Innovation and US Research - American Chemical Society

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24 Congressional View of Innovation and U.S. Research HONORABLE DON FUQUA

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U.S. House of Representatives, Washington, DC 20515

There has been, over the last several years, increasing discussion and concern over what to many experts is a stagnation in America'a ability to innovate in industry and compete in the world marketplace. Red flags of warning have come from industry itself, professional societies, the academic community, the Administration, and Congress. The subject has been extensively discussed and dissected by a diverse community of experts. However, trying to pinpoint the cause of the malaise is a l i t t l e like trying to figure out why a child doesn't do well in school. It's never any one thing, but rather a combination of things that have a cumulative effect: poor study habits, lack of confidence, too many distractions, etc. With America's dilemma, the causes and their relationship are similarly complex, involving patent policy, tax laws, anti-trust regulations, trade agreements, industrial inhibition to do long-term research, and the paucity of organizational structures for industry, government and academia to cooperate and assist each other, to name just a few. So I first say here that there are not going to be any easy, quick-fix solutions. What has seemingly been eroding American posture and prominence in the marketplace is being carefully studied and will have to be cautiously adjusted by a series of efforts which will eventually have the collective effect of reversing the disturbing trends. We bring to this process experience, s k i l l and the determination to see that the appropriate changes take place. I am confident we shall succeed. There is no strict yardstick I know of for measuring the health of innovation in the United States, but there are several indicators to watch. Research and development are expected to account for 2.2 percent of the nation's Gross National Product (GNP) both in 1979 and 1980. This ratio declined steadily from its 1964 peak of 3.0 percent to a 1973 level of 2.3 percent. Since 1973 i t has remained relatively level. Based on R&D funding and GNP projections into the eighties, this ratio would remain at about its present level into the near future. Other nations, specifically West Germany and Japan, are devoting grow0-8412-0561-2/80/47-129-235$5.00/0 © 1980 American Chemical Society Smith and Larson; Innovation and U.S. Research ACS Symposium Series; American Chemical Society: Washington, DC, 1980.

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ing shares of t h e i r n a t i o n a l resources to R&D w h i l e the U.S. prop o r t i o n of GNP devoted to research seems to have l e v e l e d o f f . Perhaps t h i s trend bore h e a v i l y on the f a c t that i n 1978 Japan produced a s u r p l u s i n manufactures of $63 b i l l i o n , and West Germany a $49 b i l l i o n s u r p l u s while the U.S. showed a d e f i c i t i n manufactures of about $6 b i l l i o n . I t i s a l s o s i g n i f i c a n t to note that i n energy s e l f - s u f f i c i e n c y the f i g u r e s are j u s t the r e v e r s e , with Japan being only 5 percent energy s e l f - s u f f i c i e n t , West Germany about 40 percent s e l f - s u f f i c i e n t and the U.S. about 75 percent s e l f - s u f f i c i e n t . Our performance i n patented i n v e n t i o n s may be one of the best s i n g l e measures of what i s happening i n our R&D output. The d i s q u i e t i n g f a c t i s that the number of patents granted to U.S. r e s i d e n t s d e c l i n e d by 21% between 1971 and 1976. At the same time, patents to f o r e i g n r e s i d e n t s grew by 16% and became 37% of a l l U.S. patents granted i n 1976. This trend continues. By and l a r g e , our i n d i c a t o r s s i g n a l a weakening c o n d i t i o n , which i s i n f a c t s u b s t a n t i a t e d because America ranks near the bottom of i n d u s t r i a l i z e d n a t i o n s i n p r o d u c t i v i t y growth. The Science and Technology Committee a c t i v e l y i n v e s t i g a t e d many of these i s s u e s i n hearings, s t u d i e s and symposia during the 95th Congress and has continued to do so i n the present Congress. This year, as a c o n t i n u a t i o n of our e f f o r t s , we conducted a three-day i n q u i r y i n t o the R&D p o r t i o n of the f e d e r a l budget. Because of the l a r g e share of f e d e r a l R&D support and the manner i n which f e d e r a l p o l i c i e s and r e g u l a t i o n s i n c r e a s i n g l y a f f e c t p r i v a t e investment i n R&D, the dominance of the F e d e r a l Government and i t s impact on the elements of our s c i e n c e and technology e n t e r p r i s e are probably g r e a t e r than ever. The Science Committee i s charged w i t h " s p e c i a l o v e r s i g h t " of government-wide research and i s the only committee with the f u l l scope of Congress r e s p o n s i b i l i t y f o r o v e r s i g h t of R&D p o l i c y . The hearings t h a t we h e l d were s p e c i f i c a l l y d i r e c t e d towards understanding the R&D budget b e t t e r — to l e a r n how i t i s fashioned, managed, monitored and evaluated, i f indeed a l l of these were a p p l i c a b l e . However, i n t h i s i n i t i a l t h r u s t we a l s o explored the concept of a two-year budget c y c l e i n R&D and as a r e s u l t , I have r e c e n t l y introduced l e g i s l a t i o n to that e f f e c t . The Research and Development A u t h o r i z a t i o n Estimates Act (H.R. 7790) i s designed to i n s p i r e f u r t h e r thought and c o n s i d e r a t i o n of moving the F e d e r a l Government toward a two-year budget c y c l e . This b i l l , which i s d i r e c t e d only to the a u t h o r i z a t i o n process f o r research and development, i s not the answer to a l l the complex, burdensome budget procedures which face the Congress and the Executive, nor i s i t anything but a m i n i s c u l e step i n the v a s t c y c l e that e v e n t u a l l y r e s u l t s i n i n n o v a t i o n and i n c r e a s e d p r o d u c t i v i t y . However, i t was noted i n these hearings that a two-year or m u l t i - y e a r a u t h o r i z a t i o n would be h e l p f u l i n establ i s h i n g Congressional i n t e n t on the l e v e l of support f o r R&D programs that have long l e a d times. These long-term programs are 1

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

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o f t e n the very ones t h a t s u f f e r most from the vagaries o f changing emphasis while they a r e a l s o the ones which r e q u i r e s t a b l e and steady support to bear f r u i t . In a d d i t i o n , these are the programs that f r e q u e n t l y open up whole new avenues o f opport u n i t y that can have a r i p p l e e f f e c t throughout the e n t i r e economy. Coupled with our recent work on the R&D budget c y c l e , the Committee's Science, Research and Technology Subcommittee, c h a i r e d by Congressman George E. Brown, has set up a m u l t i faceted program o f i n q u i r y i n the area of i n n o v a t i o n and product i v i t y f o r t h i s Congress. As part of t h i s agenda, recent hearings were held to examine the linkages between the n a t i o n ' s u n i v e r s i t i e s and i n d u s t r y with a view towards improving those l i n k a g e s to promote increased i n n o v a t i o n and p r o d u c t i v i t y and t o determine what the appropriate r o l e of the F e d e r a l Government i s i n b u i l d i n g these l i n k a g e s . Although we so o f t e n f a l l back on the s i n g l e suggested panacea o f increased funds f o r research and development, t h i s seems to be missing an important p o i n t . I t was noted by v a r i o u s witnesses that w h i l e u n i v e r s i t i e s a r e s u i t e d f o r the making o f new d i s c o v e r i e s , i n d u s t r y and the business communi t y a r e more s u i t e d f o r p r o v i d i n g the wherewithal f o r t h e i r development. By simply p r o v i d i n g f o r i n c r e a s e d funds f o r R&D, we do not solve the fundamental problem whose r e s o l u t i o n depends mainly on developing new and i n n o v a t i v e approaches f o r r a p i d l y c o n v e r t i n g research r e s u l t s i n t o marketable products and marketable s e r v i c e s . At t h i s time there are few i n s t i t u t i o n a l mechanisms to promote the d e s i r e d r e s u l t s . Congressman Brown has r e c e n t l y introduced a House b i l l , the N a t i o n a l Science and Technology Innovation Act (H.R. 4672), c l o s e l y modeling a b i l l by Senator Stevenson, which c a l l s f o r the establishment o f "Centers f o r I n d u s t r i a l Technology." These centers would be a s p e c i f i c form o f u n i v e r s i t y / i n d u s t r y l i n k a g e , and testimony was taken a t these u n i v e r s i t y / i n d u s t r y hearings on the concept of the s p e c i f i c centers as o u t l i n e d i n the b i l l . When t e s t i f y i n g a t the hearings, Dr. Myron T r i b u s of M.I.T. mentioned an i n t e r e s t i n g s i d e l i g h t . He s a i d that Japanese u n i v e r s i t i e s a r e purported to guide t h e i r b r i g h t e s t students toward problems o f design and production. In the United S t a t e s , q u i t e the reverse seems to be t r u e . We t r y to d i r e c t our b r i g h t est students to go i n t o research c a r e e r s . The r e s u l t being that the United States takes a l i o n ' s share of Nobel P r i z e s , while Japan runs a f a v o r a b l e balance o f trade. This suggested s c e n a r i o i s seemingly v e r i f i e d i n that the U.S. has evolved i n t o a n a t i o n s p e c i a l i z i n g i n leading-edge t e c h nologies. This i s , f o r a l l p r a c t i c a l purposes, the " t e c h n o l o g i c a l f r o n t i e r " where both r i s k s and costs a r e high and where research would have the most immediate impact. However, our eventual s h o r t - f a l l i n the market place i s caused by the i n e v i t able r e a l i t y that leading-edge technologies mature and the techn o l o g i c a l know-how becomes common knowlege. Other n a t i o n s then

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

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have a v a i l a b l e to them, without any r i s k , the i n f o r m a t i o n that enables them to not only produce a f i n i s h e d product comparable to our own, but as we have seen i n the case of CB r a d i o s and c o l o r TV's with small m o d i f i c a t i o n s i n design and production, these nations a c t u a l l y create a product that beats our own out of the export market. Understanding these and other p a t t e r n s i s c r u c i a l to making proper c o n s t r u c t i v e adjustments. I might mention a t t h i s p o i n t that our p r o d u c t i v i t y should n e i t h e r be perceived nor measured s o l e l y i n goods or products, but a l s o i n s e r v i c e s . Marketing the s e r v i c e of how to use a modern t e c h n o l o g i c a l package, such as a computer program system, can give us the double mileage of p r o f i t i n g from the s a l e of equipment, which i n some cases i s a s i n g l e - s h o t d e a l , and a l s o p r o f i t i n g from the s a l e o f i t s a p p l i c a t i o n , which i s f r e q u e n t l y a non-depletable resource. This should be a f e r t i l e area f o r the United States because o f our emphasis on leading-edge technology. We a l s o know that American patent p o l i c y i s somehow woven i n t o the complex o f i n n o v a t i o n / p r o d u c t i v i t y . There are c u r r e n t l y two major i s s u e s i n government patent p o l i c y : one i s the ownership o f i n v e n t i o n s r e s u l t i n g from f e d e r a l l y funded R&D, and two, the general r e v i s i o n of the U.S. patent laws. I n regard to the f i r s t i s s u e , a s i g n i f i c a n t question a r i s e s as to whether the e x i s t i n g government patent p o l i c y promotes the progress of s c i e n c e , as r e q u i r e d by the U.S. C o n s t i t u t i o n or whether, i n f a c t , government patent p o l i c y has s t i f l e d both i n v e n t i o n and innovation. In general, i t has been the government's p o l i c y to r e t a i n t i t l e and r i g h t s to i n v e n t i o n s r e s u l t i n g from f e d e r a l l y funded research and development made e i t h e r by government contactors or grantees or by in-house government employees. S i g n i f i c a n t l y , the U.S. Government holds t i t l e to about 28,000 such i n v e n t i o n s , but only about 5% of these have been used — not an impressive showing. However, I want to i s s u e a note of c a u t i o n here because we may not be g e t t i n g an accurate reading on e i t h e r the cause o r the extent to which i n n o v a t i o n may be d e c l i n i n g i f we only consider the government's p o l i c y regarding patents and do not look to the i n d u s t r i a l community's response t o the r e a l i t i e s o f the market p l a c e . Althought the l e g a l l i f e of a patent i s 17 years, i t s " r e a l l i f e " i s o f t e n c l o s e r to 3 o r 4 years. By t h i s time, the competition may have come up with a m o d i f i c a t i o n i n the o r i g i n a l product and i s granted i t s own patent f o r a product or process d i f f e r e n t enough from the o r i g i n a l to warrant a separate patent, but s i m i l a r enough to the o r i g i n a l to make the i n i t i a l 17-year p r o t e c t i o n r e l a t i v e l y i n e f f e c t i v e or even u s e l e s s . No one knows b e t t e r than t h i s audience that competition and s u r v i v a l i n the market p l a c e are o f t e n accomplished by c i r c u i t o u s a c t i o n . Many companies with major research components do not patent t h e i r best ideas but keep them on the s h e l f u n t i l the

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

Downloaded by IMPERIAL COLLEGE LONDON on May 18, 2018 | https://pubs.acs.org Publication Date: August 8, 1980 | doi: 10.1021/bk-1980-0129.ch024

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product i s ready to go. This o f t e n gives the innovator more time to r e t a i n s i n g u l a r i t y and uniqueness — and thus p r o f i t from i t s research e f f o r t . Such s e c r e t i v e n e s s may, i n some ways, s t i f l e the exchange of ideas and i n f o r m a t i o n that i n t u r n s t i m u l a t e more new ideas and i n f o r m a t i o n which are the l i f e blood of i n n o v a t i o n . But the balance i s a d e l i c a t e o n e — t h a t i s , v i s - a - v i s going the patent route — and I make no judgments about i t at t h i s time. Just as every puzzle and p a t t e r n i s composed o f innumerable i n t e r l o c k i n g p i e c e s , so the r e s e a r c h - i n n o v a t i o n - p r o d u c t i v i t y f a b r i c i s a c o l l a g e of i n t e r l o c k i n g components. We have begun by l a y i n g out the pieces and examining t h e i r c h a r a c t e r and t h e i r i n f l u e n c e . We are hopeful that the Baruch Study recommendations w i l l f u r t h e r c l a r i f y our d i r e c t i o n . What comes next depends h e a v i l y on a c o a l i t i o n of dedicated people. I f the problem encompasses government, i n d u s t r y and academia then so too do the s o l u t i o n s i n v o l v e a l l three s e c t o r s . Let us f i n d a way together to prevent monopoly, but f o s t e r cooperation, to promote s c i e n c e , but not hoard i t s f r u i t s , to trade i n the world market, but not give away our advantages, and to l e a r n from the s u c c e s s f u l experiences of other nations as they have done from us. ?

As we begin the decade of the 8 0 s , America i s poised a t the t h r e s h o l d of a new e r a when we w i l l make a major t r a n s i t i o n i n energy sources at the same time that we w i l l re-evaluate o l d p o l i c i e s and patterns to create a more synchronous network i n which to achieve our g o a l s . The task i s a formidable one and we i n the Congress look forward to your h e l p . RECEIVED November 13, 1979.

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