[Dr. Hannay's testimony, which follows, was scheduled at this point but was preempted by House floor action.]

STATEMENT OF N. BRUCE HANNAY, VICE PRESIDENT, RESEARCH AND PATENTS, BELL LABORATORIES

Mr. Chairman and distinguished members of the Committee, I am pleased to appear again before you and to have the opportunity to present my views on Federal policy for science and technology. As a representative of an industrial research laboratory, and recent President of the Industrial Research Institute, the particular perspective I have on national issues relating to science and technology is that of the private sector.

As this Committee undertakes its examination of Federal policy and organization as they affect the ability of science and technology to contribute to our national well-being, it is appropriate to consider in the broadest possible way the mechanisms whereby these contributions of science and technology are made. This Committee has frequently shown its clear appreciation of the need for a vigorous national program in basic science and the enhancement of our capability for the application of science. Science and technology will be even more essential to our progress in the future than they have been in the past. Solutions to problems we face relating to new energy sources and means for energy conservation, new materials resources and reprocessing of used materials, health care, the environment, and transportation needs, to name just some of our current concerns, will inevitably require new technology.

As we seek to improve the effectiveness of the processes that lead to the new science and technology that will be needed, we must consider the roles of all our institutions, both public and private.

A large part of our support for science and technology is provided by the private sector. Something in the neighborhood of $15 billion is spent by industry on research and development, out of its own funds, and another $1 billion is similarly provided by other private institutions. The total Federal funding is about $18 billion. Thus nearly half of the nation's research and development is funded by non-governmental sources. With such a large fraction of the total being contributed by industry, it is clear that national policy for science and technology must be formulated with adequate recognition of the role of the private sector and the effectiveness of industrial research. The universities have the primary institutional responsibility for basic science and industry has it for applied science.

The U.S. industrial research effort displays many strengths and it is fair to say that much of the nation's economic growth and well-being has been a consequence of these strengths. Not only have we seen the emergence of entire new industries as the result of industrial innovation, but our favorable worldwide position has largely stemmed from high productivity and technical leadership, over the last several decades.

However, the last few years have brought some important changes. Other countries have developed a high level of technological capability, and we are no longer unique in this respect. World trade figures reflect this change. The U.S. has suddenly been faced with shortages in energy and materials, which together are the basis for all industrial production. Also, we have seen the emergence of new national priorities. No longer is economic growth the unique contributor to our national well-being; we now assign comparable priority to various social and environmental factors. With these changes have come new pressures on industrial research and development. It must adapt to new conditions and find new ways to add to its effectiveness.

With this in mind, we can look at some of the dimensions of industrial research and development, and attempt to assess whether its past strengths are being maintained and whether it is well equipped to make the fullest possible contribution to the nation. Of the 400,000 manufacturing concerns in the U.S. that apply technology in some way, only 11,000 have R&D programs. 85 percent of all company R&D expenditures occur in seven industries (electrical equipment and communications, chemicals, machinery, motor vehicles, aircraft and missiles, petroleum, and instruments). 75 percent of all industrial basic research is performed by just four industries, with over 50 percent in the leading two (chemicals, electrical equipment and communications). The four companies having the largest R&D investment spent 18 percent of all industrial R&D funds in 1970; the largest 20 spent 55 percent, and the largest 100 spent 79 percent.

These figures show the high degree of concentration of industrial research and development, a concentration that is not to be explained by the share of total U.S. industrial sales or work force in these companies.

What it does say to me is that the nation is underinvesting in research and development in substantial portions of industry. The sectors with low R&D expenditures are generally those with the poorest records of growth and increase in productivity. They are often not competitive with foreign industry. I believe this should be a matter of concern to all of us.

I will next undertake to examine the relationship between Federal policy and the health of industrial research and development. Clearly this is a complex matter, as many of the important aspects of the relationship arise from government policies in the broadest possible sense.

It must be said that industry finds few signs that Federal policy recognizes the enormous importance of privately-funded industrial research and development to the achievement of national goals. Little is done to encourage it, and Federal actions that tend to reduce its potential are for the most part viewed passively. This is in contrast to government policy in a number of other countries, where industrial research and development are actively encouraged. I should emphasize that I am making a clear distinction between governmentfunded R&D programs performed by industry, and privately-funded research and development. It is the latter, industry using its own funds for the invention and development of solid-state electronics, lasers, computers, new drugs, synthetic polymers and the host of innovations that have together transformed our economy and nation, that concerns me, for I see a diminishing force for this kind of industrial effort. The companies and industries that are not investing sufficiently in research and development do not have faith that it will be worthwhile, evidently. I do not agree with them.

There are many ways the government could encourage the private sector to support technology-based innovation more vigorously. It is not my intent today to review these, but only to urge that it be our national policy to encourage industrial funding of research and development.

In my earlier testimony to this Committee [July 16, 1974] I noted that a host of Federal actions affect the course of industrial research and development. Some have this intent. but most do not. Taken together, these Federal policies and actions have amounted to an unstated "science policy", with the disadvantage that it is the accidental result of other policies having a variety of purposes, and these may not be consistent with respect to science. The case for an explicit science policy has been well-stated by this Committee. One of the merits I would see in such a statement of national policy is that it would serve to remind us of national goals for science and its applications and to provide a yardstick for measuring the usefulness of Federal programs in science in terms of these goals. It would also give us an explicit statement of purpose, against which we could measure the effects of regulation, tax policy, anti-trust actions, patent policy and everything else that impinges in a substantial way on the effectiveness of our institutions in the creation of science and technology for the public good.

The proposed National Science Policy and Organization Act of 1975 [H.R. 4461] states clearly and well the elements of national science policy and the principles, procedures and institutions to implement this policy. These latter center on Federal programs. Our concern must be with the total national capability for science and technology, however. I would therefore welcome the addition of specific recognition of the national need to achieve and maintain a proper level and quality of privately-funded science and technology, to the policy statement. Appropriate Federal actions can and should encourage the investment of such funds. Industry's present investment in R&D is some three times that of the government in civilian-oriented programs. This private sector effort constitutes an enormous national resource. Nevertheless it should be encouraged both to grow and to become more effective. As we noted earlier, there are large segments of industry in which the research and development commitment is inadequate. It should be an explicit element of national science policy to develop the full potential of the private sector to support research and development, and I would recommend that this be included as part of our statement of national policy.

While my main concern has been with privately-funded R&D, there is another aspect of the relationship between industry and government. This arises from the rapid increase in Federal funding of science and technology for the civilian sector. Some of this work will be carried on in government laboratories and in universities, and then the problem is technology transfer to industry, as only industry has the mechanisms for bringing to the ultimate user the results of the work, in most cases. Other Federally-funded programs will be performed

by industrial laboratories. The problem in this case is to find an accommodation whereby government is assured of the prompt utilization and dissemination of the results of the research and development, and industry does not find itself in an untenable position with respect to patent rights and proprietary knowledge, especially when these are derived from past work in the field. The point is, that as the government enters more and more into the area of civilian technologies, it will have to depend upon industry as a partner. With this will come a certain amount of strain, but it is important that both sides recognize that a cooperative relationship is essential to the ultimate success of Federal programs in civilian technologies.

Let me now address the specific issue of organization within the Federal government for the implementation of the science policy to which we have been addressing ourselves. This Committee and the Administration have both recognized the desirability of providing to the President and the Congress advice of the highest caliber in matters relating to science and technology, and of providing a link between the Executive Branch and Congress that will assure coordination in the determination of Federal programs and policies.

We may summarize some of the essential features that are needed to make an advisory instrument effective by saying that the exact form of the advisory instrument and the mechanisms through which it operates must be viewed by the President as satisfactory, or they will not be used; hence the concept of flexibility in organization is an important and desirable feature. Thus the choice between a single adviser or a small council of advisers seems largely a matter of accommodation to the desires of the principle users of the advice, and the President has now indicated his preference. I would favor accepting his proposal. Clearly the budget of the organization must be sufficient to allow staffing at a reasonable level. A modest beginning, with later growth as needed, seems a prudent course. Another feature must be the recognition that the advisory function is not an advocacy function, but one that focuses on the optimum development and utilization of science and technology in the national interest. There are undoubtedly those who will wish to press an advocacy role upon the science adviser, but this properly belongs with the National Foundation and other such mission agencies and has no place in the science and technology advisory instrument.

For the adviser to be effective, there must be established easy communication and a close relationship to the many agencies of the Federal government, as well as to the country's science and engineering community. The successes and failures of previous science advisory instruments were very much related to the quality of these relationships. One possible way to strengthen those that lie within the Federal government would be through a close affiliation with the Domestic Council, where much of the responsibility for utilization of science and technology rests, and with the National Security Council on matters relating to military R&D. Ties to the national community of scientists and engineers should be as broad as possible. and progress in this direction has been made in the last two years through the efforts of Dr. Stever, who has followed the practice of using widely representative groups for consultation and discussion of policy issues. His initiatives in this regard have been warmly received by the private sector, and I would hope that any newly formed advisory organization would continue and extend these ad hoc relationships with the whole of the U.S. science and engineering community. Dr. Stever has actively sought inputs from industry, in part through the Industrial Research Institute, and we welcome this dialogue. Also, there are strong indications that the scientific and engineering societies are moving toward a more active position in relationship to the government and they could become an additional resource for the adviser. There seems little doubt that the ad hoc committee approach, as proposed by the Administration, has great potential.

One function of the adviser, as envisioned in the proposed Act [H.R. 4461], would be the provision of periodic reports on the rate of progress of science and technology in this country, and, of course, recommendations to the President and the Congress on actions to be taken would depend very importantly on this periodic assessment. I earlier recommended that an explicit recognition of the essential role of industrial research and development be included in any statement of national science policy. Part of my reason for this was to draw attention to the need for the adviser to assess the progress not only of public programs, but also of the private sector, and to relate the latter to all aspects of public policy. Although the specific elements of this policy are the responsibilty of many departments and agencies, a coherent assessment of the effects of public policy on the progress of industrial science and technology would come from the adviser.

In this way trends that were not in the public interest could be identified and reeommendations for their correction could be made.

The centralized advisory instrument for science and technology is, in my view, entirely consistent with the dispersal of science and technology programs throughout the government. This dispersal is as it should be, for science and technology permeate most aspects of our national life, just as, say, economics does. Applied science is most effective when it is closely tied to a mission and it cannot be efficiently carried out in the abstract, as can basic science. Thus the dispersal of applied science and technology throughout mission-oriented departments and agencies is in the best traditions of science and engineering, and it is exactly what we have always done in industry. The effectiveness of programs in applied science and technology can be easily measured in terms of the mission of the organization providing the support.

The dispersal strategy brings with it, however, a need to evaluate the separate programs and to achieve a proper balance among them, strengthening selectively those which can make the greatest contribution. Thus the science and technology adviser would have an important function to perform in relation to all the Federal agencies, in evaluating programs and making appropriate recommendations for their modification. A part of this function should be the final budgetary review of all science and technology programs, prior to OMB action.

The establishment of an Office of Science and Technology Policy would be wellreceived by industry. The explicit recognition of technology as part of the adviser's responsibilities is an important feature of the proposal. It is to be hoped that the adviser would take a broad view of the nation's science and technology needs, and that his recommendations to the President and to Congress would reflect his appreciation of the tremendous breadth of public policy issues as they interact with science and engineering in all our institutions.

Finally, I would like to say something about the proposal that a Department of Research and Technology Operations be established. The evaluation of the performance of an agency with respect to its mission is, of course, a matter of direct concern to the Congress. Where the mission is intimately related to science and technology, it is essential that there be no separation between the mission itself and the science and technology that support it. Thus the Congress can review the mission of, say, the space agency or the energy agency on a continuing basis and can accept its programs for science and technology in direct relationship to the priority accorded the mission by the Congress. In this continuing review process the identification of the agency mission is brought out particularly clearly in the case of independent agencies like space, energy, and basic science, not tied to Cabinet-level departments. It would seem to be advantageous to the Congress to maintain this direct access to these agencies, as an aid to the continuing surveillance of their missions and performance, and it would appear that their collection into a Department of Research and Technology Operations would not assist this process. It is comforting to know that now an independent agency exists only as long as there is a recognition of the legitimacy of its mission and a direct allocation of the resources needed to accomplish this mission, rather than because someone else feels a duty to advocate continued support.

By the same token, science and technology programs that relate directly to the missions of established departments and agencies should not be transplanted, in my view. This is the position of the National Bureau of Standards. Here the laboratory mission is easily identified with that of the Department of Commerce, and the programs of the Bureau reflect this. The NBS mission is to provide standards for the nation, for both government and the private sector, and to provide the measurement capability that is required for the proper development of our science and technology. The NBS is viewed by industry as having a welldefined mission that supports and strengthens our economy, and the Department of Commerce has this as its direct concern, of course.

For these reasons, I would oppose the establishment of a Department of Research and Technology Operations.

I will conclude by emphasizing that my purpose in calling particular attention to the relationship between industry and government in matters relating to science and technology is to suggest that science policy in the broadest sense must be concerned with the total national capability, not just the Federal sector. Only by new forms of cooperation between the private sector and government can we realize our full potential for the discovery of new science and its application to every area of national concern.

[Answers to questions referred to Mr. Hannay follow:]