F
Trends in the Economy and Industrial Strength

Kevin Finneran

CONTENTS

INTRODUCTION

The view of technology’s future is not very clear from the laboratory bench. Although progress in scientific and engineering research is the prime mover in the innovation trajectory, the pace and direction of innovation are also influenced by a number of nontechnological forces, including industry structure, capital markets, international politics, public opinion, and a variety of government policies on acquisition of products and services, research funding, regulation, intellectual property, education, trade, immigration, and a host of other areas. These



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Future R&D Environments: A Report for the National Institute of Standards and Technology F Trends in the Economy and Industrial Strength Kevin Finneran CONTENTS     INTRODUCTION   129     INDUSTRY RESEARCH   130     Internal Capital,   131     Venture Capital,   133     Public Opinion,   134     Federal R&D Spending,   135     Regulation,   136     INTELLECTUAL PROPERTY   138     HEALTH CARE FINANCE   139     EDUCATION   140     NEWS YOU CAN USE   141     USEFUL READING   141 INTRODUCTION The view of technology’s future is not very clear from the laboratory bench. Although progress in scientific and engineering research is the prime mover in the innovation trajectory, the pace and direction of innovation are also influenced by a number of nontechnological forces, including industry structure, capital markets, international politics, public opinion, and a variety of government policies on acquisition of products and services, research funding, regulation, intellectual property, education, trade, immigration, and a host of other areas. These

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Future R&D Environments: A Report for the National Institute of Standards and Technology forces rarely if ever dictate the path of innovation, but they play an important role in speeding or slowing progress and in shifting direction. One can see how the restructuring of the telecommunications industry facilitated the development of cellular telephones, how the abundance of venture capital in the 1990s accelerated progress in computer and information technology, how public anxiety about nuclear power slowed its development, how environmental rules influenced the path of development in automotive and energy technology, and how government support for graduate education has helped create the sophisticated specialists in research and product development that make the United States so successful. Looking at these nontechnological forces alone will tell us little about the future of technology; besides, it’s impossible to say exactly how these forces will evolve over time. But understanding how they are likely to interact with technological forces will give us a much more realistic picture of how technology will evolve. This paper does not aspire to present a comprehensive view of all the external forces that can shape technological development. Rather, it looks at some of the major social forces that are important to the general climate for innovation, and it explores a few individual cases to illustrate how a different mix of lesser factors can influence a specific technology or industry. One could quickly compile a list of other factors—say, trade policy or tax policy—that are important but are not even mentioned here. The landscape of innovation is too vast and various to allow technologies in any simple template. The goal of this paper is to stimulate participants to think broadly about social forces when they begin to focus in on the likely trajectory of a specific technology. INDUSTRY RESEARCH Because most innovation takes place in industry, it makes sense to begin there. Several important industries are in upheaval. Electric utilities are breaking up into distribution, transmission, generation, and energy management companies. Chemical companies are moving into agricultural biotechnology. Many small medical biotechnology firms have been formed in the past two decades, and it is not yet clear if they will remain independent or be acquired by the giant pharmaceutical companies when they begin to make commercial products. And surprises are possible. Celera Genomics, the private company that raced the federal government to map the human genome, now defines itself as an information company. The future of the communications market is also uncertain. There is no doubt that there will be a growing demand for broadband Internet connections, but it remains to be seen if one of the industries now providing these links—local phone companies, long-distance phone companies, cable TV providers, satellite TV companies, or perhaps a new entrant such as the electric utilities—will come to dominate. Health care has seen enormous growth in managed care in the past decade, but it’s still not clear what the future will be. Although we are not likely to see soon a dramatically expanded government role in health care after the

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Future R&D Environments: A Report for the National Institute of Standards and Technology debacle of the Clinton health care plan, we should not rule this out over the long term. In the interim, government will play a critical role through its management of Medicare and Medicaid. In each of these cases, the outcome will have an effect on which technologies are developed and commercialized. It should not need stating that the overall health of the U.S. economy will affect the pace of innovation across all industries and technologies. A strong economy increases the pool of capital available for the purchase of new technology and for investment by companies in R&D. The 1990s illustrate this point in microcosm. During the first half of the decade, the economy grew at an annual rate of 2.4 percent, and capital investment grew by 0.7 percent annually. When GDP grew by 4.3 percent a year in the latter half of the decade, capital investment soared to 1.3 percent of GDP. Much of this new capital spending went to information technology, stimulating growth and innovation in that sector. Many economists believe that this helped create what was then called the “new economy,” in which IT was stimulating innovation and productivity growth in all industries. Although most Americans were pleased with the performance of the economy in the late 1990s, not all of the news was good. In 1985, the United States spent more than 2.9 percent of GDP on R&D. That percentage fell to about 2.5 percent in 1994, and although it rose in the late 1990s, it was less than 2.8 percent in 1999. It is worth noting that the compound annual growth rate in R&D was 4.37 percent during the economic expansion of 1975 to 1980 and 4.39 percent during the expansion of 1982 to 1990, but it reached only 3.43 percent during the expansion of 1991 to 1999. In other words, the growth in R&D during the 1990s, though impressive, was not that high for a period of economic expansion. And if R&D spending was relatively low during a period of expansion, what can we expect during a contraction? Internal Capital The primary source of funding for product research is internal capital, and companies have been increasing their research budgets in recent years. During the late 1990s, while the federal R&D investment was declining, industry R&D was growing steadily. In the mid-1980s, industry and government spent about the same amount on R&D. By 1999, industry was spending twice as much as government. About two-thirds of industry spending is for product development and the remainder for basic and applied research. The percentage devoted to basic and applied research dipped slightly in the early 1990s, when growth was slow, but recovered quickly in the second half of the decade. Will that continue? The most recent survey by the Industrial Research Institute conducted in the fall of 2000 found that companies plan to hold steady the percentage of sales allocated to R&D even though the economy has cooled somewhat. The survey also uncovered some other significant trends. Companies are increasing their R&D related to new business projects and reducing spending geared to existing

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Future R&D Environments: A Report for the National Institute of Standards and Technology businesses. They are increasing their participation in alliances and joint R&D ventures and decreasing their spending on directed basic research and precompetitive consortia. They are also reducing contact with the federal laboratories. Companies are increasingly looking outside their own walls for new technology. They expect that there will be more acquisition of capability through mergers and acquisitions, more licensing of technology to others, and more outsourcing of R&D to other companies. In theory at least, these developments should lead to enhanced efficiency in the use of research resources. During the 1980s, one explanation offered for Japanese companies’ relative success compared with U.S. companies was that U.S. companies were afflicted with the “not invented here” syndrome, meaning that they failed to take advantage of research done by others. They now seem to be cured. In thinking about the environment for technological innovation, it makes sense to pay particular attention to the high-technology industries where much of the progress occurs. One reason high-technology companies have been able to increase their R&D budgets is that sales and profits were so strong in the 1990s. The cash was available to invest in R&D, and demand was vigorous for new products. That’s not the case today. Business spending for information technology, which was rising at an annual rate of 31.4 percent in the first quarter of 2000, declined at an annual rate of 6.4 percent in the first quarter of 2001. Economists argue over how much overcapacity for computer hardware, software, and communications equipment exists in industry, but with estimates in the $100 billion range, few expect demand to rebound quickly. Fortunately, the momentum of technological innovation will continue to improve the quality of new products, and companies will eventually want to replace outdated technology. That happens quickly with information technology (IT), but no one can say how quickly in the current economic environment. For the immediate future, however, cash will be tight in the IT industry, and this will have an effect on R&D spending. In fact, the very characteristics of the IT industry that enabled it to spend so generously on R&D in good times could make it particularly difficult to maintain R&D levels when sales are slack. The marginal production cost of IT products such as software is extremely low, which means that when sales rise, profit increases even faster. But these very profitable products are built on a costly base of research and marketing. And because these products are susceptible to rapid obsolescence, the base must be maintained constantly. When sales are weak, as they are now, profits disappear quickly. Yahoo had its revenue drop 42 percent in one quarter, while expenses remained virtually unchanged. After earning an $87 million operating profit in the fourth quarter of 2000, Yahoo saw a $33 million loss in the first quarter of 2001. The story was similar at Cisco Systems during its first full quarter in 2001. Revenue fell 30 percent from the previous quarter, and operating profit before charges fell 95 percent. If the market for IT products remains weak for a long time, it will put severe pressure on the R&D budget. The chances are good that

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Future R&D Environments: A Report for the National Institute of Standards and Technology well-established companies such as Yahoo and Cisco will be able to maintain their R&D foundation during hard times, but it will be difficult for smaller companies, which have been a critical source of innovation. If these companies start to fail, the bigger companies could decide to use their resources to acquire smaller companies on the cheap rather than to invest in their own R&D. Venture Capital Venture capital grew enormously in the late 1990s, from less than $8 billion in 1995 to roughly $100 billion in 2000. So-called “angel” capital (direct investments by wealthy individuals) may have grown even faster. Reliable data are not available because of the private nature of these investments, but a 1998 estimate by the National Commission on Entrepreneurship put that year’s total at $20 billion, whereas the venture capital investment was $14 billion. The equity market also grew apace. The total value of IPOs grew from about $4 billion in 1990 to more than $60 billion in 1999. U.S. capital markets have slowed recently, as reflected in the sagging stock market, but their overall health is strong. Still, we should not expect to see the breakneck rate of growth that characterized the late 1990s. We also have to look at where this money was invested. In the first quarter of 2001, even as everyone was talking about the decline in value of information technology stocks, 35 percent of venture capital investment went to Internet-specific companies, 19 percent to computer software and services, 15 percent to communications and media, and 12 percent to semiconductors and electronics, according to the National Venture Capital Association. Only 7 percent went to medical and health companies and 4.5 percent to biotechnology. Given all the recent news about the sequencing of the human genome and the accompanying potential for significant medical progress, one might expect a vast inflow of investment for research. That has not been the case. The share of venture capital going to biotechnology has been declining steadily during the past 5 years, and no turnaround is in sight. In spite of the widely acknowledged potential of biotechnology, it cannot promise the enormous short-term profits that many infotech companies have achieved. A biotech drug typically requires 10 to 15 years to develop, costs up to half a billion dollars, and must navigate a rigorous federal approval process. That’s not the music most venture capitalists want to hear. Although the large pharmaceutical companies have the resources to develop biotech products, access to resources for the small companies is uncertain. The market research firm Pharmaprojects reports that there are 373 biotech companies that are developing only one drug. It is not clear how many of these firms will have the funds necessary to continue their research long enough to know if it could lead to a successful new product. The creation of many new biotech firms raises hopes for a cornucopia of innovation, but these hopes will be realized only if we are able to put resources in the hands of those with the breakthrough ideas.

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Future R&D Environments: A Report for the National Institute of Standards and Technology Public Opinion Public opinion is reflected in government policy and in the decisions that consumers make. Its importance can be seen particularly clearly in the area of agricultural biotechnology. Just ask the Europeans. During most of the 1990s European regulators were approving commercial production of genetically modified (GM) foods and consumers were buying them. However, in the late 1990s fear of GM products spread quickly throughout Europe, and by 1999 the European Council of Ministers was forced to institute a de facto moratorium on approvals of new GM products. The most recent Eurobarometer survey of public opinion found that two-thirds of Europeans would not buy GM fruits even if they tasted better than other varieties. A 1999 Gallup poll found that while Europeans were campaigning vigorously against GM foods, half of Americans reported that they had heard little or nothing about the subject, and the majority were favorably disposed toward food biotechnology. However, 16 percent were strongly opposed. Awareness of GM foods has certainly grown since then, but there are still no signs of mass opposition. Nevertheless, the small group of committed opponents could be very influential if something happened to undermine public faith in food safety. In Europe it seems that minority opposition became a mass movement when the outbreak of mad cow disease and the badly handled government response shattered public faith in government’s management of food safety. It didn’t matter that mad cow disease had nothing to do with biotechnology. General anxiety about food safety and lack of faith in government protections became expressed as opposition to GM foods. The 1999 Gallup poll found that three-fourths of Americans are at least fairly confident that the Food and Drug Administration can ensure the safety of the food supply, and only 5 percent have no confidence. Still, the European experience demonstrates how quickly public faith can be lost, and a similar scenario is not out of the question in the United States. If it occurs, it will dramatically affect the development of U.S. agricultural biotechnology. In the meantime, the absence of a European market for GM foods is certain to discourage U.S. development of GM products. Thus far, European opposition to agricultural biotechnology has not spread to medical biotechnology, but European industry is aware that it could. Paul Drayson, chairman of BioIndustry Britain, an industry association, has warned company leaders that they need to launch an ambitious public education program about the benefits of biotechnology or risk seeing medical biotechnology run into the same wall that has hampered progress in agriculture. Americans also seem quite willing to accept biotech medicines. The most often cited reason for the appeal of biotech medicine is that the benefit to consumers is usually obvious, and consumers are willing to accept a little risk in return for a clear benefit. The trouble with GM food is that consumers do not perceive any obvious benefit to themselves. They are not willing to accept much risk in return for foods with

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Future R&D Environments: A Report for the National Institute of Standards and Technology a longer shelf life or that can be grown with one herbicide rather than another. Part of the animus against GM foods is resentment of the agrochemical companies that produce them and seem to be the primary beneficiaries of the new technology. Federal R&D Spending Industry R&D spending is certainly the most important contributor to product innovation, but it would be a mistake to ignore the role of federal investment. A study by Francis Narin and colleagues found that during the 1993 to 1994 period, 73 percent of industry patent applications cited federally funded research, and this percentage was even higher for chemicals and for drugs and medicines. Because the government investment is particularly important in basic research, the effects of changes in federal spending may not be felt for 10 years or more. The National Research Council’s Board on Science, Technology, and Economic Policy (STEP) has been studying the federal research budget’s evolution to gauge its effect on specific research fields. Its July 2001 report provides a timely update. The 1990s was a period of shifting priorities for the federal government, and the new priorities seem likely to persist for the foreseeable future. The end of the Cold War and the desire to reduce the federal budget deficit led to a significant decline in military research conducted by the Departments of Defense (DOD) and Energy (DOE) as well declines in research funding in other agencies. Between 1993 and 1997, research spending declined by 27.5 percent at DOD, by 13.3 percent at the Department of Interior, 6.2 percent at the Department of Agriculture, and 5.2 percent at DOE. Research spending at the National Institutes of Health (NIH) increased by 11 percent during the period. The cuts fell particularly hard on the physical sciences, engineering, and mathematics. For example, federal support for electrical engineering and physics research fell by almost one-third in real terms. A few fields were able to offset their losses from DOD and DOE by picking up funding from other agencies. For example, support for computer sciences and for metallurgy and materials engineering rose by about one-fourth. The increased support for the life sciences was not distributed evenly. Support for medical sciences rose much more quickly than did support for the biological sciences. Beginning with the 1998 budget, federal research spending began to rise significantly. Total research spending for 1998 was 4.5 percent above the 1993 level, and in 1999 it exceeded the 1993 level by 11.7 percent. The increasing budget continued the trend toward increased funding for the life sciences. Between 1993 and 1999, the life sciences’ share of federal research rose from 40 to 46 percent, and the share going to the physical sciences and engineering fell from 37 to 31 percent. In 1999, support for physics, geological sciences, and chemical, electrical, and mechanical engineering was down at least 20 percent from 1993 levels. Chemical and mechanical engineering and geological sciences were down

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Future R&D Environments: A Report for the National Institute of Standards and Technology even from 1997 levels. In addition, support for astronomy, chemistry, and atmospheric sciences remained flat or declined between 1997 and 1999. Support for materials engineering, which had grown between 1993 and 1997, fell back to roughly 1993 levels by 1999. The fields where federal support increased throughout the 1993 to 1999 period include aeronautical, astronautical, civil, and other engineering; biological, medical, and computer sciences; and oceanography. Fields that experienced reductions between 1993 and 1997 but recovered by 1999 include environmental biology, agricultural sciences, mathematics, social sciences, and psychology. Unless Congress or the agency managers have a sudden change of heart, we can expect the shift of federal research funding toward the life sciences, and toward NIH in particular, to continue. The STEP board warns that although federal spending is contributing a declining share of the nation’s total R&D expenditures, federally supported research is still a critical contributor to the nation’s innovative capacity. Federal spending makes up 27 percent of all U.S. R&D and 49 percent of basic research. The board concludes that “reductions in federal funding of a field of 20 percent or more have a substantial impact unless there are compensating increases in funding from nonfederal sources, which does not appear to be the case the last few years.” What’s more, federal funding is usually more stable and has a longer time horizon, which is conducive to breakthrough research. The STEP board also notes that maintaining a good balance of research among fields is particularly important because of the growing importance of crossdisciplinary work in vital fields such as bioinformatics, nanotechnology, and climate change. Because it is impossible to predict where breakthroughs will occur, it makes sense to attend to the well-being of the full spectrum of research fields. Advances in hot fields such as biomedicine and computer science will depend on progress in fields such as physics, chemistry, and the engineering disciplines, which have had declining federal support. The board argues that achieving a better balance in the federal research portfolio is important to maintaining the pace of innovation that the nation wants and expects. Regulation Many people in industry see a far more important federal role for regulation than for R&D. Certainly regulation has a more direct effect on day-to-day decisions, and whereas industry can (in theory at least) compensate for the deficiencies in federal R&D investments, it is helpless in the face of a regulatory barrier. Although regulation seldom stops development of a technology, it can often slow it. For example, the Lewin Group, a health policy consulting firm, found that the Food and Drug Administration is very slow in approving hybrid products such as laser-activated drugs that combine device and drug technology into one treatment. The problem is that the various components of the treatment must be

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Future R&D Environments: A Report for the National Institute of Standards and Technology reviewed by different FDA divisions, such as the Center for Devices and Radiological Health, the Center for Biologics Evaluation and Research, and the Center for Drug Evaluation and Research. The Lewin Group urged the FDA to improve communication and coordination among the centers. If the use of nanotechnology in medical devices begins to deliver on its promise, this will be particularly important. Federal regulation can also stimulate R&D in specific technologies. The Public Utilities Regulatory Policies Act of 1978 (PURPA) required electric utilities to interconnect with independent power producers using alternative sources of energy such as wind and solar power and to purchase power from them at very favorable rates. This was a shot in the arm for small power producers that catalyzed R&D in numerous technologies, particularly wind power. Wind machine efficiency improved significantly in the subsequent two decades, and U.S. wind energy capacity now exceeds 2,500 megawatts, the equivalent of two large conventional plants. PURPA is not popular with the utility industry. The Edison Electric Institute (EEI), the industry trade group, wants to see PURPA repealed, because it requires utilities to purchase power they may not need at above-market prices. EEI argues that even after 20 years, PURPA has yet to stimulate significant power production from renewable sources (less than 1 percent of U.S. electricity is generated by nonhydropower renewable sources) and that it shelters renewable energy technologies from market competition. EEI maintains that PURPA forces consumers to pay more for electricity without providing the stimulus necessary to spur the development of truly cost-effective renewable energy technologies. EEI sees the larger restructuring and deregulation of the utility industry that is already under way as the key to accelerating innovation. The Electric Power Research Institute (EPRI), the industry’s research arm, has developed a roadmap of how technology might evolve if regulations are revised in ways that give utilities more flexibility. EPRI wants to enlist computer technology to develop a much more reliable, electronically controlled distribution grid that would make it possible to introduce enhanced consumer control of power use, superconducting transmission to increase capacity and efficiency, smaller and lower-cost distributed generation technology, and local power storage. Because this industry is highly regulated and is subject to extensive environmental restrictions, the course of its development will be strongly influenced by government action at the state and federal levels. The nation is in the midst of a transition to a restructured and less regulated electric utility industry, and it is impossible to say at this time what it will look like. All that can be said is that the structure and economic incentives that do result will have a critical influence on whether we will see innovation in areas such as transmission and distribution, micropower generators, and novel storage systems. Another area where government policy can be critical is in the allocation of the spectrum for wireless communication. In its October 2000 report The

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Future R&D Environments: A Report for the National Institute of Standards and Technology Economic Impact of Third-Generation Wireless Technology, the President’s Council of Economic Advisors (CEA) argues that the United States should allocate some of the spectrum available to third-generation (3G) wireless technology that will provide high-speed, mobile access to the Internet and other communications networks. These devices will transmit data at up to 2 megabits per second, about as fast as a cable modem, and will adhere to international standards that will make it possible to use the device anywhere in the world. Several European countries have already allocated and auctioned spectrum for 3G use, but in the United States the three bands of spectrum being considered for 3G use are already used by analog cellular phone providers, the Department of Defense, fixed wireless providers, satellite broadcasters, school systems, and private video teleconferences. Although some of the spectrum now allocated to digital wireless telephone service could be used by its owners for 3G, the CEA report considers this unlikely, because it would make this bandwidth more scarce and therefore more expensive for voice phone service and would require replacing billions of dollars in capital stock such as transmission equipment. Besides, squeezing too much activity into this bandwidth could exhaust its capacity. The government’s decision on allocating new bandwidth for 3G should not be a make-or-break decision for this technology. However, it will affect the pace at which new services become available, the cost of those services, and the range of services that are offered. And it will inevitably affect other technologies that could use the same bandwidth. INTELLECTUAL PROPERTY In the summer 2000 edition of Issues in Science and Technology, U.S. patent commissioner Q. Todd Dickinson described how the Patent Office is keeping up with new developments in technology and updating its practices to ensure that they facilitate innovation. He pointed out that all U.S. patents granted since 1976 are now available on the Internet and that the Patent Office had in the previous 2 years hired more than 500 new examiners in its Technology Center, which examines software, computers, and business method applications. He also praised new legislation that requires publication of most patent applications within 18 months after the U.S. filing or priority date, unless the applicant states that no application has been filed for a patent in another country. Dickinson concluded by explaining that what is really needed is global harmonization of procedural and substantive requirements of patents. Too much time and effort are wasted meeting divergent requirements. The World Intellectual Property Organization (WIPO) adopted a Patent Law Treaty in June 2000 aimed at harmonizing patent procedures. It will come into force once it is ratified by ten WIPO states. Harmonizing substantive requirements will be more difficult. A key issue is that the United States has a first-to-invent system, whereas the rest of the world uses a first-to-file approach. Earlier attempts to resolve substantive

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Future R&D Environments: A Report for the National Institute of Standards and Technology differences have failed, but Dickinson wants the United States to try again. Any progress that can be made in harmonizing the world’s patent systems will accelerate innovation everywhere. HEALTH CARE FINANCE Both government and private insurance companies will play a vital role here. Because almost all health care is paid for either by government or employee health insurance, these institutions essentially are the market. What they’re not willing to pay for, no one is likely to develop. David Lawrence, CEO of Kaiser Permanente, explains that there are two key concerns. He says that there is enormous consumer interest in home diagnostic technology, but the problem now is that almost none of the information collected with home devices makes it into the patient’s medical record. This information could be extremely valuable, but unless we develop a way to make it easily available to physicians when they need it, consumers will soon realize that the devices cannot deliver what they promise. He also sees enormous potential for quality-of-life technology such as a device that would make it easier for people with cerebral palsy to communicate or the revolutionary new wheelchair developed by Dean Kamen that can travel over uneven surfaces and even go up and down stairs. If these devices can be purchased with government or insurance dollars, the demand for innovation will be strong. Reimbursement policies will also be important for new biomaterials and for nanotechnology. The newly created Health Technology Center in San Francisco commissioned a survey of physicians to elicit their views on the use of information technology in their practice. Although 96 percent of respondents agreed that Internet-enabled technologies will make the practice of medicine easier and improve quality of care no later than 2003, only 34 percent use Internet-enabled sources for information about prescription medications, and only 7 percent have adopted automated systems for prescribing medications. (The Institute of Medicine report To Err IsHuman: Building a Safer Health System recommended adoption of such systems.) The respondents said that the greatest barriers to use of Internet-enabled services are “a lack of uniform standards for health information and the inability of current health information applications to communicate among themselves.” The vast majority believe that the federal Health Care Finance Administration and the private insurance companies must take the lead in removing these barriers by requiring physicians to use the Internet for claims processing. This would force the health-care system to develop uniform standards and protocols for communicating information. The need for standards for communicating information was reinforced by a workshop convened by the National Science Foundation and the Food and Drug Administration, “Home Care Technologies for the 21st Century.” The workshop

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Future R&D Environments: A Report for the National Institute of Standards and Technology found vast potential for the introduction of new home care medical technologies but identified the reluctance of health insurers to pay for home care and the absence of infrastructure standards as formidable barriers to progress. The federal government took the first step in this direction with the passage of the Health Insurance Portability and Accountability Act of 1996, which directed the Department of Health and Human Services (HHS) to standardize the way that health information is recorded and to develop rules to protect individual privacy. HHS has proposed standardized reporting practices that will simplify the sharing of data and rules for privacy protection that will inevitably make medical record keeping more complex. Computers and printers used for medical records will have to be physically secured, all software password protected, all transmissions encrypted, and electronic audit trails enabled that will identify everyone who has accessed the data. Health-care providers worry that the new requirements will be very expensive to implement and will undermine the information-sharing advantages of computerized patient records. Yet the public is very clear that it takes medical privacy very seriously. Reconciling the goals of enhancing the communication of medical information and preserving its privacy will be a contentious challenge. EDUCATION The 2001 Council on Competitiveness report U.S. Competitiveness 2001 (summarized in Michael McGeary’s paper for the committee, Appendix E) places particular emphasis on human resources for R&D and for production. It worries that the United States could find itself without the brainpower to develop and produce the technology it can envision. For example, the report notes that the number of undergraduate degrees awarded for engineering, math and computer sciences, and the physical sciences was stagnant or declining from 1985 into the late 1990s. Only in the life sciences did the number of degrees grow during this period. The picture was similar for graduate programs. Enrollment grew at a healthy pace in the life sciences but grew only slightly in engineering, math and computer sciences, and the physical sciences. This decline is linked to the decline in federal support for research in these fields. The reduction in research funding has been accompanied by a drop in the support available to graduate students in those fields. One reason graduate programs did not actually shrink is the large number of foreign-born students who come to the United States for graduate study. The percentage of doctoral degrees in science and engineering awarded to foreign-born students grew from 35 percent in 1987 to 41 percent in 1997. Many of these graduates remain in the United States, but a significant number return home to their native countries. At the same time as student interest in science and engineering careers seems to be waning, demand by employers for scientists and engineers is growing

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Future R&D Environments: A Report for the National Institute of Standards and Technology rapidly. The Department of Labor predicts that the number of new jobs requiring science, engineering, and technical training will increase by 51 percent between 1998 and 2008. That’s four times the projected average rate of job growth. The fastest rate of growth will be in computer, mathematical, and operations research, an area in which the number of undergraduate degrees has declined significantly. The short-term response to the growing demand for technically trained workers has been to increase the number of temporary visas available to noncitizens with the needed technical skills, but this is not an optimum solution. U.S. citizens worry that their jobs are going to noncitizens and that this strategy is really an effort to keep salaries low. In addition, these workers are acquiring valuable skills on the job, but there is no guarantee that they will be using them in the United States. The Council warns that the United States needs to be educating more of its young people in science and engineering if it is to maintain its innovative capacity. If it does not, U.S. companies will have to hire even more noncitizens or get the work done abroad. NEWS YOU CAN USE One cannot draw a straight line from any of these nontechnological factors to an eventual technological development. The most powerful influences are the large national and international economic forces that are impossible to predict or to link directly to individual technologies. Still, we cannot ignore them in considering where technology is likely to move. Although economic growth in the United States has slowed, the overall condition of the economy is strong. With companies apparently willing to invest in R&D and venture capital funds available to back new ideas, the general prospect for innovation is sunny. When one begins to focus on specific industries or technologies, in each case a different mix of factors comes into play. There can be no easy generalizations, because each case will be different. Venture capital is critical in one case, of secondary importance in others, and irrelevant in yet another. The same is true for all the other factors. The only operable generalization is that it’s wise to cast a large net when considering forces that will influence technological development and then to evaluate them carefully to see which are most important in the specific instance. USEFUL READING Board on Science, Technology, and Economic Policy, National Research Council, Trends in FederalSupport of Research and Graduate Education, National Academy Press, Washington, D.C., July 2001. Council of Economic Advisors, The Economic Impact of Third-Generation Wireless Technology, Washington, D.C., October 2000. Industrial Research Institute, “R&D Trends Forecast for 2001,”Washington, D.C., October 2000.

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Future R&D Environments: A Report for the National Institute of Standards and Technology Kohn, Linda T., Janet M. Corrigan, and Molla S. Donaldson, eds., To Err Is Human: Building a SaferHealth System, Committee on Quality of Health Care in America, Institute of Medicine, National Academy Press, Washington, D.C., 2000. Narin, Francis, Kimberly Hamilton, and Dominic Olivastro, “Increasing Linkage Between U.S. Technology and Public Science,” in AAAS Science and Technology Policy Yearbook 1998, Albert H. Teich, Stephen D. Nelson, and Celia McEnaney, eds., Washington, D.C., 1998. Porter, Michael E., and Deborah van Opstal, U.S. Competitiveness 2001, Council on Competitiveness, Washington, D.C., 2001. Winters, Jack, Report of the Workshop on Home Care Technologies for the 21st Century, Catholic University of America, Washington, D.C., 1999.