Research and Innovation: Joint Economic Committee Special Study

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10 Research and Innovation: Joint Economic Committee Special Study on Economic Change MARY ELLEN MOGEE and W. A. HAHN

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Congressional Research Service, Library of Congress, Washington, D.C. 20540

The Research and Innovation Area Study (RIAS) is a study being conducted for the Joint Economic Committee of the U.S. Congress, which is currently chaired by Senator Lloyd Bentsen of Texas. We have been working on RIAS for about two years now and are in the process of completing the first phase. The entire study is scheduled for completion in mid-1980. The objectives and procedures of the study, the contents of the final report, and some of its implications are described in this paper.

Special Study of Economic Change RIAS is part of a larger study called the Special Study of Economic Change (SSEC). The SSEC was approved by the Congress in July 1977. At that time, the chairman of the Joint Economic Committee was Rep. Richard Bolling of Missouri. The Special Study was conceived as a broad examination of the thesis that economic, social, political, international, and technical conditions have changed and are continuing to change markedly, such that conventional economic theory and tools may no longer be equal to making sound policy for the future in the economic area. A special temporary staff was hired to conduct the Special Study and a time frame of about three years was set. The end product was to be information and analysis necessary for consideration of legislation by a number of the legislative standing committees of the Congress. The Joint Economic Committee itself is a non-legislative committee and so may not introduce legislation, but in the past it has been quite influential through its study activities. In fact, the J.E.C. is in a unique position to contribute to congressional understanding of central economic problems that require a long-term perspective and a broad outlook. 0-8412-0561-2/80/47-129-123$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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The S p e c i a l Study was to c o n s i s t of three phases: A n a l y s i s and Assessment; I n t e g r a t i o n of F i n d i n g s ; and C o n s i d e r a t i o n of P o l i c y A l t e r n a t i v e s . The f i r s t of these phases, a n a l y s i s and assessment, i s j u s t now being completed. The i n t e g r a t i o n phase i s to occur between now and the end of 1979, and the p o l i c y c o n s i d e r a t i o n phase, which w i l l i n v o l v e the Members of the J o i n t Economic Committee, w i l l take place i n the f i r s t s i x months of 1980. The S p e c i a l Study c o n s i s t s of nine Area Studies, of which RIAS i s one. The other Area Studies are: Human Resources and Demographics; M a t e r i a l s and Energy; "Stagflation ( p e r s i s t e n t i n f l a t i o n with unemployment); Federal Sector Finances; State and L o c a l Finances; Pension Systems; Government Impact ( l a r g e l y r e g u l a t i o n ) ; and The I n t e r n a t i o n a l Environment. The S p e c i a l Study was headed by Dr. Charles S. Sheldon I I as Research D i r e c t o r and by Dr. Robert Wallace as Senior Economist u n t i l the end of 1978. Dr. Louis Krauthoff assumed the p o s i t i o n of d i r e c t o r of the S p e c i a l Study i n 1979. For each of the nine Area Studies, recognized experts were named as Area D i r e c t o r s . In a d d i t i o n , a member of the r e g u l a r s t a f f of the J o i n t Economic Committee and one from the Congressional Research S e r v i c e were appointed to a s s i s t each Area D i r e c t o r . For the Research and Innovation Area Study, which I w i l l describe i n more d e t a i l l a t e r , Walter Hahn, Senior S p e c i a l i s t at the CRS i s Area D i r e c t o r . Richard Kaufman, General Counsel of the J o i n t Economic Committee i s the JEC r e p r e s e n t a t i v e , and I am the CRS s t a f f representative. Each of the Area D i r e c t o r s approached h i s task i n a d i f f e r e n t manner. Some held hearings, some commissioned s e r i e s of papers, and one Area D i r e c t o r i s w r i t i n g the whole t h i n g h i m s e l f i n the form of a book. A s e r i e s of volumes for each Area Study i s scheduled to be published by the Committee by the end of 1979. Meanwhile, the i n t e g r a t i o n of the f i n d i n g s from the Area Studies i s being s t a r t e d by the s t a f f of the S p e c i a l Study.

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The Research and Innovation Area Study Now l e t me d e s c r i b e i n more d e t a i l the Research and Innovation Area Study. We regard i t as a l o w - p r o f i l e c o n g r e s s i o n a l counterpart to the Domestic P o l i c y Review

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

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Committee Study on Economic Change

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of I n d u s t r i a l Innovation which was conducted c o n c u r r e n t l y i n the executive branch. We have a l s o regarded i t as an opportunity to f a c i l i t a t e the i n c l u s i o n 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 f a c t o r s i n the c o n s i d e r a t i o n o f p o s s i b l e economic p o l i c y changes. We viewed our r o l e as p r o v i d i n g a contextual and i n f o r m a t i o n a l base f o r the succeeding phases of the S p e c i a l Study, r e l a t i n g to the r o l e of research and development (R&D) and i n d u s t r i a l innovation i n the economy. We view the innovation process as going beyond R&D to i n c l u d e the d i s t r i b u t i o n and use o f new technology i n both the p u b l i c and p r i v a t e s e c t o r s . We wanted to look at R&D and innovation both as sources o f economic change and as they are a f f e c t e d by the economy. We wanted to take a f u t u r e - o r i e n t e d look at these r e l a t i o n s h i p s , focusing on the period s t r e t c h i n g from f i v e to 30 years from now. I f any "model" guided our thoughts, i t was a "systems"-type model, s t r e s s i n g the interconnected parts of the innovation process and i n n o v a t i o n as a part of a l a r g e r system o f economic, p o l i t i c a l , and s o c i a l f a c t o r s . Our approach was not to hold hearings, nor to undertake major new analyses, but r a t h e r , to review e x i s t i n g research and to b u i l d , to the extent p o s s i b l e , on the many ongoing, r e l a t e d a c t i v i t i e s , such as the p r e s i d e n t i a l Domestic P o l i c y Review and the Committee f o r Economic Development's study. We prepared a v a r i e t y o f review and synthesis papers and assembled s e l e c t e d key studies from the p a s t . We commissioned a few a n a l y t i c a l pieces to f i l l i n gaps i n knowledge and held a meeting i n December 1978 on the subject o f research, i n n o v a t i o n , and economic change. Our r e p o r t attempts to present what i s known about the r o l e of i n n o v a t i o n i n the economy, past trends and the present s t a t e o f the " i n n o v a t i o n system", and the outlook and options f o r the f u t u r e . Contents o f the Report The report i s organized along these same l i n e s : a "what i s known" s e c t i o n ; a present s t a t e o f a f f a i r s s e c t i o n , and an outlook s e c t i o n . The f i r s t paper i n the "what i s known" s e c t i o n i s THE PROCESS OF TECHNOLOGICAL INNOVATION IN INDUSTRY: A STATE-OF-KNOWLEDGE REVIEW FOR CONGRESS. The t h e s i s o f t h i s review i s t h a t , although knowlege remains l i m i t e d , recent research has r e s u l t e d i n more i n f o r m a t i o n about the process of i n d u s t r i a l innovation than most policymakers r e a l i z e . The o b j e c t i v e of the paper i s to summarize and t r a n s l a t e these research f i n d i n g s i n t o a form u s e f u l to c o n g r e s s i o n a l s t a f f and Members• In a d d i t i o n to the research l i t e r a t u r e , there has been a s u b s t a n t i a l number o f p o l i c y s t u d i e s i n the l a s t two decades. A paper e n t i t l e d TWO DECADES OF RESEARCH ON INNOVATION:

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

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SELECTED STUDIES OF CURRENT RELEVANCE provides a s e l e c t i o n of the executive summaries (or equivalent) from 42 p r i o r s t u d i e s . The 205 major recommendations from these s t u d i e s have been p u l l e d out and c a t e g o r i z e d i n terms of taxes, R&D support, patents, e t c . An attempt has been made to array them i n such a way as to show who the a c t i o n p a r t i e s would be i f they were to be implemented. The t h i r d piece under "what i s known" i s e n t i t l e d THE EXECUTIVE BRANCH DOMESTIC POLICY REVIEW STUDIES ON INDUSTRIAL INNOVATION: A SUMMARY AND PRELIMINARY EVALUATION. The major purpose of t h i s c o l l e c t i o n of r e p r i n t e d m a t e r i a l s i s to make a v a i l a b l e i n condensed form to the Members of Congress and the SSEC, the key input documents to the A d m i n i s t r a t i o n ' s Domestic P o l i c y Review. (Any e v a l u a t i o n w i l l be p r e l i m i n a r y and r e s t r i c t e d to m a t e r i a l s p u b l i c l y a v a i l a b l e at the time.) In p a r a l l e l with the foregoing e f f o r t s , the Committee f o r Economic Development has conducted an in-depth p o l i c y a n a l y s i s e n t i t l e d , REVITALIZING TECHNOLOGICAL PROGRESS IN THE UNITED STATES. The CED summary chapter, completed i n August 1979 and to be published i n October 1979, i s to be r e p r i n t e d with t h e i r permission i n our r e p o r t , where i t w i l l be d i r e c t l y a v a i l a b l e to Members of Congress. The f i n a l paper i n the "known" category presents an overview of what i s known about THE RELATIONSHIP OF FEDERAL SUPPORT OF BASIC RESEARCH IN UNIVERSITIES TO INDUSTRIAL INNOVATION AND PRODUCTIVITY. I t reviews three kinds of evidence which bear upon t h i s i s s u e : the conceptual r e l a t i o n s h i p between science and technology, the nature of u n i v e r s i t y - i n d u s t r y r e l a t i o n s , and economic s t u d i e s of the c o n t r i b u t i o n of research and development to economic growth and p r o d u c t i v i t y . Since the l i t e r a t u r e i s o f t e n somewhat behind the times with respect to research and p o l i c y i s s u e s , a second s e c t i o n of the report attempts to b r i n g up to date our knowledge of i n n o v a t i o n , the economy, and p o l i c y i n i t i a t i v e s . One paper i n t h i s s e c t i o n i s RESEARCH, INNOVATION, AND ECONOMIC CHANGE, which i s a summary and a n a l y s i s of a workshop by the same name that we sponsored i n December 1978. The workshop helped provide up-dated information on the r e l a t i o n s h i p of R&D, innovation, and the economy, and i t provided a d i a l o g u e , which i s sometimes more r e v e a l i n g than conventional w r i t t e n p r e s e n t a t i o n s . Among the major issues discussed were the i n n o v a t i o n process, technology t r a n s f e r , the linkages between i n n o v a t i o n and economic growth and p r o d u c t i v i t y , and the Government's r o l e . To assure an up-to-date and comprehensive review of the status of l e g i s l a t i v e a c t i o n i n t h i s area, the report a l s o contains the l a t e s t CRS "Issue B r i e f , " e n t i t l e d INDUSTRIAL INNOVATION. I t records a l l r e l e v a n t b i l l s and other l e g i s l a t i v e a c t i o n s , along with statements on the issues i n v o l v e d , and includes appropriate supporting and background materials.

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

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Committee Study on Economic Change

A paper e n t i t l e d TECHNICAL ADVANCE AND ECONOMIC GROWTH: PRESENT PROBLEMS AND POLICY ISSUES analyzes the causes of some of the aspects of present economic malaise such as i n f l a t i o n , unemployment, and d e c l i n i n g p r o d u c t i v i t y growth. (Included by permission of the author, Richard Nelson, and the New York Academy of Sciences.) I t concludes that the d e c l i n e i n economic p r o d u c t i v i t y growth cannot be a s c r i b e d to the d e c e l e r a t i o n of R&D expenditures. On the other hand, the d e c l i n e i n R&D has been l a r g e l y due to the d e c e l e r a t i o n i n growth of economic output. However, slow and c o n s e r v a t i v e t e c h n i c a l advance can make i t more d i f f i c u l t to get out of the current economic r u t , while f a s t e r and more i n n o v a t i v e t e c h n i c a l advance may make i t e a s i e r to get out. The author does not promote government stimulus of b a s i c technology as the most important instrument i n r e s o l v i n g today's macroeconomic problems, but argues that such p o l i c i e s can be important parts of an e f f e c t i v e p o l i c y package. Another paper i n t h i s s e c t i o n i s SCIENCE INDICATORS: IMPROVEMENTS NEEDED IN DESIGN, CONSTRUCTION, AND INTERPRETATION. This i s an e v a l u a t i o n of measures c u r r e n t l y used to assess the status of U.S. science and technology, with p a r t i c u l a r a t t e n t i o n to the needs of policymakers. Several areas are i d e n t i f i e d where improvements i n science i n d i c a t o r s can be made, i n c l u d i n g the development of new i n d i c a t o r s and new models of science and technology. Another paper was commissioned on THE ROLE OF IMBEDDED TECHNOLOGY IN THE INDUSTRIAL INNOVATION PROCESS. This conceptual paper attempts to d e f i n e the concept of "imbedded technology, and to d e s c r i b e i t s nature and importance. Roughly d e f i n e d , "imbedded" technology i s that great bulk of incremental t e c h n o l o g i c a l changes that occur i n manufacturing and other i n d u s t r i a l a c t i v i t i e s that do not d i r e c t l y r e s u l t from organized R&D e f f o r t s . The author argues that imbedded technology i s a necessary c o n d i t i o n f o r s u c c e s s f u l i n n o v a t i o n and that i t s r o l e has not been recognized adequately by top management and p u b l i c policymakers. A paper e n t i t l e d A QUANTITATIVE TECHNOLOGY INDEX TO AID IN FORMING NATIONAL TECHNOLOGY POLICY attempts to go beyond the widely used but vague terms, "high" and "low" technology, to provide an extended and more r e p l i c a b l e method of c a t e g o r i z i n g technology f o r policymaking purposes. The index proposed i s composed of m u l t i p l e s c a l e s i n three d e s c r i p t i v e areas: the t e c h n o l o g i c a l product per se, the process of i t s manufacture, and the nature and extent of the d i s t r i b u t i o n system. The f i n a l paper i n the second s e c t i o n i s e n t i t l e d THE ROLE OF SMALL SCALE TECHNOLOGY IN INNOVATION. T h i s paper deals with an i n n o v a t i o n i s s u e which i s j u s t emerging on the American domestic scene, although i t has been an i s s u e i n the developing nations f o r some t i m e — t h a t i s , i n n o v a t i o n f o r s m a l l - s c a l e , d e c e n t r a l i z e d , low energy, low p o l l u t i o n , and 11

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

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p o s s i b l y more l a b o r - i n t e n s i v e technologies and processes. A paper e n t i t l e d A SCIENCE AND TECHNOLOGY OUTLOOK i d e n t i f i e s those f a c t o r s i n t e r n a l and e x t e r n a l to science and technology that need t o be understood by policymakers to i n t e g r a t e science and technology p o l i c y e f f e c t i v e l y i n t o the o v e r a l l techno-economic p o l i c i e s of the Government. I t a l s o i d e n t i f i e s major world problem areas to which science and technology w i l l be c a l l e d upon to respond i n the years ahead, such as food, population, energy, and the environment. And i t i d e n t i f i e s emerging t e c h n o l o g i c a l developments. Covering a period s t a r t i n g about f i v e years i n the f u t u r e , t h i s outlook goes out three decades, with the emphasis on the 15 year middle zone. The outlook sketches three scenarios of a l t e r n a t i v e f u t u r e s : an e x t r a p o l a t i v e scenario, a c a t a s t r o p h i c s c e n a r i o , and a "changing v a l u e s " s c e n a r i o . Concluding Observations I would now l i k e to make some concluding observations, based on our experience i n conducting t h i s p r o j e c t . These are not f i r m conclusions based on d e f i n i t i v e evidence nor in-depth a n a l y s i s , because that was not the nature o f our p r o j e c t . Nor are they recommendations because our p r o j e c t did not r e s u l t i n p o l i c y recommendations (although i t does i n c l u d e about 400 recommendations made i n other s t u d i e s ) . Rather, these observations are the r e s u l t o f my taking a step back from the immediate issues and looking at them i n the context o f the process o f p u b l i c policymaking. It f r e q u e n t l y has been noted that many studies of innovation and innovation p o l i c y have been done i n the past. We i d e n t i f i e d 42 major studies and about 400 p u b l i c p o l i c y recommendations to stimulate i n n o v a t i o n . I t seems reasonable to ask why so many studies have been done and so l i t t l e a c t i o n taken. I have come up with s i x f a c t o r s that I think are h o l d i n g back a c t i o n i n the innovation p o l i c y area. These are not o f f e r e d with the presumption that Government should or should not do something about i n n o v a t i o n , but from the p e r s p e c t i v e of the analyst attempting to e x p l a i n why so l i t t l e a c t i o n has been taken to date. I think, however, that these points can be u s e f u l to those who take a more advocatory p o s i t i o n , although some of the problems may be r e l a t i v e l y i n t r a c t a b l e . Before I l i s t the s i x f a c t o r s , I would note that they appear to f a l l i n t o two c a t e g o r i e s : l i m i t a t i o n s on data and a n a l y s i s , and c o n s t r a i n t s on our a b i l i t y to act politically. The s i x f a c t o r s a r e : 1) Lack of consensus on what the " i n n o v a t i o n problem" i s and how serious i t i s . 2) Lack of consensus on the importance of R&D and innovation i n our current economic problems and t h e i r u t i l i t y i n a m e l i o r a t i n g those problems.

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

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MOGEE

Committee Study on Economic Change 3) Lack of consensus on whether or how much current Government p o l i c i e s i n h i b i t i n n o v a t i o n . 4) Lack of consensus on what the e f f e c t s of p o l i c y changes would be on innovation and what other e f f e c t s would be. 5) Lack of consensus on what the Government should do, i f anything, and l a c k of confidence that Government can intervene e f f e c t i v e l y . 6) Antagonism between Government, p u b l i c i n t e r e s t groups, and p r i v a t e i n d u s t r y .

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Closing In c l o s i n g , then, I would summarize some of the most important r e s u l t s of the RIAS study i n the f o l l o w i n g way, noting that they tend to be p r e d i s p o s i t i o n s that we brought to the p r o j e c t with us and that survived the e x e r c i s e , albeit^ i n somewhat a l t e r e d form: 1) Innovation needs to be viewed " h o l i s t i c a l l y " , that i s , as the sum of i t s i n t e r r e l a t e d parts and as a subsystem i n t e r a c t i n g with the economic, p o l i t i c a l , and s o c i a l f a c t o r s i n i t s environment; 2) There does not seem to be any "easy f i x " to perceived innovation problems; 3) Proponents of Government i n t e r v e n t i o n i n innovation w i l l have to work on developing a consensus and a s t r a t e g i c , coordinated approach, i f they hope to be effective; 4) These types of p o l i c y issues are among the most d i f f i c u l t f o r our p o l i t i c a l system to deal with; and 5) The J o i n t Economic Committee's S p e c i a l Study on Economic Change may be a f i r s t step toward i n t e g r a t i n g technology p o l i c y with macro-economic p o l i c i e s at the Federal l e v e l . RECEIVED November 13,

1979.

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

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