which to study and perform research; and (D) ensure that the United States is the premier place in the world to innovate. (The executive summary of the NAS report is attached in Appendix A.) • The NAS report also describes 20 explicit steps that the Federal Government could take to implement its recommendations. The report estimates the total cost of these steps to be $9.2-$23.8 billion per year. 5. Summary of NAS Report In May of this year, Senators Lamar Alexander and Jeff Bingaman, Chairman of the Energy Subcommittee and Ranking Member of full Senate Committee on Energy and Natural Resources, respectively, asked the National Academy of Sciences (NAS) to conduct a study of "the most urgent challenges the United States faces in maintaining leadership in key areas of science and technology." In June, Science Committee Chairman Sherwood Boehlert and Ranking Member Bart Gordon wrote to the NAS to endorse the Senate request for a study and suggest some additional specific questions (the text of the Senate and House letters are attached in Appendices B and C). The study was paid for out of internal Academy funds, and NAS released the report on October 12. The Problem The NAS report begins by describing how science and engineering are critical to American prosperity. Technical innovations, such as electricity and information technology, have increased the productivity of existing industries and created new ones and improved the overall quality of life in the U.S. The report then examines how the U.S. is doing relative to other countries in science and technology todaylooking at indicators such as science and engineering publications, R&D investment, venture capital funding, and student proficiency levels-to see if the U.S. is positioned to make the next generation of innovations needed to maintain U.S. competitiveness and security going forward. "Worrisome indicators" outlined in the report1 include: • The United States today is a net importer of high-technology products. Its share of global high-technology exports has fallen in the last two decades from 30 percent to 17 percent, and its trade balance in high-technology manufactured goods shifted from plus $33 billion in 1990 to a negative $24 billion in 2004. • In 2003, only three American companies ranked among the top 10 recipients of patents granted by the United States Patent and Trademark Office. • In Germany, 36 percent of undergraduates receive their degrees in science and engineering. În China, the figure is 59 percent, and in Japan 66 percent. In the United States, the corresponding figure is 32 percent. • Fewer than one-third of U.S. 4th grade and 8th grade students performed at or above a level called "proficient" in mathematics ("proficiency" was considered the ability to exhibit competence with challenging subject matter). About one-third of the 4th graders and one-fifth of the 8th graders lacked the competence to perform basic mathematical computations. The NAS report concludes that education, research, and innovation are essential if the U.S. is to succeed in providing jobs for its citizenry. Recommendations and Steps the Federal Government Should Take to Implement Them The NAS report makes four recommendations, each of which is supported by explicit steps that the Federal Government could take to implement the recommendations. These recommendations and steps are provided verbatim below; more details on each step are available in the report executive summary in Appendix A. 10,000 Teachers, 10 Million Minds and K-12 Science and Mathematics Education Recommendation A: Increase America's talent pool by vastly improving K-12 science and mathematics education. Implementation Steps: • A-1: Annually recruit 10,000 science and mathematics teachers by awarding four-year scholarships and thereby educating 10 million minds. 1 See pages 18-19 of this charter for the pages of the NAS report that contain the sources for these statistics. • 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 inspire students every day. • A-3: Enlarge the pipeline by increasing the number of students who take AP and IB science and mathematics courses. 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 Steps: • B–1: Increase the federal investment in long-term basic research by 10 percent a year over the next seven years. • B-2: Provide new research grants of $500,000 each annually, payable over five years, to 200 of our most outstanding early-career researchers. • B-3: Institute a National Coordination Office for Research Infrastructure to manage a centralized research infrastructure fund of $500 million per year over the next five years. • B-4: Allocate at least eight percent of the budgets of federal research agencies to discretionary funding. • B-5: Create in the Department of Energy an organization like the Defense Advanced Research Projects Agency called the Advanced Research Projects Agency-Energy (ARPA-Ė). • B-6: Institute a Presidential Innovation Award to stimulate scientific and engineering advances in the national interest. Best and Brightest in Science and Engineering Higher Education Recommendation C: Make the United States the most attractive setting in which to study and perform research so that we can develop, recruit, and retain the best and brightest students, scientists, and engineers from within the United States and throughout the world. Implementation Steps: • C-1: Increase the number and proportion of U.S. citizens who earn physicalsciences, life-sciences, engineering, and mathematics Bachelor's degrees by providing 25,000 new four-year competitive undergraduate scholarships each year to U.S. citizens attending U.S. institutions. • C-2: Increase the number of U.S. citizens pursuing graduate study in “areas of national need” by funding 5,000 new graduate fellowships each year. • C-3: Provide a federal tax credit to encourage employers to make continuing education available (either internally or through colleges and universities) to practicing scientists and engineers. • C-4: Continue to improve visa processing for international students and scholars. • C-5: Provide a one-year automatic visa extension to international students who receive doctorates or the equivalent in science, technology, engineering, mathematics, or other fields of national need at qualified U.S. institutions to remain in the United States to seek employment. If these students are offered jobs by U.S.-based employers and pass a security screening test, they should be provided automatic work permits and expedited residence status. • C-6: Institute a new skills-based, preferential immigration option. • C-7: Reform the current system of "deemed exports." Incentives for Innovation and the Investment Environment Recommendation D: Ensure that the United States is the premier place in the world to innovate; invest in downstream activities such as manufacturing and marketing; and create high-paying jobs that are based on innovation by modernizing the patent system, realigning tax policies to encourage innovation, and ensuring affordable broadband access. Implementation Steps: • D-1: Enhance intellectual property protection for the 21st century global economy. • D-2: Enact a stronger research and development tax credit to encourage private investment in innovation. • D-3: Provide tax incentives for U.S.-based innovation. • D-4: Ensure ubiquitous broadband Internet access. Costs of the Recommendations The NAS report provides a "back of the envelope" estimate of the annual cost to the Federal Government of each of the implementation steps that are recommended. • For the three steps in Recommendation A (increase America's talent pool by vastly improving K-12 science and mathematics education): $1.5–$2.4 billion per year. • For the six steps in Recommendation B (sustain and strengthen the Nation's traditional commitment to long-term basic research): $1.1-$3.4 billion per year. • For the seven steps in Recommendation C (make the United States the most attractive setting in which to study and perform research): $1.6-$3.6 billion per year. For the four steps in Recommendation D (ensure that the United States is the premier place in the world to innovate): $5.1-$14.4 billion per year. The total cost of these steps would be $9.2-$23.8 billion per year. 6. Issues Related to Specific Recommendations in the NAS Report and Related Questions for the Witnesses In the invitation letter for the hearing, each of the witnesses was asked to answer questions about the three specific recommendations discussed below. These were major recommendations that seemed to call for further elaboration. Recommendation B-1: Increase the federal investment in long-term basic research by 10 percent a year over the next seven years: Numerous reports and groups in recent years have suggested doubling federal funding for basic research, as the NAS report recommends.2 (The authorization bill for the National Science Foundation the Congress passed in 2002 called for doubling that agency's budget, and Congress did double the budget of the National Institutes of Health over the past six years or so.) While these reports have included a rationale for increasing federal R&D spending, none has explained the reason why a specific level of spending needs to be achieved by a particular date. The U.S. currently spends $56 billion annually on non-defense R&D, more than the rest of the G-7 countries3 combined. Also, total R&D spending (government and industry) in the U.S. has remained relatively constant as a percentage of the U.S. gross domestic product, indicating that investment in R&D has grown as the U.S. economy has grown, begging the question of why increased federal investment is necessary. (This may be especially true if federal R&D is being invested in the same kinds of research as private R&D rather than in kinds of research, particularly basic research, that might otherwise be neglected.) In addition, the NAS report argues that federal investment in basic research fuels economic growth by contributing new ideas that can eventually lead to commercial products. Yet recent surveys of industry suggest that companies' investments in R&D have had only a very limited impact on the success of the individual companies. What is true for individual companies is not necessarily true for nations as a whole; R&D may contribute greatly to the relative economic success of the U.S. as a whole, while not being so important to any individual company. (This would make sense. Nations stay ahead through innovation, but individual companies may have other comparative advantages.) But the company statistics and attitudes on R&D at least raise the question about whether the contribution of R&D to economic 2 For example, the U.S. Commission on National Security in the 21st Century (the Hart-Rudman Commission, Phase III, 2001) recommended doubling the federal research and development budget by 2010. 3 The six non-U.S. members of the G-7 are France, Great Britain, Germany, Japan, Italy and Canada. 4 Booz Allen Hamilton's Global Innovation 1,000 study was released on October 11, 2005 and is available on line at http://www.boozallen.com. An example of their findings is that companies in the bottom 10 percent of R&D spending as a percentage of sales under-perform competitors on gross margins, gross profit, operating profit, and total shareholder returns. However, companies in the top 10 percent showed no consistent performance differences compared to companies that spend less on R&D. success is exaggerated, and how federal R&D investment contributes to overall economic success. Questions in the witness letters on this recommendation: • How did the study panel arrive at the recommended 10 percent annual increase in federally-sponsored basic research over the next seven years? What other options did the panel consider and what led to the choice of 10 percent? • Recent surveys of industry suggest that basic research performed at universities and transformational technological innovation have only a very limited impact on the success of individual companies. Is the impact of research and innovation different for the economy as a whole than it is for individual companies? Recommendation B-4: Allocate at least eight percent of the budgets of federal research agencies to discretionary funding: A number of recent reports have expressed concern that the current grant selection system in most agencies shies away from daring proposals. The view is that when funding is tight (like now), researchers and the peer review system both tend to favor incremental research proposals—projects that are guaranteed to produce results-results that are generally in keeping with existing ideas. In this situation, high-risk research (especially that proposed by young investigators or involving interdisciplinary studies) can be underfunded or neglected entirely. The NAS report recommends that funding be set aside at federal research agencies (and distributed at program officers' discretion) for high-risk, high-payoff research. While such research is valuable, so is the research that provides steady if incremental advances on existing scientific questions. In addition, not every agency is equally well equipped to solicit and select high-risk projects. Finally, even if setting aside such funding is a good idea, it's unclear whether eight percent is a reasonable amount. Questions in the witness letters on this recommendation: • How did the study panel arrive at the recommended eight percent allocation within each federal research agency's budget to be managed at the discretion of technical program managers to catalyze high-risk, high-payoff research? What other options did the panel consider and what led to the choice of eight percent? Recommendation B-5: Create in the Department of Energy an organization like the Defense Advanced Research Projects Agency called the Advanced Research Projects Agency-Energy (ARPA-E): The recommendation seems to assume that the main reason the U.S. has not made more progress in deploying technologies that use less energy or that use alternative energy sources is that the technology is not being developed. But numerous studies have concluded that the primary problem in energy technology is that existing advanced technologies never get deployed. These studies tend to recommend policy changes to encourage the deployment of advanced technologies, as opposed to recommending (or merely recommending) programs to develop new technologies. For example, a recent American Council for an Energy Efficient Economy study estimated that "adopting a comprehensive set of policies for advancing energy efficiency could lower national energy use by 18 percent in 2010 and 33 percent in 2020.”5 Similarly, a 2001 NAS study on automotive fuel economy described numerous existing technologies that could reduce dependence on foreign oil, but are not yet deployed. In addition, it is not clear whether the DARPA analogy is entirely apt. DARPA funds advanced technologies that will eventually be used by the Pentagon. The government itself would not be the main purchaser of technologies developed by ARPAE, so those technologies would still face existing problems in finding markets. It is also unclear how the research that would be supported by ARPA-E would differ from that already funded by the Department of Energy's current conservation and renewable energy research programs. Questions in the witness letters on this recommendation: Industry and government have both developed numerous energy production and energy efficiency technologies that have not been deployed. How did the study panel arrive at its implicit conclusion that technology development is the greater bottleneck (as opposed to policy) in developing energy systems for a 21st century economy? 5 Energy Efficiency Progress and Potential, American Council for an Energy-Efficient Economy, no date. 7. General Issues Overall Federal Support for R&D The amount of the country's overall wealth devoted to federal R&D has declined significantly since the post-Sputnik surge in support for R&D. According to Office of Management and Budget statistics, in 1965, funding for federal R&D as a percentage of GDP (measured as outlays), also known as R&D intensity, was slightly over two percent (Chart 1). In 2005, it is estimated to be 1.07 percent. While this ratio has recently begun to increase again, turning upward over the last five years, the majority of those increases have gone toward short-term defense development and homeland security applications. For example, the Department of Defense (DOD) R&D increases alone-most of which have supported development projects that have very little impact on innovation or broader economic development has accounted for almost 70 percent of the overall R&D increases of the last five years. Of the remaining increases, 75 percent has gone to the National Institutes of Health (NIH) and the Department of Homeland Security (DHS). At $71 billion and $29 billion, respectively, the R&D budgets of DOD and NIH now account for over 75 percent of all federal R&D. Meanwhile, funding for the physical sciences and engineering-the areas historically most closely associated with innovation and economic growth-have been flat or declining for the last thirty years. Also, the long-term outlook for the federal budget does not favor future increases in discretionary spending (through which almost all R&D is funded). Absent major policy changes, the growth in mandatory federal spending primarily for health and retirement benefits and payments on the national debt interest-will demand a significantly greater share of the government's resources. Chart 1. Federal Spending (Outlays) on Research and Development as a Percentage of GDP, FY1950-FY2005. (Source: Office of Management and Budget Historical Tables, Fiscal Year 2006.) During the heyday of the corporate research laboratory in the middle decades of the 20th century, U.S. corporate laboratories supported all stages of R&D, from knowledge creation to applied research to product development, and were quite successful in their efforts to nurture innovation. The most notable example of this was AT&T's Bell Laboratories, which grew to be one of the world premier research organizations of the last century, developing numerous breakthrough technologies that changed American life, including transistors, lasers, fiber-optics, and communications satellites. Researchers at Bell Labs and other corporate laboratories were eligible for, and received, grants from federal research agencies such as the National Science Foundation and DOD, but they received core support from the parent company and they conducted basic and applied research directed toward developing technology relevant to the company's business. |