While overall growth of industry-funded R&D has remained strong in recent years, the focus of this R&D has shifted significantly away from longer-term basic research in favor of applied research and development more closely tied to product development. Because of market demands from investors to capitalize on R&D quickly, large corporate laboratories of the Bell Labs model are increasingly rare (notable exceptions include companies such as IBM and GE). Instead, corporations now focus research projects almost exclusively on lower-risk, late-stage R&D projects with commercial benefits, leaving the Federal Government as the predominant supporter of long-term basic research.

Increasing Competitiveness of Foreign Countries

While trends of support for the innovation system in the U.S. have showed signs of slowing, other nations are committing significant new resources to building their science and technology enterprises. More than one-third of OECD (Organization for Economic Cooperation and Development)_countries have increased government support for R&D by an average rate of over five percent annually since 1995. The European Union has recently established a target to achieve EU-wide R&D intensity of three percent of the EU economy by 2010. (By comparison, the current U.S. R&D intensity, public and private sector combined, is 2.6 percent of GDP.) Similarly, individual nations, including South Korea, Germany, the U.K. and Canada, have recently pledged to increase R&D spending as a percentage of GDP.

However, no nation has increased its support for innovation as dramatically as China. It has doubled its R&D intensity from 0.6 percent of its GDP in 1995 to 1.2 percent in 2002 (this during a time of rapid GDP growth). R&D investments in China by foreign corporations have also grown dramatically, with U.S. investments alone increasing from just $7 million in 1994 to over $500 million in 2000. China is now the third largest performer of R&D in the world, behind only the U.S. and Japan.

The increased innovation capacity of other countries is also becoming evident in output-based R&D benchmarks. For example, the U.S. share of science and engineering publications published worldwide declined from 38 percent in 1988 to 31 percent in 2001, while Western Europe and Asia's share increased from 31 to 36 percent and 11 to 17 percent, respectively. Similar trends have occurred in the area of U.S. patent applications and citations in scientific journals.

Education and Workforce Issues

While the supply and demand of future scientists and engineers is notoriously difficult to predict, most experts believe that the transition to a knowledge-based economy will demand an increased quality and quantity of the world's scientific and technical workforce. As is the case with R&D figures, trends in the distribution of the world's science and engineering workforce are also unfavorable to long-term U.S. competitiveness.

The world is catching up and even surpassing the U.S. in higher education and the production of science and engineering specialists. China now graduates four times as many engineering students as the U.S., and South Korea, which has onesixth the population of the U.S., graduates nearly the same number of engineers as the U.S. Moreover, most Western European and Asian countries graduate a significantly higher percentage of students in science and engineering. At the graduate level, the statistics are even more pronounced. In 1966, U.S. students accounted for approximately 76 percent of world's science and engineering Ph.D.s. In 2000, they accounted for only 36 percent. In contrast, China went from producing almost no science and engineering Ph.D.s in 1975 to granting 13,000 Ph.D.s in 2002, of which an estimated 70 percent were in science and engineering.

Meanwhile, the achievement and interest levels of U.S. students in science and engineering are relatively low. According to the most recent international assessment, U.S. twelfth graders scored below average and among the lowest of participating nations in math and science general knowledge, and the comparative data of math and science assessment revealed a near-monopoly by Asia in the top scoring group for students in grades four and eight. These students are not on track to study college level science and engineering and, in fact, are unlikely ever to do so. Of the 25-30 percent of entering college freshmen with an interest in a science or engineering field, less than half complete a science or engineering degree in five

years.

All of this is happening as the U.S. scientific and technical workforce is about to experience a high rate of retirement. One quarter of the current science and engineering workforce is over 50 years old. At the same time, the U.S. Department of Labor projects that new jobs requiring science, engineering and technical training will increase four times higher than the average national job growth rate.

Industry Concerns and Reports

Some leading U.S. businesses have become increasingly vocal about concerns that the U.S. is in danger of losing its competitive advantage. In an effort to call attention to these concerns, several industry organizations have independently produced reports specifically examining the new competitiveness challenge and recommending possible courses of action to address it. Prominent among these efforts is the National Innovation Initiative (NII), a comprehensive undertaking by industry and university leaders to identify the origins of America's innovation challenges and prepare a call to action for U.S. companies to "innovate or abdicate." The December 2004 NII final report, Innovate America: Thriving in a World of Challenge and Change, is intended to serve as a roadmap for policy-makers, industry leaders, and others working to help America remain competitive in the world economy.

Other industry associations that have also produced recent reports include AeA (formerly the American Electronics Association), the Business Roundtable, Electronic Industries Alliance, National Association of Manufacturers, and TechNet. While the companies and industry sectors represented by these organizations varies widely, one general recommendation was common to all of the reports: the Federal Government needs to strengthen and re-energize investments in R&D and science and engineering education. The Science Committee held a hearing on July 21, 2005 on U.S. Competitiveness: The Innovation Challenge to examine the issues raised in these reports and how federal science and engineering research and education investments impacts U.S. economic competitiveness.

Appendix A

Executive Summary of National Academy of Sciences Report, Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future

The United States takes deserved pride in the vitality of its economy, which forms the foundation of our high quality of life, our national security, and our hope that our children and grandchildren will inherit ever-greater opportunities. That vitality is derived in large part from the productivity of well-trained people and the steady stream of scientific and technical innovations they produce. Without high-quality, knowledge-intensive jobs and the innovative enterprises that lead to discovery and new technology, our economy will suffer and our people will face a lower standard of living. Economic studies conducted before the information-technology revolution have shown that even then as much as 85 percent of measured growth in U.S. income per capita is due to technological change.6

Today, Americans are feeling the gradual and subtle effects of globalization that challenge the economic and strategic leadership that the United States has enjoyed since World War II. A substantial portion of our workforce finds itself in direct competition for jobs with lower-wage workers around the globe, and leading-edge scientific and engineering work is being accomplished in many parts of the world. Thanks to globalization, driven by modern communications and other advances, workers in virtually every sector must now face competitors who live just a mouseclick away in Ireland, Finland, China, India, or dozens of other nations whose economies are growing.

CHARGE TO THE COMMITTEE

The National Academies was asked by Senator Lamar Alexander and Senator Jeff Bingaman of the Committee on Energy and Natural Resources, with endorsement by Representatives Sherwood Boehlert and Bart Gordon of the House Committee on Science, to respond to the following questions:

What are the top 10 actions, in priority order, that federal policy-makers could take to enhance the science and technology enterprise so that the United States can successfully compete, prosper, and be secure in the global community of the 21st Century? What strategy, with several concrete steps, could be used to implement each of those actions?

The National Academies created the Committee on Prospering in the Global Economy of the 21st Century to respond to this request. The charge constitutes a challenge both daunting and exhilarating: to recommend to the Nation specific steps that can best strengthen the quality of life in America—our prosperity, our health, and our security. The committee has been cautious in its analysis of information. However, the available information is only partly adequate for the committee's needs. In addition, the time allotted to develop the report (10 weeks from the time of the committee's meeting to report release) limited the ability of the committee to conduct a thorough analysis. Even if unlimited time were available, definitive analyses on many issues are not possible given the uncertainties involved.

This report reflects the consensus views and judgment of the committee members. Although the committee includes leaders in academe, industry, and government— several current and former industry chief executive officers, university presidents, researchers (including three Nobel prize winners), and former presidential appointees the array of topics and policies covered is so broad that it was not possible to assemble a committee of 20 members with direct expertise in each relevant area. Because of those limitations, the committee has relied heavily on the judgment of many experts in the study's focus groups, additional consultations via email and telephone with other experts, and an unusually large panel of reviewers. Although other solutions are undoubtedly possible, the committee believes that its recommendations, if implemented, will help the United States achieve prosperity in the 21st century.

6 For example, work by Robert Solow and Moses Abramovitz published in the middle 1950s demonstrated that as much as 85 percent of measured growth in U.S. income per capita during the 1890-1950 period could not be explained by increases in the capital stock or other measurable inputs. The big unexplained portion, referred to alternatively as the "residual" or "the measure of ignorance," has been widely attributed to the effects of technological change.

FINDINGS

Having reviewed trends in the United States and abroad, the committee is deeply concerned that the scientific and technical building blocks of our economic leadership are eroding at a time when many other nations are gathering strength. We strongly believe that a worldwide strengthening will benefit the world's economyparticularly in the creation of jobs in countries that are far less well-off than the United States. But we are worried about the future prosperity of the United States. Although many people assume that United States will always be a world leader in science and technology, this may not continue to be the case inasmuch as great minds and ideas exist throughout the world. We fear the abruptness with which a lead in science and technology can be lost-and the difficulty of recovering a lead once lost, if indeed it can be regained at all.

This nation must prepare with great urgency to preserve its strategic and economic security. Because other nations have, and probably will continue to have, the competitive advantage of a low-wage structure, the United States must compete by optimizing its knowledge-based resources, particularly in science and technology, and by sustaining the most fertile environment for new and revitalized industries and the well-paying jobs they bring. We have already seen that capital, factories, and laboratories readily move wherever they are thought to have the greatest promise of return to investors.

RECOMMENDATIONS

The committee reviewed hundreds of detailed suggestions-including various calls for novel and untested mechanisms-from other committees, from its focus groups, and from its own members. The challenge is immense, and the actions needed to respond are immense as well.

The committee identified two key challenges that are tightly coupled to scientific and engineering prowess: creating high-quality jobs for Americans and responding to the Nation's need for clean, affordable, and reliable energy. To address those challenges, the committee structured its ideas according to four basic recommendations that focus on the human, financial, and knowledge capital necessary for U.S. prosperity.

The four recommendations focus on actions in K-12 education (10,000 Teachers, 10 Million Minds), research (Sowing the Seeds), higher education (Best and Brightest), and economic policy (Incentives for Innovation) that are set forth in the following sections. Also provided are a total of 20 implementation steps for reaching the goals set forth in the recommendations.

Some actions involve changes in the law. Others require financial support that would come from reallocation of existing funds or, if necessary, from new funds. Overall, the committee believes that the investments are modest relative to the magnitude of the return the Nation can expect in the creation of new high-quality jobs and in responding to its energy needs.

10,000 TEACHERS, 10 MILLION MINDS IN K-12 SCIENCE AND MATHEMATICS EDUCATION

Recommendation A: Increase America's talent pool by vastly improving K-12 science and mathematics education.

Implementation Actions

The highest priority should be assigned to the following actions and programs. All should be subjected to continuing evaluation and refinement as they are implemented:

Action A-1: Annually recruit 10,000 science and mathematics teachers by awarding four-year scholarships and thereby educating 10 million minds. Attract 10,000 of America's brightest students to the teaching profession every year, each of whom can have an impact on 1,000 students over the life of their careers. The program would award competitive four-year scholarships for students to obtain Bachelor's degrees in the physical or life sciences, engineering, or mathematics with concurrent certification as K-12 science and mathematics teachers. The merit-based scholarships would provide up to $20,000 a year for four years for qualified educational expenses, including tuition and fees, and require a commitment to five years of service in public K-12 schools. A $10,000 annual bonus would go to participating teachers in underserved schools in inner cities and rural areas. To provide the highest-quality education for undergraduates who want to become teachers, it would be important to award matching grants, perhaps $1 million a year for up to five years, to as many as 100 universities and colleges to encourage them to establish integrated four-year undergraduate programs leading to Bachelor's degrees in science, engineering, or mathematics with teacher certification.

Action A-2: Strengthen the skills of 250,000 teachers through training and education programs at summer institutes, in Master's programs, and Advanced Placement and International Baccalaureate (AP and IB) training programs and thus inspires students every day. Use proven models to strengthen the skills (and compensation, which is based on education and skill level) of 250,000 current K-12 teachers:

• Summer institutes: Provide matching grants to state and regional one- to twoweek summer institutes to upgrade as many as 50,000 practicing teachers each summer. The material covered would allow teachers to keep current with recent developments in science, mathematics, and technology and allow for the exchange of best teaching practices. The Merck Institute for Science Education is a model for this recommendation.

• Science and mathematics Master's programs: Provide grants to universities to offer 50,000 current middle-school and high-school science, mathematics, and technology teachers (with or without undergraduate science, mathematics, or engineering degrees) two-year, part-time Master's degree programs that focus on rigorous science and mathematics content and pedagogy. The model for this recommendation is the University of Pennsylvania Science Teachers Institute.

• AP, IB, and pre-AP or pre-IB training: Train an additional 70,000 AP or IB and 80,000 pre-AP or pre-IB instructors to teach advanced courses in mathematics and science. Assuming satisfactory performance, teachers may receive incentive payments of up to $2,000 per year, as well as $100 for each student who passes an AP or IB exam in mathematics or science. There are two models for this program: the Advanced Placement Incentive Program and Laying the Foundation, a pre-AP program.

• K-12 curriculum materials modeled on world-class standards: Foster highquality teaching with world-class curricula, standards, and assessments of student learning. Convene a national panel to collect, evaluate, and develop rigorous K-12 materials that would be available free of charge as a voluntary national curriculum. The model for this recommendation is the Project Lead the Way pre-engineering courseware.

Action A-3: Enlarge the pipeline by increasing the number of students who take AP and IB science and mathematics courses. Create opportunities and incentives for middle-school and high-school students to pursue advanced work in science and mathematics. By 2010, increase the number of students in AP and IB mathematics and science courses from 1.2 million to 4.5 million, and set a goal of tripling the number who pass those tests, to 700,000, by 2010. Student incentives for success would include 50 percent examination fee rebates and $100 mini-scholarships for each passing score on an AP or IB mathematics and science examination. The committee proposes expansion of two additional approaches to improving K12 science and mathematics education that are already in use:

• Statewide specialty high schools: Specialty secondary education can foster leaders in science, technology, and mathematics. Specialty schools immerse students in high-quality science, technology, and mathematics education; serve as a mechanism to test teaching materials; provide a training ground for K-12 teachers; and provide the resources and staff for summer programs that introduce students to science and mathematics.

• Inquiry-based learning: Summer internships and research opportunities provide especially valuable laboratory experience for both middle-school and high-school students.

SOWING THE SEEDS THROUGH SCIENCE AND ENGINEERING RESEARCH

Recommendation B: Sustain and strengthen the Nation's traditional commitment to long-term basic research that has the potential to be transformational to maintain the flow of new ideas that fuel the economy, provide security, and enhance the quality of life.

Implementation Actions

Action B-1: Increase the federal investment in long-term basic research by 10 percent a year over the next seven years, through re-allocation of exist