Capitalizing on Investments in Science and Technology (1999)

In recent months there has been a surge of interest in the U.S. science and engineering enterprise and its contribution to national well-being. Several prestigious groups have produced reports that describe trends in U.S. research and innovation and set forth policy priorities (CED, 1998; Council on Competitiveness and Massachusetts Institute of Technology, 1998; House Committee on Science, 1998; NRC, 1999, forthcoming). All of these efforts recognize that science and engineering progress are central to achieving key national goals such as raising living standards, creating good jobs, ensuring national security, strengthening education, improving public health, and protecting the environment. They point out that U.S. science and engineering are vibrant today in large part because of strong support from public and private funders over many years.

There is also a consensus that the context for U.S. science and technology policies has changed fundamentally, and that the framework that brought success in the past needs to be rethought for the future. With some variation in emphasis, these recent reports cite major shifts such as the end of the Cold War, intensified global economic competition, and growing pressure for accountability and focus on the part of public and private research funders. Despite U.S. economic resurgence, real incomes for most Americans have only recently begun to rise again after two decades of stagnation. The United States also faces serious challenges with significant science and technology components in public health, education, national security, and the environment.

The U.S. research and innovation complex, comprising researchers and research institutions, funding agencies, educators, entrepreneurs, investors, and companies, is being pressed to adjust and reinvent itself. It is clear to COSEPUP that the United States needs to remain at the leading edge across all major fields of science and engineering research and to capitalize on this leadership to produce national benefits. Furthermore, the science and engineering community, along with the nation at large, must strive for continual improvement in the policies, institutions, and strategies that contribute to superior research and effective capitalization.

Several examples illustrate the challenges we face.

In the past few years the Internet has emerged as a major technological infrastructure in the global economy and a source of new wealth and jobs in the United States. This infrastructure is the result of U.S. public and private investments in research and related activities over many years. Yet some experts believe that long-term research activities in the public and private sectors are being shortchanged in the rush to pursue promising near-term product opportunities.¹ How can we

ensure that our national science and technology investment portfolio adequately supports the long-term work necessary to produce tomorrow's transforming innovations?

Also, the environment for financing science- and technology-based start-up companies is currently quite favorable because of low interest rates and strong U.S. equity markets. This mechanism for capitalizing on research has been a particular area of strength for the United States, and has produced numerous innovative companies, entire new industries, good jobs, and tax revenue. Yet the financing environment for start-ups has exhibited wide cyclical swings in the past, and we cannot assume that risk capital for new ventures will always be readily available. Further, some important areas where science and technology might be better applied to meet national needs, such as education, may not be attractive to venture capitalists and "angel" investors. How do we ensure that the United States maintains and expands its strengths in science- and technology-based entrepreneurial activity, while developing new pathways for capitalization?

As yet another example, the United States is on the leading edge of revolutionary progress in the life sciences. This work has the promise to significantly lengthen and improve our lives, as well as to create tremendous wealth. There is a growing, unmet demand for talented people who combine the skills needed for advanced life sciences research with knowledge of computers and an engineering perspective. Yet many students now receiving Ph.D. degrees in the life sciences lack this wider skill set and face difficult early career prospects (NRC, 1998). How can we balance the activities of research and education so that students receive the cutting-edge interdisciplinary skills demanded by industry and at the same time maintain a strong human resource base for academic life sciences research?

Finally, research partnerships and collaborations between academia, industry, and government have proliferated over the past 15 years. These often contribute to more rapid and effective capitalization and have produced a number of success stories such as those in semiconductors and data storage. However, sectoral differences in time horizons, goals, approaches to intellectual property, and other concerns can sometimes prevent smooth collaboration that leads to mutual benefits. Some types of partnerships, particularly those in which government provides funding to particular companies, remain controversial. And it is clear that the leverage provided by partnerships cannot serve as a substitute for long-term government support in some areas of research. How can we build on our growing experience base to structure stronger, more productive partnerships between sectors?

Given this context, it is evident that capitalizing on investments in science and technology is a vital national imperative and that the United States faces long-term challenges in maintaining and enhancing our ability to capitalize.

How does COSEPUP expect this study to contribute to the ongoing national debate?

In recent, ongoing projects, COSEPUP has examined many aspects of the

changing science and technology policy environment, including the basic framework for federal science and technology policy, the development of human resources, the federal investment portfolio, international benchmarking of U.S. research in several important fields, and accountability in federal research investments (COSEPUP, 1993, 1995, 1996, 1997a,b, 1998, 1999a,b,c). To reshape our national approaches to science and engineering education, research funding, and other issues, it is necessary to understand how these approaches might affect the nation's ability to capitalize on science and technology to produce national benefits.

This study addresses three basic questions:

• How well is the United States capitalizing on its investments in science and technology?
• What factors are responsible for its successes?
• What can be done to maintain and improve this performance in the future?

Innovation, technology transfer, and the commercialization of research have been the subjects of numerous studies. This project takes a somewhat different approach in assessing how well the United States harvests returns on investments in science and technology, in the form of better economic performance (including creation of jobs and tax revenue), stronger education, improved public health, and other national benefits. The report draws on an examination of specific examples of research and application, as well as crosscutting issues such as strengthening human capital and financing of science- and technology-based ventures. The findings and recommendations identify key areas for scientists and engineers, policy makers, and others to focus their efforts in the future.

In the course of this study, COSEPUP gained a renewed appreciation for the importance and complexity of capitalization, a better understanding of the necessary elements, and new insights into U.S. strengths and weaknesses. The report is intended to communicate these perspectives to the broader communities concerned with science, engineering, and policy issues.

A number of findings and action points echo those of other recent reports. COSEPUP is encouraged by this confluence of ideas and hopes that this effort may contribute to a growing national consensus on key issues of science and technology policy. Although several of the tasks that COSEPUP identifies will be familiar to those regularly engaged in these issues, they remain critically important for the ability of the United States to capitalize over the long-term.

Finding 1: Capitalization on science and technology is a major national strength, although there is much room for improvement. Capitalization appears to be quite healthy in the United States today, delivering significant benefits to the nation. Nonetheless, COSEPUP believes that there are many areas where U.S. approaches can be improved. As outlined in various parts of the report, the United States has significant weaknesses, and complacency could lead to a decline in its strengths.

This finding contrasts with the situation a few years ago, when several U.S. industries faced serious challenges in global markets (Dertouzos et al., 1989). Foreign-based companies had used superior product development and manufacturing quality to surge ahead in high-technology industries pioneered in the United States. Some observers, pointing to continued U.S. strength in basic research, concluded that the United States was losing the ability to capitalize on its research investments, and allowing foreign countries to reap the lion's share of benefits (Prestowitz, 1988).

As this is written, the situation looks quite different because of two important shifts. First, many established U.S. companies and industries have improved their performance in product development, manufacturing, and marketing.² Second, a wave of new industries and companies has arisen in the United States, many of them with clear and direct links to public and private research efforts initiated several decades ago (such as the Internet and life sciences examples cited above). Both of these trends have benefited from, and contributed to, a favorable macroeconomic environment.

Finding 2: The key elements contributing to effective capitalization are

• strong, stable funding for a portfolio of research investments that is diverse in terms of under, performers, time horizons, and motivations;
• a favorable environment for capitalizing, characterized by a strong incentive structure for investors, competition in the market, and free movement of ideas and people between institutions;
• a skilled, flexible science and engineering human resource base that allows the United States to maintain research at the cutting edge and capitalize effectively;
• mechanisms for research and capitalization that support cooperation between academia, industry, and government.

Recommendation 1:To ensure a strong, stable, diverse portfolio of S&T investments, incorporate an explicit and continuing concern for capitalizing into the allocation of federal research funding. Despite concerns over whether the United States should continue to fund a large share of the world's openly available research, it is clear to the committee that the ability to perform research at the cutting edge across all major fields does deliver significant national benefits. Researchers, policy makers, and businesses must understand that a strong, diverse portfolio of research investments generates the most powerful "fuel" for innovation and sharpens the ability to make use of important advances wherever they occur. Policy makers should strive to maintain all stages of investigation: fundamental research, applied research, and fundamental technology development.

Based on conditions observed in several of the fields examined during the course of the study and other recent COSEPUP work, the committee believes that a current, pressing task for the federal government is to ensure sufficient funding for long-term science and engineering research, including research infrastructure.

• In the current climate of general pressure toward shorter time horizons in research, the federal government should pay close attention to its role as "funder of last resort" of long-term science and engineering research.
• Evaluations of research funding performance should recognize the importance of capitalization and seek to identify the long-term contributions of research to meeting national goals, both within specific fields and across the U.S. science and engineering enterprise.

Recommendation 2: Maintain a favorable economic and regulatory environment for capitalizing on research. At present the major features of a supportive environment are in place and should be maintained. COSEPUP found that capitalizing is a complex process with multiple feedback loops, but that public policies play an important role in supporting or hindering its effectiveness. The public policies and private strategies needed to maintain and enhance capitalization in the United States should be adapted to evolving world conditions.

• Federal and state governments should ensure that individuals and institutions continue to have strong incentives to capitalize on research.
• Universities should continue to review and update policies that affect capitalizing on research in order to sustain and expand their contribution.

Recommendation 3: Regard the education and training of scientists and engineers as an essential ingredient for capitalizing on research. Universities are responsible for preparing scientists and engineers to play crucial roles, both in generating new knowledge and in capitalizing on that knowledge. Students must be prepared for capitalizing roles as well as they are prepared for research roles. Federal agencies, which finance a large share of advanced science and engineering education, should seek to understand how various funding mechanisms affect human resource development. Industry should also take a more active role in preparing students for nonacademic careers through mentoring, communicating their employment needs, and arranging internships.

• Universities, cooperating with science and engineering societies, government, and industry, should develop mechanisms to recognize signals of manpower shortages or gluts, and communicate this information to students.
• Agencies that support advanced research and education should enhance diversity in funding mechanisms and develop ways to measure the effects of alternative approaches.
• Industry, universities, and government must recognize the importance of

• lifelong learning for the nation's science and engineering human resources.

Recommendation 4: Build stronger partnerships between academia, industry, and government. Universities, industry, and government are still learning which approaches lead to successful partnerships. They should build on the most successful intersectoral partnerships to develop precompetitive technologies and speed the diffusion of new knowledge and technologies. At the same time, partnerships should not be viewed as a panacea, and leveraging of industry funding should not be expected to substitute for strong federal investments.

• Governments, industries, and universities should continue to experiment with partnerships and consortia.
• State and federal governments should help to arrange new partnerships and arbitrate issues of rights and ownership.

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COSEPUP (Committee on Science, Engineering, and Public Policy). 1995. Reshaping the Graduate Education of Scientists and Engineers. Washington, D.C.: National Academy Press.

COSEPUP (Committee on Science, Engineering, and Public Policy). 1996. Careers in Science and Engineering: A Student Planning Guide for Grad School and Beyond. Washington, D.C.: National Academy Press.

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COSEPUP (Committee on Science, Engineering, and Public Policy). 1997b. International Benchmarking of U.S. Mathematics Research. Washington, D.C.: National Academy Press.

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Council on Competitiveness and Massachusetts Institute of Technology. 1998. Competing Through Innovation: A Report of the National Innovation Summit, Washington, D.C.: Council on Competitiveness.

Dertouzos, M. L., R. K. Lester, R. M. Solow, and the MIT Commission on Industrial Productivity. 1989. Made in America: Regaining the Productive Edge. Cambridge, Mass.: MIT Press.

NRC (National Research Council). 1998. Issues in the Early Careers in Life Scientists. Washington, D.C.: National Academy Press.

NRC (National Research Council). 1999. Harnessing Science and Technology for America's Economic Future: A Forum on National and Regional Priorities. Washington, D.C.: National Academy Press.

President's Information Technology Advisory Committee. 1998. Interim Report to the President. Washington, D.C.: National Coordination Office for Computing, Information, and Communications.

Prestowitz, C. V., Jr. 1988. Trading Places: How America Allowed Japan to Take the Lead. New York: Basic Books.

STEP (Board on Science, Technology, and Economic Policy, National Research Council). 1999. Securing America's Industrial Strength. Washington, D.C.: National Academy Press.

U.S. House of Representatives, Committee on Science. 1998. Unlocking Our Future: Toward a New National Science Policy. Washington, D.C.: U.S. Congress.