Innovation and US Research - ACS Publications

26 Assessment of Government Impact on Innovation GEOFFREY PLACE

Downloaded by EAST CAROLINA UNIV on June 4, 2018 | https://pubs.acs.org Publication Date: August 8, 1980 | doi: 10.1021/bk-1980-0129.ch026

The Procter & Gamble Company, Ivorydale Technical Center, 5299 Spring Grove Avenue, Cincinnati, OH 45217

The ability of the U.S. to meet its economic and broad s o c i a l goals is dependent, and i n c r e a s i n g l y so, upon the development and commercialization of new technology. Development and commercialization of technology in t h i s country occurs p r i m a r i l y i n the p r i v a t e sector and most frequently i n industrial o r g a n i z a t i o n s . But, at the same time we should acknowledge i n d u s t r y ' s dependence upon u n i v e r s i t i e s , f e d e r a l l a b o r a t o r i e s and other n o n - i n d u s t r i a l research o r g a n i z a t i o n s to provide much of the needed science base, and (in the case of u n i v e r s i t i e s ) to train the necessary s c i e n t i s t s and engineers. Although the development and commercialization of technology occurs p r i m a r i l y i n the p r i v a t e s e c t o r , the Federal government has become i n c r e a s i n g l y involved over the last two decades. Since World War II it has been accepted that the h e a l t h and w e l l -being of the n a t i o n a l science and t e c h n o l o g i c a l c a p a b i l i t y was an area in which government should have developed and a r t i c u l a t e d policies. In the e a r l y post-war years, such p o l i c i e s p r i m a r i l y addressed r e l a t i v e l y narrow areas such as u n i v e r s i t y research or matters of weaponry and disarmament. More r e c e n t l y , however, government p o l i c y has addressed i t s e l f to the h e a l t h and w e l l being of much broader areas of n a t i o n a l science and technology, i n c l u d i n g t e c h n i c a l areas r e l a t e d to h e a l t h , environment, and energy. This broadened area of government involvement i s extending government policy-making to i n c l u d e the h e a l t h and w e l l being of not only u n i v e r s i t y and in-house government research but also much i n d u s t r i a l research as w e l l . Against t h i s background, s e v e r a l t e c h n i c a l resource f a c t o r s a f f e c t the nation's a b i l i t y to develop and commercialize new technology: First A v a i l a b i l i t y of t e c h n i c a l resources and s k i l l s which match the needs of the process; Second Achievement of appropriate balances i n the commitment of these resources:

0-84l2W-2W4W2Ô'-%7$5.00/0 © 198$0(Hfi££aU ilïBf^ical Society Smith and Larson; Innovation and U.S. Research ACS Symposium Series; American Chemical Society: Washington, DC, 1980.

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INNOVATION AND U.S. RESEARCH: PROBLEMS AND RECOMMENDATIONS


a.

Balance between the c r e a t i o n and u t i l i z a t i o n of knowledge, b. Balance among p r o j e c t s motivated by s c i e n t i f i c v s . economic v s . p o l i t i c a l values and objectives, c. Balance between s h o r t - and l o n g - term o b j e c t i v e s . Innovation i s a l s o impacted by the e f f e c t i v e n e s s of the coupling among the various s e c t o r s of the n a t i o n a l R&D resource. What i s the s i t u a t i o n with respect to these f a c t o r s today? Q u a l i f i e d s c i e n t i s t s and t e c h n o l o g i s t s are a l i m i t e d resource; any a c t i o n which causes t h i s l i m i t e d resource to be a l l o c a t e d to one kind of a c t i v i t y w i l l make i t u n a v a i l a b l e f o r other purposes. -The number of students who are able and w i l l i n g to enter i n t o a s c i e n t i f i c or t e c h n i c a l career i s s t r i c t l y l i m i t e d and since World War I I has d e c l i n e d as a percentage of the t o t a l student population. -The q u a l i t i e s needed to be outstanding i n science and technology are even more c r i t i c a l l y l i m i t e d . As de S o l l a P r i c e argues p e r s u a s i v e l y i n L i t t l e Science, B i g Science, outstanding c a p a b i l i t y i n science i s a small f r a c t i o n i n any pool of s c i e n t i s t s . L i k e c a p i t a l , labor and many raw m a t e r i a l s , s c i e n t i f i c and t e c h n o l o g i c a l c a p a b i l i t y must be thought o f , nurtured and expended, l i k e the valuable and l i m i t e d n a t i o n a l resource that i t is. There i s considerable evidence that t h i s resource i s being used l e s s e f f e c t i v e l y than i t could be, due to a number of imbalances i n i t s development and s t r a t e g i c deployment. To some extent, these imbalances are the d i r e c t r e s u l t o f F e d e r a l a c t i o n s ; to some extent, they r e s u l t from r e a c t i o n s , i n u n i v e r s i t i e s and i n i n d u s t r y , to Federal a c t i o n s . BUT, TO A LARGE EXTENT, THEY APPEAR TO BE INDIRECT AND UNINTENDED RESULTS OF APPARENTLY UNRELATED FEDERAL GOVERNMENT POLICIES AND DECISIONS. Since World War I I there have been a number o f major s h i f t s i n the make-up of the n a t i o n a l s c i e n t i f i c and t e c h n o l o g i c a l resource and i n the way i t has been a l l o c a t e d . These s h i f t s are of fundamental importance because they have s e r i o u s l y a f f e c t e d the a b i l i t y of a l i m i t e d resource to help meet the nation's economic and other s o c i a l g o a l s , a. We have committed inadequate t e c h n i c a l resources to the u t i l i z a t i o n of knowledge as opposed to i t s c r e a t i o n . As an i n d i c a t i o n of t h i s trend, the r a t i o of engineering f i r s t degrees to science doctorates has d e c l i n e d from over 10:1 p r i o r t o 1950 to under 5:1 since 1951. S i m i l a r l y , the r a t i o of a p p l i e d research and development to b a s i c research has been i n d e c l i n e . In 1953, each d o l l a r of b a s i c research was accompanied by almost eleven d o l l a r s f o r a p p l i e d research and development; by 1979, t h i s f i g u r e had f a l l e n to under seven d o l l a r s f o r each d o l l a r invested i n b a s i c r e s e a r c h .

Smith and Larson; Innovation and U.S. Research ACS Symposium Series; American Chemical Society: Washington, DC, 1980.

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b.

The balance among s c i e n t i f i c , economic and p o l i t i c a l values and o b j e c t i v e s as motivators of s c i e n t i f i c and t e c h n o l o g i c a l development has s h i f t e d away from the s c i e n t i f i c and economic, and toward the p o l i t i c a l . Professor G i l p i n , i n h i s 1975 report to the J o i n t Economic Committee of Congress, s a i d : "As i n the case of government f i n a n c i n g i n g e n e r a l , there were problems; the emphasis on p a r t i c u l a r areas and the neglect of others caused s e r i o u s d i s t o r t i o n s and imbalances i n the o v e r a l l n a t i o n a l b a s i c and a p p l i e d research e f f o r t . Government overfinanced 'big technology and 'big s c i e n c e ' to the detriment of technologies and sciences of equal or greater relevance to s o c i a l welfare and c i v i l i a n industry." c. S p e c u l a t i v e , longer term but p o t e n t i a l l y more v a l u a b l e research has given way to shorter term and f r e q u e n t l y l e s s rewarding r e s e a r c h . Underlying a l l three of these s h i f t s has been a changed and much reduced r o l e f o r the i n d u s t r i a l s e c t o r i n the process of p r i o r i t y s e t t i n g and resource a l l o c a t i o n . The much increased r o l e of Federal agencies i n the support of science and technology since World War I I has been followed i n recent decades by a change i n p r i v a t e s e c t o r involvement as i n d u s t r i a l p r i o r i t i e s s h i f t e d i n response to changed economic conditions. In g e n e r a l , p r i v a t e sector resources w i l l be a l l o c a t e d f o r the development and commercialization of technology when, i n the p e r c e p t i o n of a p o t e n t i a l sponsor, the combination of expected costs and b e n e f i t s i s a t t r a c t i v e r e l a t i v e to other investment o p p o r t u n i t i e s . Economic c o n d i t i o n s i n the U.S. have become l e s s f a v o r a b l e f o r the development and commercialization of new technology: the cost of these a c t i v i t i e s has r i s e n ; the appropriable b e n e f i t s have d e c l i n e d . Simultaneously, r e g u l a t o r y requirements have forced the a l l o c a t i o n of s u b s t a n t i a l t e c h n i c a l and c a p i t a l resources to the defensive a c t i v i t i e s needed to maintain the v i a b i l i t y of e x i s t i n g t e c h n i c a l and c a p i t a l investments. The nation's u n i v e r s i t i e s and i n d u s t r i e s have d r i f t e d apart as the Federal government has increased i t s i n f l u e n c e on the development and u t i l i z a t i o n of the nation's l i m i t e d s c i e n t i f i c and t e c h n o l o g i c a l resources. F o r t u n a t e l y , there are notable exceptions to t h i s p i c t u r e , and bold experiments i n forming new kinds of u n i v e r s i t y - i n d u s t r y partnerships are being undertaken. Some u n i v e r s i t i e s are noted as being h i g h l y responsive to i n d u s t r i a l needs; the HarvardMonsanto program f o r b i o l o g i c a l research i s a most ambitious undertaking. Yet, o v e r a l l , the challenge of r e s t o r i n g an e f f e c t i v e coupling of u n i v e r s i t i e s with the i n d u s t r i a l sector i s s t i l l before us.


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IN NET, THE FEDERAL GOVERNMENT NOW PLAYS THE MAJOR DIRECT AND INDIRECT ROLE IN THE DEVELOPMENT AND COMMERCIALIZATION OF TECHNOLOGY BY ITS IMPACT ON THE AVAILABILITY OF THE NATION'S TECHNICAL RESOURCES, THE BALANCE BETWEEN THE COMMITMENT OF THESE RESOURCES, AND THE COUPLING AMONG THE VARIOUS SECTORS. What changes i n Federal p o l i c y w i l l help c o r r e c t t h i s situation? There seem to me to be three key o b j e c t i v e s which must be met i f we are to continue to meet our s o c i a l and economic goals: First The nation's l i m i t e d R&D resources must be developed and s t r a t e g i c a l l y deployed i n a way which i s congruent with the nation's economic and other social priorities. Second There must be a d d i t i o n a l s t i m u l i f o r the u t i l i z a t i o n of new technology by the p r i v a t e s e c t o r . Third The performers of b a s i c research must have the freedom to respond to s o c i e t y ' s t o t a l needs, i n c l u d i n g those i d e n t i f i e d by s c i e n t i f i c and economic, as w e l l as p o l i t i c a l , c o n s i d e r a t i o n s . 1. What o p t i o n does the F e d e r a l government have as i t works to e s t a b l i s h and maintain the nation's s c i e n t i f i c and technological capability? T r a d i t i o n a l l y , the Federal government has exercised t h i s r o l e through support of education and basic research, p r i m a r i l y i n u n i v e r s i t i e s . However, i t i s i n s t r u c t i v e to r e f l e c t that the predominance of the Federal r o l e i n supporting u n i v e r s i t y research has been a r e l a t i v e l y recent phenomenon. We must never forget that the support of education and b a s i c research requires the c o n f r o n t a t i o n of overwhelming u n c e r t a i n t y . When to invest? Which f i e l d of science or technology? Which student or i n v e s t i g a t o r ? Which i n s t i t u t i o n ? For t h i s reason three key sources of i n f l u e n c e should guide t h i s s e l e c t i o n process: - S t i m u l a t i o n by science i t s e l f ; that i s , d e c i d i n g to educate and do research i n f i e l d s " j u s t because they are there" and research has become p o s s i b l e . - S t i m u l a t i o n by market need or opportunity; that i s , d e c i d i n g to educate or to do b a s i c research i n f i e l d s that judgementally w i l l provide the s k i l l and knowledge base f o r future technology development. - S t i m u l a t i o n by government i n s t i t u t i o n s to c a r r y out education and research i n areas of p o l i t i c a l i n t e r e s t . The balance among these three s t i m u l i i s an important i s s u e c a l l i n g f o r a d d i t i o n a l p u b l i c debate l e a d i n g to changed p o l i c i e s f o r education and b a s i c reseach funding. The most e f f e c t i v e way to r e s t i m u l a t e education and b a s i c research i n response to market needs would be to improve the coupling between the academic and i n d u s t r i a l s e c t o r s .



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- I would recommend encouragement, from the highest l e v e l s of the A d m i n i s t r a t i o n , d i r e c t e d at the l e a d e r s h i p of both i n d u s t r i e s and u n i v e r s i t i e s , f o r the formation of such partnerships. "Jawboning" may be going out of s t y l e , but there are few leaders of u n i v e r s i t i e s or i n d u s t r i e s who can ignore a d i r e c t , well-reasoned appeal from high i n the A d m i n i s t r a t i o n . They may not respond e x a c t l y as d e s i r e d , but they won't ignore the i s s u e . - U n i v e r s i t i e s need a d d i t i o n a l i n c e n t i v e s to encourage them to seek i n d u s t r y funding. Such i n c e n t i v e s could take the form of u n r e s t r i c t e d matching grants from the Federal government. -A s i m i l a r but smaller r o l e could be played by tax i n c e n t i v e s f o r i n d u s t r y support of u n i v e r s i t y research, s i m i l a r to those proposed by Senator J a v i t s . The use of tax i n c e n t i v e s as opposed to more d i r e c t government involvement would ensure the key r o l e of market i n f l u e n c e on the p r o j e c t s e l e c t i o n process. I do not mean to t r e a t l i g h t l y many i s s u e s which must be resolved i f u n i v e r s i t y / i n d u s t r y p a r t n e r s h i p s are to be p r o d u c t i v e . However, these issues w i l l be r e s o l v e d once the basic p o l i c y and i n c e n t i v e s are i n place and understood. 2. What o p t i o n does the F e d e r a l government have to r e s t o r e and maintain adequate i n c e n t i v e s f o r the commercialization of technology by the p r i v a t e sector? H i s t o r i c a l l y , t h i s Federal r o l e has been e x e r c i s e d p r i m a r i l y through tax and patent p o l i c y . These i n s t i t u t i o n a l i z e d mechanisms have served the n a t i o n w e l l i n the past. Unfortunately, there has been a d e t e r i o r a t i o n i n the e f f e c t i v e n e s s of both patent and tax p o l i c i e s , as new b a r r i e r s and d i s i n c e n t i v e s have been introduced. The I n d u s t r i a l Advisory Committee to the President's recent Domestic P o l i c y Review has submitted r e p o r t s expressing an i n d u s t r y viewpoint on many of the i s s u e s i n v o l v e d , and suggesting some 150 recommendations f o r Federal p o l i c y or procedure changes to improve the s i t u a t i o n . The subcommittee d e a l i n g with patent p o l i c y very a p p r o p r i a t e l y and s t r o n g l y recommended increased funding f o r the Patent O f f i c e . The subcommittee d e a l i n g with economic and trade p o l i c y properly recognized that the r o l e of government with respect to i n c e n t i v e s f o r p r i v a t e sector innovation must be to pursue p o l i c i e s which reduce i n f l a t i o n and thereby r e s t o r e a sound economic climate while at the same time r e i n f o r c i n g p o l i c i e s which permit s u c c e s s f u l p r i v a t e s e c t o r innovators to r e t a i n appropriate rewards f o r the r i s k s they undertake. F e d e r a l p o l i c i e s i n t h i s area should recognize the s p e c i a l c a p a b i l i t i e s of small business; but a l s o should take note of the complex r e l a t i o n s h i p s that e x i s t among small and l a r g e businesses, and between i n d i v i d u a l s and c o r p o r a t i o n s . 3. What should be the F e d e r a l r o l e i n h e l p i n g to ensure that



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p r i v a t e sector i n n o v a t i o n i s i n accord w i t h the p u b l i c interest? H i s t o r i c a l l y , the Federal government has exercised t h i s r o l e through r e g u l a t i o n of i n d u s t r y s t r u c t u r e and competition. More r e c e n t l y , t h i s Federal r o l e has been expanded to i n c l u d e r e g u l a t i o n designed to meet h e a l t h , s a f e t y and environmental goals. This Federal r o l e has been r a t i o n a l i z e d on the premise that the p r i v a t e s e c t o r — responding p r i m a r i l y to economic i n c e n t i v e s — w i l l not act i n accordance with the p u b l i c i n t e r e s t . Regardless of the merits of t h i s argument i n i n d i v i d u a l i n s t a n c e s , i t i s i n c r e a s i n g l y c l e a r that there are costs to s o c i e t y f o r these kinds of Federal a c t i v i t y and o f t e n because of t h e i r impact on t e c h n o l o g i c a l innovation these costs can be very substantial. -Economic r e g u l a t i o n can d i s t o r t the character of the t e c h n o l o g i c a l innovation which takes place i n regulated industries. - B a r r i e r s to the entry of new f i r m s , i n c r e a s i n g l y the d i r e c t or i n d i r e c t r e s u l t of r e g u l a t i o n , deny or delay to s o c i e t y the b e n e f i t s of t h e i r important c o n t r i b u t i o n to technological innovation. -The impact of the more recent h e a l t h and s a f e t y r e g u l a t i o n s on the commercialization of new technology by e x i s t i n g companies i s being i n c r e a s i n g l y recognized and documented. -We should note that because s c i e n t i f i c and t e c h n i c a l resources are l i m i t e d , Federal a c t i o n s which r e q u i r e these resources to be committed i n response to r e g u l a t o r y a c t i v i t y make them u n a v a i l a b l e to respond to other needs of s o c i e t y . In a d d i t i o n to the major costs to s o c i e t y of government i n t e r v e n t i o n i t has become c l e a r that the a b i l i t y of government agencies, both here and abroad, to intervene e f f e c t i v e l y i s extremely l i m i t e d . Technology development to c o r r e c t "market f a i l u r e " r e q u i r e s j o i n t c o n s i d e r a t i o n of market need, economic r e a l i t i e s and t e c h n o l o g i c a l c a p a b i l i t y . The almost impossible task of i n t e r p r e t i n g changing consumer demands and economic r e a l i t i e s — without the p l u r a l i s t i c c a p a b i l i t y of the market place — c r i t i c a l l y undermines a government agency's a b i l i t y to c e n t r a l l y respond to "market f a i l u r e . " Despite the d i f f i c u l t i e s involved, the Federal government does have an e s s e n t i a l r o l e i n the achievement of s o c i a l b e n e f i t s that would not otherwise occur as a consequence of the development and commercialization of technology i n a f r e e market. However, we must reexamine the way i n which t h i s r o l e i s implemented. Two p r i n c i p l e s could u s e f u l l y guide t h i s reexamination. F i r s t , d i r e c t Federal i n t e r v e n t i o n should be avoided, whenever p o s s i b l e , by r e l y i n g upon market forces to produce the d e s i r e d b e n e f i t s . To the extent that broad F e d e r a l policymaking can ensure an accord between the p u b l i c i n t e r e s t and the goals o f



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p r i v a t e technology commercialization, l i t t l e a d d i t i o n a l Federal a c t i o n w i l l be r e q u i r e d . Such congruence w i l l r e s u l t when the sponsors of technology development and commercialization are r e s p o n s i b l e f o r an appropriate part of t h e i r " e x t e r n a l i z e d " c o s t s , and at the same time have the a b i l i t y to r e t a i n an appropriate share of the b e n e f i t s of t h e i r a c t i v i t i e s . Such an approach w i l l r e l e a s e the power of the p l u r a l i s t i c c a p a b i l i t y of our economic system, while minimizing the costs and problems a s s o c i a t e d with d i r e c t r e g u l a t o r y a c t i o n . Second, avoid r e g u l a t o r y a c t i o n which i n c u r s v i s i b l e or hidden costs that are not j u s t i f i e d by the s o c i e t a l b e n e f i t s that result. I t i s p a r t i c u l a r l y important that such costs as s t i f l e d technology development and other undesirable second order e f f e c t s , i n c l u d i n g d i v e r s i o n of t e c h n i c a l manpower, be c a r e f u l l y assessed before r e g u l a t o r y a c t i o n i s taken. In summary, the Federal government has become the major i n f l u e n c e on the development and commercialization of technology by i t s impact, l a r g e l y d i r e c t , on the a v a i l a b i l i t y of the nation's t e c h n i c a l resources and by i t s impact, l a r g e l y i n d i r e c t , on the deployment of those resources. Imbalances i n the deployment of the nation's t e c h n i c a l resources have occurred which are a f f e c t i n g the nation's s o c i a l and economic w e l l - b e i n g . These i n c l u d e the imbalance between the u t i l i z a t i o n and c r e a t i o n of knowledge, the i n f l u e n c e of p o l i t i c a l as opposed to s c i e n t i f i c and economic values and the balance between s h o r t - and long-term c o n s i d e r a t i o n s i n p r o j e c t s e l e c t i o n . The coupling between the u n i v e r s i t i e s and government has strengthened since World War I I while communication between the u n i v e r s i t i e s and i n d u s t r y has languished. This s i t u a t i o n needs to be c o r r e c t e d so that U n i v e r s i t y and I n d u s t r i a l Research can become more responsive to s o c i e t y ' s t o t a l needs, i n c l u d i n g those i d e n t i f i e d by s c i e n t i f i c and economic as w e l l as p o l i t i c a l considerations• The government's major d i r e c t and i n d i r e c t r o l e i n the c r e a t i o n and deployment of the nation's t e c h n i c a l resources needs to be f u l l y recognized as f u t u r e Federal p o l i c i e s are developed. In p a r t i c u l a r , i t i s d i f f i c u l t to o v e r s t a t e the importance of developing economic and r e g u l a t o r y p o l i c i e s which w i l l s i g n i f i c a n t l y r e s t i m u l a t e the p r i v a t e s e c t o r ' s involvement and investment i n technology development and commercialization. RECEIVED November 13, 1979.


Innovation and US Research - ACS Publications

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