OVERVIEW

The development and adoption of advanced technologies are critical factors in economic growth. Productivity and economic growth are also affected in a fundamental way by public and private savings rates, the educational skills and quality of the work force, and investment in infrastructure, among other factors. Manufacturing quality, as well as the sound management of U.S. firms, affects our ability to increase productivity and long-term standards of living. Without progress toward correcting deficiencies in these areas, the recommendations in this report will be less effective in meeting the national challenges ahead.

The government's role in civilian technology must also be revised to meet the challenges of the post-Cold War era. The United States can construct a technology strategy by leveraging national strengths in science and innovation. This can be done without detailed government direction of industrial performance or interference with the market forces that drive economic advance.

GUIDELINES FOR FEDERAL INVOLVEMENT

To be effective, certain guidelines must be followed in executing this mission. Government-industry R&D ventures with public sector support should (1) include cost-sharing provisions; (2) involve—indeed flow from—project initiation and design by private firms; (3) be insulated as much as



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The Government Role in Civilian Technology: Building a New Alliance OVERVIEW The development and adoption of advanced technologies are critical factors in economic growth. Productivity and economic growth are also affected in a fundamental way by public and private savings rates, the educational skills and quality of the work force, and investment in infrastructure, among other factors. Manufacturing quality, as well as the sound management of U.S. firms, affects our ability to increase productivity and long-term standards of living. Without progress toward correcting deficiencies in these areas, the recommendations in this report will be less effective in meeting the national challenges ahead. The government's role in civilian technology must also be revised to meet the challenges of the post-Cold War era. The United States can construct a technology strategy by leveraging national strengths in science and innovation. This can be done without detailed government direction of industrial performance or interference with the market forces that drive economic advance. GUIDELINES FOR FEDERAL INVOLVEMENT To be effective, certain guidelines must be followed in executing this mission. Government-industry R&D ventures with public sector support should (1) include cost-sharing provisions; (2) involve—indeed flow from—project initiation and design by private firms; (3) be insulated as much as

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The Government Role in Civilian Technology: Building a New Alliance possible from political concerns; (4) include a diversified set of R&D objectives; (5) undergo rigorous project evaluation and review; and (6) be open to foreign firms characterized by substantial contribution to U.S. Gross Domestic Product (GDP). Strengthening Government Technology Programs The first step in building a new alliance between government and industry in civilian technology is action to strengthen federal programs that facilitate private sector research and development, and the transfer or adoption of technology. Specifically, the Defense Advanced Research Projects Agency's role in dual-use technology development—especially in the area of information technology—should be reaffirmed; a small number of the 700 federal laboratories should be selected to work with private firms in an effort to enhance technology transfer; the scope of selected mission agency R&D programs should be enlarged to include pre-commercial projects; funding for the Small Business Innovation Research program should be increased; the Advanced Technology Program has had a promising start—although past budgets were insufficient to have a significant impact on technology commercialization—and should be evaluated, by an independent group, to determine the desirable size of the program; and a new Industrial Extension Service should be created at the Department of Commerce to speed technology adoption by U.S. Industry. Federal Responsibilities Beyond Current Programs A new technology strategy for the post-Cold War era must include more than revisions in current federal programs. The government should act to correct the failure of private markets to support pre-commercial R&D. It should create incentives for private investment at this important point, where firms cannot appropriate (capture) the economic benefits of investment. Just as the government acts to prevent underinvestment in basic research through federal funding, policymakers must recognize and should alleviate market failure somewhat downstream in pre-commercial R&D, as well. Promoting Investment in Pre-Commercial R&D The most appropriate way to promote any substantial federal investment in pre-commercial R&D is through creation of a Civilian Technology

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The Government Role in Civilian Technology: Building a New Alliance Corporation (CTC). The goal of a CTC would be to increase the rate at which products and processes are commercialized in the United States. This objective can be met by stimulating investment in the pre-commercial stage of technology development with high social rates of return, where firms cannot appropriate sufficient benefits of R&D work. Higher levels of investment at this stage of the innovation process will, over the long-term, translate into stronger U.S. performance in technology commercialization. The CTC would be a quasi-governmental organization, funded through a one-time, $5 billion congressional appropriation. A board of directors, appointed by the president and subject to Senate confirmation, would manage the corporation. The performance and operation of the CTC would undergo an independent, thorough review after the fourth and tenth years of operation. THE RATIONALE FOR CHANGE By many measures, the United States remains strong in technology and continues to exhibit considerable industrial strength. We are the most productive nation in the world. Manufacturing output is increasing at a rapid rate; U.S. exports of manufactured goods are growing. As measured by indicators such as patents awarded and the balance of trade in high-technology goods and services, among others, the innovative capacity of the United States remains unsurpassed. Although the nation's technological performance, relative to its past, is strong, this does not mean that U.S. policy should continue unaltered. The technological competence of our trading partners continues to increase. We need a better balance in technology policy, one that includes support not only for basic research but also for pre-commercial R&D. Moreover, the ability of U.S. companies to adopt new technologies, an important part of economic growth, is weak. As in pre-commercial R&D, market failure is evident in this stage of the technology development process. The federal government should act to address this deficiency. The most important reason for a new technology policy, one that builds on our comparative strength in research and innovation, centers on productivity. Long-term productivity growth rates remain lower for this country than for our foreign competitors. The United States needs to improve its performance in all areas that promote productivity growth. Investment in civilian technology to achieve higher rates of technology commercialization and adoption is one part of the solution. We should move quickly to achieve this goal.