The Positive Sum Strategy Harnessing Technology for Economic Growth (1986) / Chapter Skim
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National Science Policy and Technoligical Innovation
National Science Policy and Technoligical Innovation
Pages 119-168
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From page 119... ...
HISTORIC ROLES OF GOVERNMENT IN SCIENCE AND TECHNOLOGICAL INNOVATION Although industry is the dominant source of commercially significant technology in the United States, government has been a much more important and direct influence on the direction and rate of technological innovation than much of our national ideology and public rhetoric would lead us to suppose. Government in particular has been a source of much Generic technology," as well as fundamental science, which has then served as a substrate for technological innovation by the private industrial sector.
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From page 120... ...
The subsidy for highways indirectly stimulated innovation in highway construction and planning techniques, but it also influenced the direction of innovation in the automobile industry toward large and powerful cars with increased driving amenities, a stimulus that was reinforced by tax benefits to the oil industry, which effectively lowered gasoline prices. Thus, in hundreds of ways, government throughout American history has influenced the priorities of entrepreneurs and innovators in We private sector.
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From page 121... ...
economic growth during the postwar period had Heir origins either in World War II or in the subsequent period of the cold war: commercial transport aircraft; semiconductors, solidstate electronic devices, and integrated circuits; computers; nuclear power; satellite communications; microwave telecommunications and radar applications, such as air traffic control; antibiotics; pesticides; new materials, such as high-strength steel alloys, titanium, high-temperature ceramics, fiber-reinforced plastics, and composites; and new methods of metal fabrication and processing, such as numerical-controlled machine tools or powder metallurgy. Much of this has been derivative from military and space activities, although in many cases, once the basic technology was transferred to He private sector, it tended to take off on its own, with rapid proliferation of
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From page 122... ...
Although innovation in pharmaceuticals and medical devices has been largely generated in the private sector by private research and investment, it is doubtful whether much of this would have taken place without the base of knowledge resulting from govemment-sponsored programs. Much modem medical instrumentation and diagnostics derive from basic advances in the physical sciences, including laboratory instrumentation, which occurred as a result of broadbased government sponsorship of fundamental physics, chemistry, and biology (Handler, 1970:25~257; Grabowski and Vemon, 1982~.
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From page 123... ...
The research contract win fully reimbursable overhead was a distinctly U.S. invention, which proved to be an extraordinanly flexible instrument in the subsequent partnership between government and private institutions that evolved in basic research, hardware development, and even policy analysis and system management during He postwar period.
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From page 124... ...
Instead of government and civilian science turning their backs on each over, the institutional "swords" built to fight the scientific World War II were at least partially forged into the "ploughshares" of a postwar policy for the broad development of science in the interests of society (Bush et al., 1960) , even though the military influence on overall scientific priorities remained substantial—e.g., the large emphasis on the physical sciences.
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From page 125... ...
were prohibited from setting up their own civil service laboratories, but were encouraged or required to '~contract out" the actual conduct of research to private organizations, sometimes created especially for that purpose under independent boards of private citizens. The "contracting out" idea was also adopted by the Air Force, in some measure by the Army, and least by the Navy; it also became the norm when, in the aftermath of sputnik, the largely civil service NACA was converted into the National Aeronautics and Space Administration (NASA)
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From page 126... ...
In the context of the American political system, this is a rather remarkable political phenomenon, and many would assert it has been responsible for American world leadership in pure science and in most fields of advanced technology (Bush, 1970:651. It may also be said, however, that the Bush social contract is probably under more fundamental challenge today than at any time in its postwar history, largely as a result of the erosion of U.S.
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From page 127... ...
The general trend is illustrated in Figure 1 (President's Con~niission, 1985:981. It was dig this second period Mat defense/space R&D dropped nearly to 60 percent of government-sponsored R&D, partly owing to spectacular expansion of energy research, development, and demonstration programs, but also partly due to
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From page 128... ...
THREE EPOCHS IN POSTWAR SCIENCE POLICY The postwar period can be divided into three distinct epochs: the cold war period 1945-1965; He period dominated by social priorities 1965-1978; and the period dominated by industrial competitiveness 1978 to the present. In reality these periods overlap, and He onset of each new epoch was foreshadowed by strenuous policy debates in Washington.
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From page 129... ...
A majority asserted that the civilian "spin-off'' from government programs would stimulate technical progress within the civilian economy, but a significant and increasingly vocal minority argued that the insatiable demands of federal programs would drain scarce talent away from the civilian sector by bidding up salaries and by providing more challenging and interesting technical opportunities for scientists and engineers, free of the normal disciplines and economic consents of He commercial marketplace (Hollomon and Harger, 1971; Brooks, 19721. The Social Priorities Period: 1965-1978 The growing technical successes of the space program and of some of He military systems programs such as Polaris created heightened public and
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From page 130... ...
This was in no way better symbolized Han by cancellation of funds for He cons~uc~aon of Me prototype commercial supersonic transport aircraft by He U.S. Senate late in 1971 (Mowery and Rosenberg, 1982:111 1451.
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From page 131... ...
economy, whose lagging performance it attributed to a decline in technological innovation. Administration spokesmen testified to Congress on the reverse "technology gap" said to be opening up between the United States and Europe, particularly West Germany (Brooks, 19721.
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From page 132... ...
In contrast with the abortive initiative of We Nixon administration, it Reemphasized direct federal support of industrially oriented R&D and looked to indirect measures, such as changes in patent and antitrust policy, regulatory procedures, and government technical assistance to small business. Many business leaders expressed disappoinunent in the final recommendations because Hey tended to steer clear of tampering with tax policies as Hey affected new investment and R&D by cocoons or by would-be high-tech entrepreneurs.
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From page 133... ...
The new policy, however, left considerable room for debate on We appropriate dividing line between government and private responsibility. For example, the administration continued to support funding for the Clinch River breeder reactor, which was clearly a demonstration program of the sort it deplored and which the Budget director, David Stockman, had strongly opposed as a congressman, using the same rationale he used later to kill other DOE demonstration programs (Stockman, 19771.
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From page 134... ...
. The new emphasis on industrial innovation in Me present period has been complicated by Me resurgence of defense spending, and particularly defense R&D and procurement.
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From page 135... ...
These measures are based bow on inputs, such as R&D spending, manpower, and scientific equipment, and on outputs, such as publications, citations, awards, patents, royalty payments, productivity growth, and shares of world markets for high technology products (National Science Board, 1973; Elkana et al., 19781. None of these measures is entirely satisfactory, not only because of the lack of quality factors, but also because of conceptual problems as to what society really ought to expect from its scientific and technological establishment.
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From page 136... ...
, shown below, compares the United States; West Ge~any, France, and the United Kingdom as a group; and Japan with respect to total R&D expenditures in 1969 and 1979: 1969 United States $25.6 billion West Germany, France, United Kingdom 8.3 Japan - 3.0 1979 $55.0 billion 39.0 19.3 Although We R&D investment of other counties has grown relative to Mat of the United States, this country still dominates, and in fact has probably increased its lead in the past five years. If we restrict our attention to selffinanced industrial R&D expenditures, the situation does not change, as shown below (Brooks, 1985a)
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From page 137... ...
By this measure the United States would be behind both Japan and West Germany, as shown below by He ratios of civilian expenditures to GNP for West Germany, Japan, and the United States in 1981 (National Science Board, 1983:197-198, Appendix Tabte 1-61: United States West Germany Japan 1981 1.7% 2.5 2.3 The A&D-GNP ratios above would suggest that Japan and West Germany might be deriving more economic benefit from their R&D expenditures than the United States, but the assumption Hat aggregate R&D is more significant than the ratio of R&D to GNP seems the better of He two approximations. Consequently, not much should be inferred from the A&D-GNP ratio.
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From page 138... ...
Of equal importance to technical graduates may be the general level of "technical literacy" of the labor force, and here there is some reason to believe the United States lags its competitors, particularly West Germany and Japan. These countries have stressed scientific and mathematical proficiency in their secondary educational institutions much more so than the United States, and the achievement of U.S.
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From page 139... ...
It began early in the postwar period in such fields as high-energy physics and radioastronomy, and it was partially solved for those fields by the creation of national centers, such as the Brookhaven National Laboratory or the National Radioastronomy Observatory (NRAO) , in combination with the funding of "user groups" from universities to take advantage of these national facilities (Brooks, 1978~.
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From page 140... ...
publications (National Science Board, 1983:121. Recent studies of the comparative performance of research institutions made at the Science Policy Research Unit of the University of Sussex, England, also suggest that U.S.
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From page 141... ...
performance in applied science and in the commercialization of new knowledge is much more in question. It is frequently pointed out that on a per capita basis Britain has led the world in pure science for several generations, and yet it has experienced a steadily deteriorating economic performance, apparently owing to a poor capacity for reducing knowledge to commercial practice.
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From page 142... ...
International payments for Me use of patents, trademarks, copyrights, and proprietary know-how are also frequently used as an indicator of relative innovative capacity. Since the revenue streams considerably lag the time of innovation, this may be a poor indicator when the distribution of innovative activity is changing rapidly.
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From page 143... ...
Table 3 provides an illustration of the likely importance of net investment in determining relative productivity growth among, counties over the period 1971-1980. It is doubtful whether these differences in productivity grown can be attributed directly to differences in the level of technology, except to
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From page 144... ...
Lodge, eds., U.S. Competitiveness in the World Economy (Boston, Mass.: Harvard Business School Press, 1985)
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From page 145... ...
machine tool exports exceeded imports by a factor of two, yet in the past five years the U.S. machine tool industry lost half of its traditional market, and over SO percent of all machine tools purchased in the United States were manufactured abroad, mainly in Japan and to a lesser extent in West Germany.
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From page 146... ...
Equally disturbing is Japanese world market penetration in fields of matenals technology pioneered in the United States. Japan now accounts for half the titanium used in the non-Communist world, mostly exports to the United States, although the basic technology and the industry were fist developed here under defense sponsorship.
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From page 147... ...
A crucial issue in this connection is not only We area and character of the candidate technological development but the locus of the decision-making process wide respect to the strategy and tactics of the development process. Areas of Consensus on Federal Responsibility Government as Customer There is little debate about the necessity of a federal responsibility when the government, acting as agent for Me society as a whole, is the ultimate user and the goods or services produced are widely acknowledged to be "public goods," i.e., goods or services from which everybody benefits whether or not they pay for them.
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From page 148... ...
Since World War II We belief has been increasing that the separation of funding from performance generally contributes to the cost-effectiveness of R&D because it opens up the possibility of drawing on a broader scientific community. This is not universally acknowledged, but it is recognized de facto, as indicated by We fact that only about 25 percent of governmentfunded R&D today is perfonned in civil service laboratories manned by fulltime government employees (National Science Foundation, 1984c:3~.
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From page 149... ...
There are arguments Eat industry, left to itself, will undennvest in research related to He externalities resulting from its technologies, especially those which are indirect and far in the future—likely to be important only after the technology has been manufactured and marketed on a major scale. The cases of radioactive waste disposal and management of toxic chemical wastes readily come to mind as examples of industry's having probably invested in R&D at less than a socially optimal scale.
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From page 150... ...
Even in the case of nuclear power, for which government was responsible for development of much of the generic technology, the relative investment in R&D on radioactive waste disposal was almost certainly less than socially optimal. Often the government does not support "externality" research unless a regulation is already in place whose implementation or enforcement would require such research.
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From page 151... ...
In other words, the existence of intellecn~al property rights is necessary to enhance the total investment in innovation and to ensure Hat its later stages are more responsive to the needs of the market Where the optimal public benefit lies as between open and proprietary research is a debatable question on which the balance of public policy has shifted back and form over time. In general, the national policy has been that discoveries—facts of natureare in the public domain and cannot be vested with property rights, while artifacts human constructs—can be so vested.
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From page 152... ...
Efforts to compare the social and private returns for particular innovations indicate wide variation among specific cases even though, on the average, social returns appear to exceed private returns by a factor of about two (Mansfield, 19SSb; Griliches, l98S)
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From page 153... ...
may also be examples of government officials being too much in the position of making market judgments and too much influenced by "technology push" considerations, by the existence of challenging technical opportunities without necessary commercial value. Exceptional Social Returns There are few R&D projects for which the social returns do not exceed the private returns.
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From page 154... ...
These arguments could be used to justify large public investments in new supply technologies as well as in research and "demonstration" of a variety of energy end-use efficiency improvements as long as the total cost, R&D plus capital investment, was less than the product of the effective price premium and the volume of oil imports. Public subsidies for renewable energy technologies were justified not only by the oil import premium but also by the alleged avoidance of negative environmental externalities that might result from the use of these "benign" technologies.
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From page 155... ...
As a matter of public policy it is decided Mat the social benefit of universal access justifies public development and eventually operation. In this view the "positive externality" resulting from universal, or near-universal, access makes private marketing of anything but "value-added" services, specially packaged for users who can justify the premium price, an undesirable policy.
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From page 156... ...
In general the most successful adjustment strategy appears to be more rapid movement into higher value-added sectors of the world market. To the extent that it supports such a strategy, public investment in R&D is therefore a more acceptable policy than over forms of subsidy or market protection.
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From page 157... ...
It worked in close collaboration with designers in bow the engine industry and the airframe industry, but left design and testing to the private sector, albeit providing testing services for a fee. NACA is frequently cited by theorists of the division of labor between the private and public sectors in R&D as the ideal model of synergy between the two sectors (Nelson, 1977:11, 121-122, 12S, 139; Mowery and Rosenberg, 1982:128-130~.
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From page 158... ...
Thus, indirect forms of intervention are most appropriate when market judgments are most significant for success. Tax Benefits to Consumers One way to stimulate innovation is to provide tax benefits to consumers that lower the effective price of innovative products whose consumption the government decides yields public benefits or "extemalities" not offered by alternative products During the energy crisis many
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From page 159... ...
has concluded that such credits and other allowances "appear to have had only a modest effect on R&D expenditures," and from this he infers that in their present form R&D tax incentives "are unlikely to have a major impact on a nation's rate of innovation" largely because the price elasticity of industrial demand for R&D is quite low. Technology-Forcing Regulations One way of stimulating industrial innovation is to use government to set stiff performance standards for industrial products standards that cannot be met without considerable technological innovation and then rely on prospective sanctions to induce private R&D to meet the regulations.
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From page 160... ...
is a difficult balancing act. The United States has a unique system of voluntary standard setting through a number of indus~ywide standardsethng associations, such as the American National Standards Lnstitute (ANSI)
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From page 161... ...
There is also a question of the degree to which proprietary research, as well as government regulation of the flow of research information, has the effect of shielding emerging technologies from proper public assessment until after irreversible commitments have been made to final design and deployment (National Academy of Sciences, 1969:32-331. Antitrust Policy In the recent past there has been much criticism of the overly rigid interpretation of antitrust legislation in relation to cooperation among firms in R&D, particularly in the precommercial phases of innovation before the emergence of specific product designs (U.S.
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From page 162... ...
Unfortunately, the same tends to be tme of the political process, especially in pluralistic societies like He United States. Groups try to use the political process to defend or enhance their interests without reference to He "externalities" of their success.
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From page 163... ...
Govermnent Printing Office; also repented as Chapter 6 in Harvey Brooks.
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From page 164... ...
Competitiveness in the World Economy. Boston, Mass.: Harvard Business School Press.
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From page 165... ...
1985a. Public policy toward industrial innovation: An international study of R&D tax credits, in Robert H
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From page 166... ...
1984a. Academic Research Equipment in the Physical Sciences and Engineering.
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From page 167... ...
1979. White House fact sheet: The President's industrial innovation initiatives.
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