The next bright idea

The roles government and industry play in innovative research have changed dramatically. Will America continue to lead the world in innovation?

At one time, the United States was the undisputed center of innovative technology development in the world — and the U.S. government led the charge. Because of government research, sleek cylinders carried men to the moon, and later, sleek cables carried data worldwide, a breakthrough that would come to be known as the Internet.

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Times have changed. Other countries are emerging as technology centers, and the U.S. government has stepped back from its leadership position, letting the private sector try to fill the gap. Technology has made the world flat, in the words of author Thomas Friedman, so that oceans and borders are no longer boundaries to the flow of expertise and inspiration.

This evolution has many ramifications. Some fear that the United States is losing its stature as a world leader in innovation. Others point to the profit motives of industry, saying that research without a probable commercial application is less likely to get done if government doesn’t do it.

“We are extremely good at the sales, marketing and distribution of high-tech products and services,” said Jay Jarrell, president and chief executive officer of database software developer Objectivity. “That’s where the money’s usually made — in distribution. But that doesn’t mean much if most of the products are coming out of China.”

World powers are not guaranteed dominance forever, Jarrell said. Rome and Britain are two examples of once-powerful empires that crumbled under their own weight.

The United States and “the Western world in general are becoming the historic cultures that are losing the innovative edge because of our standard of living and our educational patterns,” he said. “We’re becoming a society of servicing each other rather than innovating.”

China and India, in particular, once known for manufacturing commodity products for low wages, are rapidly becoming technology centers, said Jonathan Kestenbaum, CEO of the United Kingdom’s National Endowment for Science, Technology and the Arts.

“These [countries] are not anymore going to be the sweatshops of Western economies,” he said, speaking earlier this year at an event at the Progressive Policy Institute in Washington, D.C.

In one year, he said, about 5,000 U.K. university students graduate with a degree in computer science, while China graduates 250,000 computer science students. Meanwhile, U.K. businesses have scaled down, cut costs, increased efficiencies and still face the prospect of falling behind, a pattern that also applies to U.S. industries.

“There are only so many cuts you can make to a business,” he said. “The only way for the U.K. even to be competitive is innovation. There are no more efficiencies to be had.”

Robert Atkinson, president of the Information Technology and Innovation Foundation, said the United States faces a similar problem, but European nations may be more aware of it and further along the road to a solution.

This year “is a possible turning point because we’re finally beginning to have a discussion about innovation,” Atkinson said.

Industry steps in
No one doubts that the fundamental relationship between government and industry in innovative research has shifted in recent decades. But deciding whether that shift is positive is more controversial. Some experts argue that government in the past was able to drive aggressive research and development to pursue national goals, which often led to commercial products. Others say that bringing industry to the table sooner expands the brainpower of early-stage research efforts.“I think the government isn’t providing the leadership it used to provide,” said Dave McQueeney, vice president of strategy and chief technology officer at IBM Federal.

Only the government or large companies can afford to invest the kind of money that successful R&D takes because of the number of scientists needed, McQueeney said.

McQueeney said he would like to see more government initiatives on the scale of the Apollo space program or the Advanced Research Projects Agency Network, which became the Internet, because such efforts are often the catalyst for years of development. There are families of products in which “the whole fabric of the technology we have is directly traceable to government initiatives,” he said.

A confluence of factors, including industry’s drive to move jobs offshore could ultimately result in a new burst of government-centered innovation, said Don Rippert, chief technology officer at Accenture.

For decades, the standard industrial paradigm has been to develop standardized manufacturing processes that companies can easily replicate and teach, then find labor forces that will do the work cheaply. In recent years, that has meant the poorer economies of the Eastern hemisphere. “Now instead of replacing expensive hands with cheaper hands, you replace hands with machines, and use machines to build the machines,” he said. “We’re coming to the day when software is going to build software and automated tools will create applications.”

Because government does not usually send work outside the country, government loses the cost advantages. That means government has the motivation to move quickly to the next stage of automation, in which machines build machines, he said.

Charting change
Measuring the ways in which government and industry have changed their roles in innovative research is not easy, and every step of the process, starting with defining the correct measures, is a matter of debate.

The overall federal budget for R&D, as measured in inflation-adjusted dollars, has been flat for several years and is beginning to decline, according to data provided by Kei Koizumi, director of the R&D budget and policy program at the American Association for the Advancement of Science (AAAS) in Washington, D.C.

“Although high-priority investments in weapons development, human space exploration and now physical sciences research helps to keep the federal R&D outlook brighter than the bleak outlook for domestic programs overall, the [fiscal] 2007 budget would keep federal R&D on a downward slope from the highs of a few years ago,” Koizumi wrote in an AAAS report on the budget. “Even though some agencies and disciplines would do well in 2007, for trend after trend there were big increases leading up to 2003 or 2004, followed by real cuts that would continue into next year.”

The 2001 terrorist attacks may have sparked a temporary surge in R&D spending that masks the long-term trends. In dollars adjusted for inflation to 2006 values, total federal R&D spending ranged from $85.3 billion to $96.1 billion for every year from fiscal 1985 to 2000. The total broke $100 billion only in fiscal 2001, rising to a high of $134.6 billion in fiscal 2005 before beginning to decline. The AAAS report shows a total of $134.5 billion in 2006 and an estimated $133.9 billion in 2007. Despite that slight dip, the 2007 budget request includes the American Competitiveness Initiative, Bush’s promise to double the budget for the Energy Department’s Office of Science, the National Science Foundation and the National Institute of Standards and Technology in the next 10 years. Those three organizations received a total of $9.75 billion in fiscal 2006 and $10.66 billion in the fiscal 2007 request, a 9.3 percent increase.

Nonweapons basic and applied research at the Defense Department “barely hit record highs in 2005 and 2006 after taking 16 years to return to Cold War funding levels,” Koizumi wrote in the report. “But the [fiscal] 2007 budget proposes to cut these [DOD science and technology] investments nearly 20 percent in just one year, and reverse increases so far this decade.”

The number of scientists that the government employs, another measureable indicator, has dropped slightly in recent years. The Office of Personnel Management, analyzing selected years, found a total of 64,718 government employees in jobs categorized as technology-related research or development in 1992, or 3 percent of the total federal workforce of 2.2 million. That 3 percent figure held in 1997, when the government employed 54,733 research or development workers in a workforce of 1.8 million. In 2005, it had declined slightly to 2.9 percent — 54,153 research or development employees and 1.9 million total.

OPM cautioned, however, that the count can only be a rough approximation because defining the appropriate employees to include is difficult.

The numbers don’t tell the whole story, however. As important as it is to know how much money the government is investing, the destination and use of the money also matters. Some observers who have studied decades of R&D spending said the government is investing less on leadership. The gap is primarily in applied research, a middle phase between basic research and product development, said Hugh Montgomery, executive director of the Institute for Defense and Homeland Security (IDHS).

The nonprofit organization, created by the Virginia Center for Innovative Technology, seeks to step into that gap by identifying promising basic research at universities and finding funding to direct it into further development. Private industry can then adopt the research for final development.

“These are the people who stood between academia and industry,” he said.

Montgomery had a lengthy Defense Department career before taking the IDHS role.

The gap is not only on the government’s side, said James Decker, principal deputy director of DOE’s Office of Science, which manages 10 of the department’s national laboratories.

“Industrial research has changed a lot in this country,” Decker said. “You had a lot of corporate labs back in the ’60s that did a lot of basic research.” Bell Labs, for example, where Decker worked before coming to the government, ran the gamut from basic discovery to product development and all stages in between. Few companies are willing to make those investments today, he said.

“The government plays a real key role today in the more basic research, the long-term research in the country,” Decker said. “The government has become the sole support of research in a lot of areas.”

The space race era of the 1960s was the high point of government research, Montgomery said. Young men were able to avoid the Vietnam War draft if they worked in government science jobs. NASA’s quest to land someone on the moon before the Soviet Union did captured the American imagination and led to ample resources becoming available, he said.

The decline in applied research spending is tied to two different points in later history, Montgomery said. First, the Reagan administration’s Strategic Defense Initiative diverted funding from NASA and other federal research organizations to DOD. In 1991, the so-called peace dividend that came about with the collapse of the Soviet Union led to further policy changes and reductions in funding.

“A lot of that money came out of applied research,” Montgomery said. The government turned over much of the federal R&D infrastructure to industry in the early 1990s, he added.

Another factor that weakened the government’s internal resources was a wave of retirements and buyouts in the 1990s, he said. Although the move to reduce the government’s size did not target any particular type of federal employee, the timing was such that employees at or near retirement age were the same ones who joined the government in the 1960s, when the space race had spurred intensive hiring in science and technology fields.

Even when the government hasn’t performed much of the research work, it has often led the way. Even that force seems to be fading, some observers say.

“The role that government played originally was a big, important pushing role, a creating role with regard to technology,” said Lisa Mascolo, managing director of the government operating group at Accenture. “It’s relatively easy for government to fall out of the leadership role,” because of the budget cycle and the desire of government to get the most for its technology investments.

That means, she said, that an agency can push industry to develop an innovative IT system, but once a company installs the system, the push disappears, and the agency stretches the life of the system for as many years as possible.

However, Rippert said the cause of that perception may partially be industry’s increased R&D activity, particularly in IT, rather than government doing less. Although research organizations such as Bell Labs may no longer be common, companies do create new technologies, and there are more technology companies to do that now than there were 40 years ago.

Mary Lacey, program executive officer of the National Security Personnel System, a DOD initiative, said the dynamics that lead to advances have changed so much in the past few decades that the relationship between government and industry is not as much of a one-way street as it used to be.

In the past, government would let industry turn many technologies developed in federal laboratories into commercial products, said Lacey, former technical director of the Naval Surface Warfare Center. Now companies often innovate technologies for commercial uses that the government can then adopt. Lacey called it spin-on technology, in contrast to the more familiar spinoff effect.

The military, for example, uses simulation technology first developed by companies in the video game industry.

DOD doesn’t have to fund it because the companies are doing it for their own reasons, she said. “It’s not necessarily predictable or plannable,” but such spin-on applications are valuable.

Seeking a good yardstick
No tools exist to evaluate the comprehensive impact of R&D spending, Koizumi said. Measuring whether an infusion of money leads to a flow of invention or a lack of funding causes new technologies to go undiscovered is not easy.

“Much of the time, we’re reduced to anecdotes,” Koizumi said. Everyday technologies such as the Internet, Global Positioning System, magnetic resonance imaging and other medical technologies grew directly from government research. Those anecdotes strengthen the perception that aggressive government R&D funding leads to innovation. But quantitative data that could bolster the argument is lacking.

That makes it difficult for advocates to persuade cost-conscious lawmakers to loosen the purse strings, he said.

“In tough times, it’s always easier to cut the future-oriented things,” he said. “It’s difficult to make the argument [for R&D spending] in the best of times.”

In addition to being difficult in general, measuring the effects of R&D is harder in government than in industry, said Nicholas Vonortas, an associate economics professor at George Washington University. Economists use various methods, but none are really satisfactory, he said.

Unlike companies, government organizations don’t exist to make profits, so determining the impact is tricky, he said. However, that does give government the advantage of suffering less when research doesn’t meet expectations. The government’s pool of investors is the whole U.S. tax base, so the cost of failures is distributed among a vast number of contributors, he said. The subjects of innovation are also shifting in definition, said Chris Caine, vice president of governmental programs at IBM. Innovation used to imply tangible products to manufacture and sell, but today it often refers to services.

No going back
The era of big government-driven efforts such as the space program is probably gone for good, Mascolo said. A more conservative, results-driven approach is in place now, and that isn’t likely to change no matter which party wins in the upcoming congressional and presidential elections. “Regardless of what party’s in control, I think we’re going to continue to see a focus on objectives and outcomes,” she said. “People are a lot more focused on [questions such as] what is the business of government, what outcomes do we want to achieve. There’s no going back.”

The space race was a unique time in U.S. cultural history, Decker said. Because the government was the customer of the research — and NASA and DOD often still are — government had complete control over the process. The national laboratories, in contrast, conduct research or allow companies and universities to use the lab facilities for the sake of the research. If a line of inquiry leads to invention that could become products, industry takes over.

“The other thing that was unique about the space race was the way it captured people’s imaginations and made people want to go into science,” Decker added. “I can’t imagine anything else that would capture the public’s imagination like that.”

How valuable is education

Although legislative packages intended to spur innovation and U.S. competitiveness take various forms, analysts and other observers have no shortage of suggestions for effective measures. Education is one subject that comes up repeatedly, but not everyone agrees on its value.

Jay Jarrell, president and chief executive officer of Objectivity, is one who considers good education programs the basis for competitiveness. “If I had my druthers, I would start to pay for people to go to engineering school,” he said. “I would give tax breaks and credits for people who can earn an advanced degree that matters.”

A good university education requires preparation earlier in life, he added. “A lot of people go to a university in America and have no idea what they’re going to do,” he said. “In other societies around the world, people are training when they’re 10 years old.”

Education should include language skills, too, Jarrell said. “You need at least one foreign language,” he said. “Americans are looked at as silly and stupid and insular in our view of the world because we don’t speak any language other than English.”

Mary Lacey, program executive officer of the military’s National Security Personnel System, said education is fundamental. “A big part of innovation is keeping our pipeline going,” she said. “That takes us directly back to the education piece.”

Robert Atkinson, president of the Information Technology and Innovation Foundation, said other factors are more important, including spending more money on basic research and making research and development more profitable for companies to undertake through increased tax credits or other measures.

“These companies are committed to innovation, but it’s not clear they’re committed to innovation in the U.S.,” Atkinson said. “I don’t blame the companies. I understand why they do that, but we’ve got to play the game.”

As for education, Atkinson said, “I think that would be less important if I had to prioritize.”

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