for the first few years of its existence.

These small companies

have generally been the innovators in our economy, yet it is these very companies that under the current law are not able to take full advantage of the tax credit incentive. I'm hopeful that at some time in the near future the entire R&D tax credit will be reviewed and improvements will be made to make it more effective.

PROVIDING AN ADEQUATE SUPPLY OF TRAINED TECHNICAL PERSONNEL

We must insure that there is an adequate supply of trained technical people. This is a critical problem that has only recently been recognized. The future demand for engineers and technicians is predicted to far outstrip the supply. For example, a 1983 American Electronics Association survey has forecast an annual shortfall of 16,000 electrical engineers and computer scientists through 1987.

The scarcity of trained technical people will put us at a severe competitive disadvantage in world markets. Japan, for example, is training on a per capita basis twice as many engineers per year as we are.

The problem is a financial one. The cost of educating technical people, particularly engineers, is very high, and it's difficult to attract enough qualified professors because industrial salaries are so attractive. Currently, there are more than 2,000 unfilled faculty positions in the engineering departments of colleges and universities in America.

I believe private industry has an important role to play in

providing the funding for increased technical education programs. The American Electronics Association and the Massachusetts High Technology Council, for example, have already established industrial giving programs to collect money from corporations and use it to fund faculty salaries and equipment.

The federal government has a role to play too. By offering tax credits for corporate contributions to colleges and universities for teaching activities, as well as research, we can encourage private sector support to increase the capacity of our technical education facilities without requiring a new federal bureaucracy to carry it out. I believe that S. 1194 and 1195 will provide the proper kinds of incentives to increase the funding of our technical education facilities.

As an important aside, we should also make sure that our immigration policy recognizes our need for trained technical people. In particular, since a high percentage of engineering students are foreign nationals, such students who develop technical skills in this country should be permitted to remain here. I'm hopeful that the immigration reform legislation currently making its way through Congress should recognize this need, rather than requiring such students to return to their home countries after receiving their education here.

High technology is perhaps our most valuable national resource. We must preserve it. However, changes in our rate of technological innovation will come slowly. Innovation can't be forced, it can only be fostered.

It is fostered by creating an environment

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that emphasizes freedom of scientific and industrial activities and that offers incentives to the innovators, entrepreneurs and investors who have the talent and resources to advance technology. It is fostered by a strong base of fundamental technology and by a population that is well educated in science and its application. Finally, it is fostered in a healthy economic environment and by trade policies that provide expanding opportunities for our technological products. Promoting such an environment should be the primary objective of America's industrial policies. The swift enactment of S. 738, S. 1194, S. 1195 and their counterparts in the House would be important steps in the direction of fostering technological innovation and maintaining America's leadership in

high technology.

STATEMENT OF CONGRESSMAN DON RITTER
BEFORE THE SENATE FINANCE COMMITTEE
MAY 27, 1983

MR. CHAIRMAN,

IT IS AN HONOR TO SUBMIT TESTIMONY ON THE MERITS OF S.738 INTRODUCED
BY ME ESTEEMED COLLEAGUE FROM THE SENATE, MR. DANFORTH. I WOULD
LIKE TO COMMEND THE CHAIRMAN FOR HOLDING THESE HEARINGS AND FOR THE
OPPORTUNITY TO BE HERE WITH YOU TODAY AND SHARE MY VIEWS.

THE PROCESS OF TECHNOLOGICAL INNOVATION INVOLVES BRINGING INTO
BEING NEW AND IMPROVED PRODUCTS AND PROCESSES WHICH BENEFIT THE
ECONOMIC QUALITY OF OUR LIVES. WITHIN THIS PROCESS RESEARCH AND
DEVELOPMENT PLAYS A VITAL ROLE IN IDENTIFYING AND APPLYING PRACTICAL
PRINCIPLES OF OUR SCIENCE AND TECHNOLOGY. IT IS HERE THAT THE
GROUNDWORK AND FOUNDATION IS LAID WHICH DETERMINES THE SOUNDNESS OF
THE INDUSTRIAL ESTABLISHMENT AND THE ECONOMIC GROWTH OF THIS NATION.

MR. CHAIRMAN, AS WE ARE ALL AWARE, THE MINIMAL PROGRESS OUR NATION
HAS MADE IN RECENT YEARS RELATIVE TO TECHNOLOGICAL INNOVATION HAS
BEEN OF GREAT CONCERN. IN RECENT STUDIES PERFORMED BY THE NATIONAL
SCIENCE FOUNDATION, SERIOUS AND ALARMING TRENDS HAVE BEEN IDENTI-
FIED. IF I MAY, I WOULD LIKE TO SHARE WITH YOU SOME OF THE MORE
MAJOR OBSERVATIONS NOTED IN THE NSF REPORT ON SCIENCE INDICATORS.
FIRST, INVESTMENTS IN R&D HAVE POSITIVE LONG TERM EFFECTS ON
PRODUCTIVITY AND ECONOMIC GROWTH. FROM 1970 TO 1930 PRODUCTIVITY
(MEASURED BY OUTPUT PER WORKER HOUR) IN U.S. MANUFACTURING INDUSTRIES
INCREASED ONLY 28% COMPARED TO INCREASES OF 102% AND 60% FOR JAPAN

AND WEST GERMANY RESPECTIVELY. IN ADDITION, WEST GERMANY AND JAPAN HAVE HELD THE HIGHEST RATIOS OF NATIONAL CIVILIAN R&D EXPENDITURE TO GNP OVER THE PAST TWENTY YEARS. THE FIGURES FOR JAPAN AND WEST GERMANY IN THE LATE 1970'S WERE 1.87 AND 2.18 RESPECTIVELY. IN CONTRAST TO 1.61 FOR THE U.S. IN 1981.

IT IS IMPORTANT TO NOTE THAT U.S. INDUSTRY HAS RECOGNIZED THE
IMPORTANT ROLE OF R&D AND IN TURN, HAS NOT BEEN RELUCTANT TO
PROVIDE FINANCIAL SUPPORT TO THIS EFFORT, PRIVATE SECTOR FUNDING
CONTINUES TO BE THE BULK OF RECENT R&D EXPENDITURES, AMOUNTING TO
TWO-THIRDS OF THE TOTAL SPENT, THIS PRIVATE SPENDING IS AT ITS
HIGHEST LEVEL HISTORICALLY. FURTHERMORE, THE GROWTH RATE OF PRIVATE
SECTOR R&D FUNDING HAS BEEN HIGHER THAN FEDERAL FUNDING. HOWEVER,
PRIVATE SECTOR R&D INVESTMENT MUST BE CONTINUALLY STIMULATED TO
BRING ABOUT INCREASED INVENTION. CLEARLY, RECENT PATENT DATA IMPLY
A DECLINE IN THE PRODUCTION OF AMERICAN TECHNICAL INVENTIONS BY
CORPORATIONS. FROM 1970 TO 1978 THERE WERE DECLINES IN U.S. PATENTS
OF 2% FOR ALL INVENTORS AND 3% FOR COMPANY-EMPLOYED INVENTORS.
COMPARED TO THESE VALUES, FOREIGN PATENTS IN THE UNITED STATES FROM
1963 TO 1976 INCREASED AT AN AVERAGE RATE OF 15% PER YEAR.

THE SIGNS ARE CLEAR: THE PRIVATE SECTOR IS WHERE R&D HAS ITS

PRIMARY ECONOMIC RESULTS AND NEW EFFORTS SHOULD BE CONCENTRATED THERE. IT IS THIS AREA WHERE WE MUST PROMOTE INVESTMENT TO THE MAXIMUM EXTENT POSSIBLE. AS VICE-CHAIRMAN OF THE HOUSE REPUBLICAN TASK FORCE ON HIGH TECHNOLOGY INITIATIVES. I SHOULD EMPHASIZE OUR PURPOSE AND OBJECTIVES. THAT IS, TO SUPPORT A LEGISLATIVE AGENDA WHICH PROVIDES FOR THE PROPER ECONOMIC CLIMATE TO STIMULATE