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June 15, 1994
"R&D Effort Downshifts - As Government Steps Back, General Projects Lose Support"
San Jose Mercury News
By Timothy Taylor
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JUST WHEN everyone agrees that the economic future lies with high technology, America's research and development effort is stagnating. Adjusted for inflation, federal R&D spending is below 1987 levels. Private sector R&D is growing, but not quickly enough to keep up with overall economic growth.

At a more fundamental level, the U.S. system for developing science and technology is quivering on its foundations -- and no one is quite sure what to put in its place. At a recent Stanford conference on growth and development, several economists addressed these issues.

Over the last 40 years, the U.S. built up an R&D establishment through universities, federal laboratories, and direct support of corporate research. Michael Spence, dean of the Stanford business school, pointed out some defining characteristics of that system.

It involved federal support for a broad range of basic science and civilian technologies, with the division of money determined by scientific peer review. By conducting much of this R&D in universities, the system helped train engineers and scientists. The R&D results of this system were broadly available, making it possible for many firms to tap into this knowledge base. In the corporate sector, spinoffs based on new technology were encouraged.

This system may seem familiar and obvious to Americans, but it has produced a science and technology establishment that is the envy of the world.

But Spence said support for this R&D system has diminished. Political support for R&D was at least partly based on national security concerns that have faded with the disintegration of the Soviet Union. The growth of foreign economic competitors has made America uneasy about paying for research that then turns into foreign production and jobs. And with the greater ease of communication and transportation, America's technological ideas end up abroad more quickly than ever before.

As a result, both government and private firms are less willing to support broad-based, open-ended, publicly available R&D projects. As Linda Cohen and Roger Noll put it at the Stanford conference, the "new competitiveness strategy" involves "privatizing public research."

For example, instead of focusing on broadly available research, the government is pushing government-industry partnerships to work on specific products, like Sematech, the National Battery Consortium (for electric cars), or the recent proposals for flat-panel displays. Companies are encouraged to collaborate with their competitors in R&D joint ventures. Private firms are asserting their intellectual property rights more aggressively.

Rather than the traditional approach of broad support for openly available research, these approaches involve focused support for specific and more proprietary research. This R&D strategy will have its successes, but as Cohen and Noll said, it poses dangers as well.

Because of its specific nature, this strategy offers less support for basic research -- those ideas that may lead to fundamental changes in the long run, but don't have an immediately obvious payoff. When companies in a consortium choose research targets, they focus instead on their immediate competitive needs. When research is privately owned, the companies that own it may band together, using their R&D to discourage new competition.

Government involvement in specific R&D projects is problematic as well. Such projects can become pork barrels for powerful politicians. When an R&D project fails, government will be tempted to throw money to "rescue" it, or to blame a scapegoat. When a government-backed R&D project succeeds, those firms threatened by the new technology will pressure the government for compensation. Of course, government always brings red tape and requirements, not what a free-flowing R&D effort needs.

Most important of all, some of the largest benefits of R&D are unexpected. They happen when a discovery made in one area is applied in an altogether different context, or when a discovery made long-ago is combined with a more recent discovery.

For example, Nathan Rosenberg said at Stanford that when the laser was invented, the lawyers at Bell Labs didn't want to bother with a patent. Since they didn't foresee fiber optic cable, they didn't see how a laser could help communications. Obviously, they didn't know that lasers would have an incredibly wide range of other applications, as well, including medical surgery, chemical research, navigational instruments, and computer printers.

When R&D is privately owned, ideas don't spread as rapidly, and these sorts of synergies can easily be delayed or even lost.

Privatized, proprietary research has its role to play. But the tradition of broadly based and openly available research is worth preserving, too.

Spence suggested trying a multilateral approach, where all countries would pay some fair share to support broad R&D projects. But how much money will nations contribute to foreign researchers? Will politics overwhelm peer review as a way of allocating the funds? Will countries try to lock up research results, rather than sharing them openly?

Cohen and Noll call for the federal government to "subsidize fundamental and technology base research," while using broad non-targeted incentives like R&D tax credits to support business research. But American taxpayers are not eager to continue paying for a disproportionate share of the world's science and technology, any more than they are eager to pay a disproportionate share of the world's defense budget.

Poking holes is easy; building institutions is hard. But unless America rethinks its institutions for supporting science and technology, R&D spending may continue to stagnate, and the benefits of new technology will arrive late, if at all.

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