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How to fund R&D.

Harold Brown and John Wilson present an innovative approach to government funding of pre-competitive research, which is designed to transform basic research into generic technologies ("A New Mechanism to Fund R&D," Issues, Winter 1992-93). They propose the formation of a quasi-public Civilian Technology Corporation (CTC), which would elicit R&D funding proposals for research conducted by private industry, including foreign corporations. Government funding of specific projects would be restricted, since companies would be required to contribute at least 50 percent of the cost of a project. The CTC would be funded through a one-time government appropriation of $5 billion with the expectation that it would then be financed by the revenue it would earn from royalties.

The concept underlying CTC is to insulate decisions on pre-competitive R&D projects from "political pressures and special-interest pleading" by industry and the desire of politicians to distribute "pork" to local constituent groups. In this respect, the authors have made a major contribution.

There are, however, several weaknesses in the CTC proposal. The transformation of basic research into general technologies, while desirable, does not produce anything that can be sold commercially. Industry must be able to commercialize generic technologies before revenue from royalties and licenses will flow to the CTC. Consequently, this source of revenue is likely to be insufficient to fund CTC over the long run. In addition, many details associated with the concept need to be resolved, not the least of which involves intellectual property issues. The issue of rights to technical data will also have to be settled before the private sector will be willing to invest in the development of generic technologies.

The authors are silent on how to finance the $5 billion one-time appropriation for the CTC. At the same time, they claim that the CTC concept would be a more efficient method of stimulating investment than a "tax credit or a permanent research and experimentation (R&E) credit." Do they mean to imply that $5 billion for the CTC will give greater impetus to the commercialization of successful basic research than the reintroduction of the Investment Tax Credit (ITC) or a permanent incremental R&D tax credit? If so, this claim can be refuted by a substantial body of evidence on the sources of technological change. A great advantage of the ITC and the R&D tax credit is that companies themselves decide which technologies they will develop and introduce into their production processes. There is no need for advisory boards or independent experts to decide which projects the government should favor. The CTC is an interesting way of trying to avoid the problem of pork-barrel government financing of developmental research, but it is no substitute for powerful tax measures to encourage industry to innovate.

If the CTC concept is adopted, funding should come from redirecting some resources away from government funding of basic research, which is part of the technology pork barrel. In 1980, basic research received 26 percent of all federal funding for nondefense R&D; by 1990, basic research had grown to 41 percent. And an increasing share of federal R&D funding has gone to academic research in the life sciences at the expense of research in basic engineering R&D, although the latter research is more likely to improve the competitive position of U.S. industry.

KENNETH MCLENNAN Manufacturers' Alliance for Productivity and Innovation, Inc. Washington, D.C.

I would like to take issue with the article by Harold Brown and John Wilson, which proposes a Civilian Technology Corporation (CTC) as the best way to stimulate commercial innovation. That conclusion is based on assumptions that may not be valid, one of which is that taxpayers would be willing to turn over $5 billion to an organization not "subject to complex, burdensome civil-services rules." It is true that the Advanced Technology Program (ATP), administered by the National Institute of Standards and Technology (NIST) in the Department of Commerce, has had to wrestle with some of these regulations. But most problems have been worked out to the benefit of both parties. Industry, for example, was concerned about protection of intellectual property, but his has been resolved in legislation.

Another assumption is that the CTC would become self-sustaining from royalties and license fees. This implies that the CTC would own the intellectual property, a condition that could be a disincentive to industry participation. The article also implicitly assumes that a government-based program would not have "first-class scientists, engineers, business managers, and academics" available, with "compensation packages competive with those in the private sector." Again, the ATP is proof to the contrary. NIST does have the authority to offer its program managers salaries that are competitive with those of the private sector. Furthermore, in the evaluation process, the program has access to an exceedingly broad array of talent throughout the government--in the Defense Advanced Research Projects Agency, the Department of Energy, the National Aeronautics and Space Administration, and elsewhere.

In fact, ATP is the "new mechanism... needed to help move the country in a direction that leverages our technological and intellectual strengths" that Brown and Wilson call for, and it has been strongly endorsed by U.S. industry. ATP even follows the guidelines they propose for the CTC. It currently consists of 60 projects involving 150 corporations, including 18 joint ventures, and has a total funding of $400 million. Half of these companies are classified as "small." The projects completely span the list of the 22 critical technologies identified in the first National Critical Technologies Report, providing broad diversification. The only guideline one might say ATP does not follow is encouragement of foreign participation. At present, the secretary of commerce can make that call, subject to certain guidelines.

ROBERT M. WHITE Professor and Department Head Department of Electrical and Computer Engineering Carnegie Mellon University Pittsburgh, Pennsylvania (The writer was the undersecretary of commerce for technology in the Bush administration.)

Although I am strongly in favor of increasing the federal role in civilian-sector technology development, I am opposed to the creation of a new super organization to lead that effort, as Harold Brown and John Wilson propose with their Civilian Technology Corporation (CTC). It is generally acknowledged that the United States holds a preeminent position in basic research. Many observers, including myself, attribute this success to two principles we have followed in supporting such research: First, we have ensured that a plurality of funding sources is available. Second, we have insisted that our scientists compete for these R&D dollars.

With the creation of CTC, we would lose the advantage of multiple funding sources, as resources would automatically be concentrated on this single agency. And despite assertions to the contrary, I believe CTC would be influenced by large industrial and political lobbies, which would diminish its efficacy. In addition, large companies would have more influence in CTC than warranted. Small companies, which tend to be more entrepreneurial and more focused on new-product development, would be left out in the cold.

The availability of multiple funding sources is extremely important because it allows an investigator to explore other sources if rejected by one. In both basic and applied research, it is foolhardy to assume that one group of reviewers or one agency is always capable of accurately judging the merit of a proposal. A proposal rejected by one agency may very well be accepted by another. I strongly believe that we should use this principle, which has worked so well in basic research, for technology development as well.

The list of federal agencies that fund basic research is long. Mission-oriented agencies such as the Department of Energy, the National Aeronautics and Space Administration, the Defense Advanced Research Projects Agency, and the National Institutes of Health have long supported R&D spanning the entire spectrum from basic research to engineering development. Over time, these organizations have developed a good understanding of the relevant industries and have a good track record in working with them to develop civilian-sector technologies. The National Institute of Standards and Technology, for instance, has historically assisted industry by developing accurate measurement techniques and setting criteria for industrial standards. It was recently given the added responsibility of providing assistance to industry through the Advanced Technology Program (ATP). Competition for these resources has been strong, with only one in ten proposals receiving funding. I am sure that with additional funds ATP could make a major contribution to civilian-sector technology development.

If we want the mission-oriented federal agencies to do more, we need only provide them with greater resources and a very clear set of directions. If we do follow this approach, however, we must ensure that we have the ability to monitor agency activities and constructively use that data base to establish policy priorities. Unfortunately, we have been very much remiss in performing these two functions. At present, there is no way to obtain an overview of the entire spectrum of technology-development programs in which the federal government participates, let alone to ascertain what, if any, national benefits might accrue from them. The Office of Science and Technology Policy has been paying some limited attention to these issues. The Federal Coordinating Council for Science, Engineering, and Technology has proposed some new initiatives and has taken a few first steps toward improving coordination among federal R&D agencies. Much more, however, needs to be done. It is impossible to foresee how we can have any sensible technology policy without such basic information and the ability to analyze it.

If we can strengthen our planning abilities and, as a result, our policymaking framework, I strongly believe that, with White House leadership, we can accomplish our R&D goals through the quite capable mission-oriented federal agencies we now have. Although it might sound heretical, duplication in R&D programs is often very beneficial and leads to faster progress. I suggest that we maintain our diversity in supporting research of all types through different agencies, coordinate the activities better, and shy away from experimenting with creating yet another bureaucracy.

RAJAT K. SEN President R.K. Sen & Associates Washington, D.C.
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Title Annotation:response to Harold Brown and John Wilson, Issues, Wnt 1992-93
Author:Mclennan, Kenneth; White, Robert M.; Sen, Rajat K.
Publication:Issues in Science and Technology
Date:Jun 22, 1993
Words:1679
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