level of education, there is wide variation in compensation and career paths. Some engineers and scientists, even now, are unemployed or underemployed, just as some physicians, MBAs, and lawyers are unemployed or underemployed. It would be a mistake, according to Romer, for public policy to limit the training of new physicians only because some of them end up with careers that are not as lucrative or rewarding as they had hoped. In the same way, public-policy decisions about the supply of scientists and engineers should not be guided by an attempt to provide a guaranteed high level of income for every recipi- ent of an advanced degree. It is also important that scientists and engineers tend, through innovation, to create new jobs not only for themselves but also for workers throughout the economy. Some economists believe that there might be a transition phase in some fields during which wages fall, but they assert that there is no reason to believe that such a dip would be permanent, because the global economic pie keeps growing.29 It has also been argued that in a period of tectonic change such as the one that the global community is now undergoing, there will inevitably be nations and individuals that are winners or losers. It is the view of this committee that the determining factors in such outcomes are the extent of a nation’s commitment to get out and compete in the global marketplace. 26Friedman, 2005, p. 227. 27E-mail communication from P. Romer to D. Stine, September 22, 2005. 28D. Autor, L. Katz, and M. Kearney. Trends in U.S. Wage Inequality: Re-Assessing the Revisionists. Working Paper 11627. Washington, DC: National Bureau of Economic Research, 2005, for a recent summary of the evidence on this point, see http://www.nber.org. 29Friedman, 2005, p. 227.

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30 RISING ABOVE THE GATHERING STORM New generations of US scientists and engineers, assisted by progressive government policies, could lead the way to US leadership in the new, flatter world—as long as US workers remain among the best educated, hardest- working, best trained, and most productive in the world. That, of course, is the challenge. CLUSTER 2: DISINVESTMENT IN THE FUTURE The most effective way for the United States to meet the challenges of a flatter world would be to draw heavily and quickly on its investments in human capital. We need people who have been prepared for the kinds of knowledge-intensive occupations in which the nation must excel. Yet the United States has for a number of decades fallen short in making the kinds of investments that will be essential in a global economy. Loss of Human Capital An educated, innovative, motivated workforce—human capital—is the most precious resource of any country in this new, flat world. Yet there is widespread concern about our K–12 science and mathematics education system, the foundation of that human capital in today’s global economy. A recent Gallup poll30 asked respondents, “Overall, how satisfied are you with the quality of education students receive in kindergarten through grade twelve in the United States today—would you say you are completely satis- fied, somewhat satisfied, somewhat dissatisfied or completely dissatisfied?” More than 50% were either “completely dissatisfied” or “somewhat dissat- isfied” with our schooling. According to the poll results, the critical re- quired change would be to produce better educated, higher-quality teach- ers.31 This committee shares that view, particularly in connection with education in science and mathematics. By far the highest leverage to be found in our education system resides with teachers, if for no other reason than that they influence such a large number of future workers. Students in the United States are not keeping up with their counterparts in other countries. In 2003 the Organisation for Economic Co-operation and Development’s (OECD’s) Programme for International Student Assess- ment32 measured the performance of 15-year-olds in 49 industrialized coun- 30Gallup poll, August 8-11, 2005, ± 3% margin of error, sample size = 1,001. As found at: http://www.gallup.com/ on September 14, 2005. 31Gallup poll, August 9-11, 2004, ± 3% margin of error, sample size = 1,017. As found at: http://www.gallup.com/ on September 14, 2005. 32Organization for Economic Co-operation and Development. “Program for International Student Assessment.” Available at: http://www.pisa.oecd.org.

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31 A DISTURBING MOSAIC tries. It found that US students scored in the middle or in the bottom half of the group in three important ways: our students placed 16th in reading, 19th in science literacy, and 24th in mathematics.33 In 1996 (the most re- cent data available), US 12th graders performed below the international average of 21 countries on a test of general knowledge in mathematics and science.34 After secondary school, fewer US students pursue science and engineer- ing degrees than is the case of students in other countries. About 6% of our undergraduates major in engineering; that percentage is the second lowest among developed countries. Engineering students make up about 12% of undergraduates in most of Europe, 20% in Singapore, and more than 40% in China. Students throughout much of the world see careers in science and engineering as the path to a better future. Higher Education as a Private Good Our culture has always considered higher education a public good—or at least we have seemed to do so. We have agreed as a society that educated citizens benefit the whole society; that the benefit accrues to us all and not just to those who receive the education. That was a primary reason for the creation in the 1860s of the land-grant college system; it is why early in the 20th century universal primary and secondary schooling was supported; it is why a system of superior state universities was created and generously supported and scholarships were given to needy students; and it is why the Serviceman’s Readjustment Act of 1944—the GI Bill—was established and why the National Defense Education Act was passed in 1958 shortly after the launch of Sputnik. Now, however, funding for state universities is dwindling, tuition is rising, and students are borrowing more than they receive in grants. These seem to be indications that our society increasingly sees higher education as a private good, of value only to the individual receiving it. A disturbing aspect of that change is its consequences for low-income students. College has been a traditional path for upward mobility—and this has been particu- larly true in the field of engineering for students who were first in their family to attend college. The acceptance of higher education as a personal benefit rather than a public good, the growth of costly private K–12 school- ing, and the shift of the cost burden to individuals have made it increasingly difficult for low-income students to advance beyond high school. In the 33The report included results from 49 countries, available at: http://www.pisa.oecd.org/ dataoecd/1/63/34002454.pdf. 34National Science Board. Science and Engineering Indicators 2004. NSB 04-01. Arlington, VA: National Science Foundation, 2004. Chapter 1.

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32 RISING ABOVE THE GATHERING STORM long run, the nation as a whole will suffer from the lack of new talent that could have been discovered and nurtured in affordable, accessible, high- quality public schools, colleges, and universities. Trends in Corporate Research The US research structure that evolved after World War II was a self- reinforcing triangle of industry, academe, and government. Two sides of that triangle—industrial research and government investment in R&D as a fraction of gross domenstic product (GDP) have changed dramatically. Some of the most important fundamental research in the 20th century was ac- complished in corporate laboratories—Bell Labs, GE Research, IBM Re- search, Xerox PARC, and others. Since that time, the corporate research structure has been significantly eroded. One reason might be the challenge of capturing the results of research investments within one company or even a single nation on a long-term basis. The companies and nation can, however, capture high-technology discoveries at least for the near term (5- 10 years) and enhance the importance of innovation in jobs.35 For example, the United States has successfully capitalized on research in monoclonal antibodies, network systems, and speech recognition. As a result, corporate funding of certain applied research has been enhanced at such companies as Google and Intel and at many biotechnology companies. Nonetheless, the increasing pressure on corporations for short-term results has made invest- ments in research highly problematic. Funding for Research in the Physical Sciences and Engineering Although support for research in the life sciences increased sharply in the 1990s and produced remarkable results, funding for research in most physical sciences, mathematics, and engineering has declined or remained relatively flat—in real purchasing power—for several decades. Even to those whose principal interest is in health or healthcare, that seems short-sighted: Many medical devices and procedures—such as endoscopic surgery, “smart” pacemakers, kidney dialysis, and magnetic resonance imaging— are the result of R&D in the physical sciences, engineering, and mathemat- ics. The need is to strengthen investment in the latter areas while not disinvesting in those areas of the health sciences that are producing promis- ing results. Many believe that federal funding agencies—perhaps influenced by the stagnation of funding levels in the physical sciences, mathematics, and engineering—have become increasingly risk-averse and focused on 35NAS/NAE/IOM. Capitalizing on Investments in Science and Technology. Washington, DC: National Academy Press, 1999.

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33 A DISTURBING MOSAIC short-term results. For example, even the generally highly effective Defense Advanced Research Projects Agency (DARPA) has been criticized in this regard in congressional testimony.36 Widespread, if anecdotal, evidence shows that even the National Science Foundation and the National Institutes of Health (NIH) have changed their approach in this regard. A recent National Academies study37 revealed that the average age at which a principal investigator receives his or her first grant is 42 years—partly because of requirements for evidence of an extensive “track record” to reduce risk to the grant-makers.38 But reducing the risk for individual research projects increases the likelihood that breakthrough, “dis- ruptive” technologies will not be found—the kinds of discoveries that often yield huge returns. History also suggests that young researchers make dispro- portionately important discoveries. The NIH roadmap39 established in fiscal year (FY) 2004, recognizes this concern, but the amount of funds devoted to long-term, high-payoff, high-risk research remains very limited. CLUSTER 3: REACTIONS TO 9/11 Three other pieces in the mosaic also appear to provide short-term se- curity but little long-term benefit. These relate to the events of 9/11, which profoundly changed our world and made it necessary to re-examine na- tional security issues in an entirely new context. This re-examination led to changes in visa policies, export controls, and the treatment of “sensitive but unclassified” information. There appears today to be a need to better bal- ance security concerns with the benefits of an open, creative society. New Visa Policies Much has been written about new immigration and visa policies for stu- dents and researchers. Although there have been improvements in the last 36See US Congress House of Representatives Committee on Science. Available at: http:// www.house.gov/science/hearings/full05/may12/. The current director of DARPA, however, points out that DARPA’s job has always been to mine fundamental research, looking for those ideas whose time has come to move on to applied developmental research. 37National Research Council. Bridges to Independence: Fostering the Independence of New Investigators in Biomedical Research. Washington, DC: The National Academies Press, 2004. 38Other observers note that part of the reason for this is the length of the biomedical PhD and postdoctoral period and the difficulty of young biomedical researchers in finding initial tenure-track positions, for which many institutions require principal-investigator status on an NIH grant proposal. These trends, which are occurring in spite of the recent doubling of the NIH grants budget, suggest an imbalance between demand for and supply of recent PhDs. 39The purpose of the roadmap was to identify major opportunities and gaps in biomedical research that no single NIH institute could tackle alone but that the agency as a whole must address to make the biggest impact on the progress of medical research.

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34 RISING ABOVE THE GATHERING STORM several months (at this writing, the average time to process a student visa is less than 2 weeks), there is still concern about response times in particular cases. Some promising students wait a year or more for visas; some senior scholars are subjected to long and sometimes demeaning review processes. Those cases, not the shorter average processing time, are emphasized in the international press. The United States is portrayed less as a welcoming land of opportunity than as a place that is hostile to foreigners. Immigration procedures implemented since 9/11 have discouraged stu- dents from applying to US programs, prevented international research lead- ers from organizing conferences here, and dampened international collabo- ration. As a result, we are damaging the image of our country in the eyes of much of the world. Although there are recent signs of improvement, the matter remains a concern. This committee is generally not privy to whatever evidence lies in the government’s library of classified information, but it is important to recog- nize that our nation’s borders have been crossed by more than 10 million people who are still residing illegally in the United States. Set against this background, a way is needed to quickly, legally, and safely admit to our shores the relatively small numbers of highly talented people who possess the skills needed to make major contributions to our nation’s future com- petitiveness and well-being. Some observers are also concerned that encouraging international stu- dents to come to the United States will ultimately fill jobs that could be occupied by American citizens. Others worry that such visitors will reduce the compensation that scientists and engineers receive—diminishing the de- sire of Americans to enter those professions. Studies show, however, that the financial impact is minimal, especially at the PhD level. Furthermore, scientists and engineers tend to be creators of new jobs and not simply consumers of a fixed set of existing jobs. If Americans make up a larger percentage of a graduating class, a larger percentage of Americans will be hired by corporations. In the end, the United States needs the smartest people, wherever they come from throughout the world. The United States will be more prosperous if those people live and work in the United States rather than elsewhere. History has emphatically proven this point. The Use of Export Controls Export controls were first instituted in the United States in 1949 to keep weapons technology out of the hands of potential adversaries. They have since been used, on occasion, as an economic tool against competitors. The export of controlled technology requires a license from the Depart- ment of Commerce or from the Department of State. Since 1994, the disclo- sure of information regarding a controlled technology to some foreign na-

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35 A DISTURBING MOSAIC tionals—even when the disclosure takes place inside the United States, a practice sometimes called “deemed export”—has been considered the same as the export of the technology itself and thus requires an export license. Some recent reports40 suggest that implementation of the rules that gov- ern deemed exports should be tightened even further—for example, by al- tering or eliminating the exemption for basic research and by broadening the definition of “access” to controlled technology. The academic research community is deeply concerned that a literal interpretation of these suggestions could prevent foreign graduate students from participating in US-based research and would require an impossibly complex system of enforcement. Given that 55% of the doctoral students in engineering in the United States are foreign-born and that many of these students currently remain in the United States after receiving their degrees, the effect could be to drastically reduce our talent pool. The United States is not the world’s only country capable of perform- ing research; China and India, for example, have recognized the value of research universities to their economic development and are investing heavily in them. By putting up overly stringent barriers to the exchange of information about basic research, we isolate ourselves and impede our own progress. At the same time, the information we are protecting often is avail- able elsewhere. The current fear that foreign students in our universities pose a security risk must be balanced against the great advantages of having them here. It is, of course, prudent to control entry to our nation, but as those controls become excessively burdensome they can unintentionally harm us. In this regard, it should be noted that Albert Einstein, Edward Teller, Enrico Fermi, and many other immigrants enabled the United States to develop the atomic bomb and bring World War II to an earlier conclusion than would other- wise have been the case. In addition, immigrant scientists and engineers have contributed to US economic growth throughout the nation’s history by founding or cofounding new technology-based companies. Examples include Andrew Carnegie (US Steel, born in Scotland), Alexander Graham Bell (AT&T, born in Scotland), Herbert Henry Dow (Dow Chemical, born in Canada), Henry Timken (Timken Company, born in Germany), Andrew Grove (Intel, born in Hungary), Davod Lam (Lam Research, born in China), Vinod Khosla (Sun Microsystems, born in India), and Sergey Brin (Google, born in Russia). 40Reports from the inspectors general of the US Departments of Commerce, Defense, and State. As an example, see Bureau of Industry and Security, Office of Inspections and Program Evaluations. “Deemed Export Controls May Not Stop the Transfer of Sensitive Technology to Foreign Nationals in the U.S.” Final Inspection Report No. IPE-16176-March 2004.

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36 RISING ABOVE THE GATHERING STORM Similarly, it has been noted that • Many students from abroad stay here after their education is com- plete and contribute greatly to our economy. • Foreign students who do return home often are our best ambassadors. • The United States benefits economically from open trade, and our security is reinforced by rising living standards in developing countries. • The quality of life in the United States has been improved as a result of shared scientific results. Some foreign-born students do return home to work as competitors, but others join in international collaborations that help us move faster in the development and adaptation of new technology and thereby create new jobs. Yet, Section 214b of the Immigration and Nationality Act requires ap- plicants for student or exchange visas to provide convincing evidence that they plan to return to their home countries—a challenging requirement. Sensitive but Unclassified Information Since 9/11, the amount of information designated sensitive but unclas- sified (SBU) by the US government has presented a problem that is less publicized than visas or deemed exports but is a complicating factor in academic research. The SBU category, as currently applied, is inconsistent with the philosophy of building high fences around small places associated with the traditional protection of scientific and technical information. There are no laws, no common definitions, and no limits on who can declare information “SBU,” nor are there provisions for review and disclosure after a specific period. There is little doubt that the United States would profit from a serious discussion about what kinds of information should be classi- fied, but such a discussion is not occurring. THE PUBLIC RECOGNIZES THE CHALLENGES Does the public truly see the challenge to our prosperity? In recent months, polls have indicated persistent concern not only about the war in Iraq and issues of terrorism but also, and nearly equally, about jobs and the economy. One CBS-New York Times poll showed security leading economic issues by only 1%;41 another42 showed that our economy and job security 41CBS News-New York Times poll, June 10-15, 2005; of 1,111 adults polled nationwide, 19% found the war in Iraq the most important problem, 18% cited the economy and jobs. Available at: http://www.cbsnews.com/htdocs/CBSNews_polls/bush616.pdf. 42ABC News-Washington Post poll, June 2-5, 2005; of 1,002 adults polled nationwide, 30% rated the economy and jobs of highest concern, 24% rated Iraq of highest concern.

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37 A DISTURBING MOSAIC are of slightly greater concern to respondents than are issues of national security and terrorism. On the eve of the 2004 presidential election, the Gallup organization asked respondents what issues concerned them most. Terrorism was first, ranked “extremely important” by 45% of respondents; next came the economy (39%), health care (33%), and education (32%).43 Only 35% say that now is a good time to find a high-quality job; 61% say that it is not.44 Polls, of course, only provide a snapshot of America’s think- ing, but presumably one can conclude that Americans are generally worried about jobs—if not for themselves then for their children and grandchildren. Investors are worried, too. According to a Gallup poll, 83% percent of US investors say job outsourcing to foreign countries is currently hurting the investment climate “a lot” (61%) or “a little” (22%). The numbers who are worried about outsourcing are second only to the numbers who are worried about the price of energy, according to a July 2005 Gallup poll on investor concerns.45 DISCOVERY AND APPLICATION: KEYS TO COMPETITIVENESS AND PROSPERITY A common denominator of the concerns expressed by many citizens is the need for and use of knowledge. Well-paying jobs, accessible healthcare, and high-quality education require the discovery, application, and dissemi- nation of information and techniques. Our economy depends on the knowl- edge that fuels the growth of business and plants the seeds of new indus- tries, which in turn provides rewarding employment for commensurately educated workers. Chapter 2 explains that US prosperity since World War II has depended heavily on the excellence of its “knowledge institutions”: high-technology industries, federal R&D agencies, and research universities that are generally acknowledged to be the best in the world. The innovation model in place for a half-century has been so successful in the United States that other nations are now beginning to emulate it. The governments of Finland, Korea, Ireland, Canada, and Singapore have mapped and implemented strategies to increase the knowledge base of students and researchers, strengthen research institutions, and promote exports of high- technology products—activities in which the United States has in the past 43D. Jacob, Gallup chief economist, in “More Americans See Threat, Not Opportunity, in Foreign Trade: Most Investors See Outsourcing as Harmful.” Available at: http://www.gallup. com/poll/content/default.aspx?ci=14338. 44F. Newport, Gallup poll editor-in-chief, in “Bush Approval, Economy, Election 2008, Iraq, John Roberts, Civil Rights.” August 9, 2005. Available at: http://www.gallup.com/poll/ content/?ci=17758&pg=1. 45Gallup poll, June 24-26, 2005, ± 3% margin of error, sample size = 1,009. As found at: http://www.gallup.com/poll/content/?ci=17605&pg=1 on September 14, 2005.

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38 RISING ABOVE THE GATHERING STORM excelled.46 China formally adopted a pro-R&D policy in the middle of the 1990s and has been moving rapidly to raise government spending on basic research, to reform old structures in a fashion that supports a market economy, and to build indigenous capacity in science and technology.47 The United States is now part of a connected, competitive world in which many nations are empowering their indigenous “brainware” and building new and effective performance partnerships—and they are doing so with remarkable focus, vigor, and determination. The United States must match that tempo if it hopes to maintain the degree of prosperity it has enjoyed in the past. ACTION NOW Indeed, if we are to provide prosperity and a secure environment for our children and grandchildren, we cannot be complacent. The gradual change in England’s standing in the world since the 1800s and the sudden change in Russia’s standing since the end of the Cold War are but two examples that illustrate how dramatically power can shift. Simply main- taining the status quo is insufficient when other nations push ahead with desire, energy, and commitment. Today, we see in the example of Ireland how quickly a determined nation can rise from relative hunger to burgeoning prosperity. In the 1980s, Ireland’s unemployment rate was 18%, and during that decade 1% of the population—mostly young people—left the country, largely to find jobs.48 In response, a coalition of government, academic institutions, labor unions, farmers, and others forged an ambitious and sometimes painful plan of tax and spending cuts and aggressively courted foreign investors and skilled scientists and engineers. Today, Ireland is, on a per capita basis, one of Europe’s wealthiest countries.49 In 1990, Ireland’s per capita GDP of $12,891 (in current US dollars) ranked it 23rd of the 30 OECD member countries. By 2002, Ireland’s per capita GDP had grown to $32,646, mak- ing it 4th highest among OECD member countries.50 Ireland’s unemploy- 46Organisation for Economic Co-operation and Development. “Main Science & Technol- ogy Indicators, 2005.” Available at: http://www.oecd.org/document/26/0,2340,en_2649_ 34451_1901082_1_1_1_1,00.html. 47“China’s Science and Technology Policy for the Twenty-First Century—A View from the Top.” Report from the US Embassy, Beijing, November 1996. 48W. C. Harris, director general, Science Foundation Ireland, personal communication, Au- gust 15, 2005. 49T. Friedman. The End of the Rainbow. New York Times, June 29, 2005. 50Organisation for Economic Co-operation and Development. “OECD Factbook 2005.” Available at: http://puck.sourceoecd.org/vl=2095292/cl=23/nw=1/rpsv/factbook/.

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39 A DISTURBING MOSAIC ment rate (as a percentage of the total labor force) was 13.4% in 1990. By 1993, it had risen to 15.6%. By 2004 the unemployment rate declined to 4.5%.51 Since 1995, Ireland’s economic growth has averaged 7.9%. Over the same time period, economic growth averaged 2% in Europe and 3.3% in the United States.52 History is the story of people mobilizing intellectual and practical tal- ents to meet demanding challenges. World War II saw us rise to the military challenge, quickly developing nuclear weapons and other military capabili- ties. After the launch of Sputnik53 in 1957, we accepted the challenge of the space race, landed 12 Americans on the moon, and fortified our science and technology capacity. Today’s challenge is economic—no Pearl Harbor, Sputnik, or 9/11 will stir quick action. It is time to shore up the basics, the building blocks with- out which our leadership will surely decline. For a century, many in the United States took for granted that most great inventions would be home- grown—such as electric power, the telephone, the automobile, and the air- plane—and would be commercialized here as well. But we are less certain today who will create the next generation of innovations, or even what they will be. We know that we need a more secure Internet, more-efficient trans- portation, new cures for disease, and clean, affordable, and reliable sources of energy. But who will dream them up, who will get the jobs they create, and who will profit from them? If our children and grandchildren are to enjoy the prosperity that our forebears earned for us, our nation must quickly invigorate the knowledge institutions that have served it so well in the past and create new ones to serve in the future. CONCLUSION A few of the tiles in the mosaic are apparent; many other problems could be added to the list. The three clusters discussed in this chapter share a common characteristic: short-term responses to perceived problems can give the appearance of gain but often bring real, long-term losses. 51Ibid. 52R. Samuelson. “The World Is Still Round.” Newsweek, July 25, 2005. 53The fall 1957 launch of Sputnik I, the first artificial satellite, caused many in the United States to believe that we were quickly falling behind the USSR in science education and re- search. That concern led to major policy reforms in education, civilian and military research, and federal support for researchers. Within a year, the National Aeronautics and Space Ad- ministration and DARPA were founded. In that era, science and technology became a major focus of the public, and a presidential science adviser was appointed.

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40 RISING ABOVE THE GATHERING STORM This report emphasizes the need for world-class science and engineer- ing—not simply as an end in itself but as the principal means of creating new jobs for our citizenry as a whole as it seeks to prosper in the global marketplace of the 21st century. We must help those who lose their jobs; they need financial assistance and retraining. It might even be appropriate to protect some selected jobs for a very short time. But in the end, the country will be strengthened only by learning to compete in this new, flat world.