A Matter of Size: Triennial Review of the National Nanotechnology Initiative (2006)

Over the past half century, much of the growth in the U.S. economy has been in high-technology, high-value industries, such as information technology and biotechnology, whose origins can be traced to innovation and discovery made possible by government-funded basic research. Recognizing the promise of research at the nanoscale as a driver of similarly revolutionary technology advances, the government mandate to fund basic research under the National Nanotechnology Initiative (NNI) involves an expectation for significant outcomes—that a federal investment in NNI-related R&D programs will lead to results that increase the U.S. capacity to effectively address national priorities, meet economic needs, and advance societal interests. In addition to improving our fundamental quality of life as a result of positive developments in nanotechnology-related medicine, energy production, national security, environmental protection, and education, the commercialization and adoption of new technologies resulting from nanoscale R&D are expected to yield a positive economic return in the form of benefits such as the creation of businesses, jobs, and trade. As the NNI grows in magnitude and complexity, it is imperative that the nation be able to evaluate its investments in nanotechnology and analyze how the return on those investments aligns with national goals, including those goals defined in the strategic plan for nanoscale S&T. To this end, the committee was asked to analyze the current impact of nanotechnology on the U.S. economy.

It is important to establish at the beginning of this discussion of economic impact that efforts to analyze R&D’s economic impact in other areas have often

been hindered by a lack of metrics and lack of a comprehensive empirical framework.¹ Assessing economic impact is also challenging because of the complexity of forces that drive economic growth and the inherent uncertainty surrounding outcomes observed at a particular point in time. Moreover, in general the timescales from research-based discovery to commercialization of technologies are long, often 20 years or more, and as an enabling technology, nanotechnology in particular is still in its infancy. The timescales over which the cumulative benefits of nanoscale R&D will become apparent will vary, depending on the nature of individual industries and products and the kinds of developmental research and testing required, such as clinical trials. Also, the investment needed for change and the availability of sustained investment for long-term gain will be determining factors. Although it is clear that nanotechnology will have an impact on many applications and industries, how to measure its economic impact is not now clear.

Lacking data on R&D outputs and how they contribute to the production of goods and services, and how such outputs affect comparative advantage, the committee found its ability sharply reduced to conduct a rigorous analysis of the current impact of nanotechnology on the U.S. economy. A few studies have attempted to assess the impact of nanotechnology on the economy by developing their own metrics. In discussing one such study here, the committee acknowledges that the foundation for such estimates is very modest and that other studies might generate other estimates.

According to a report by Lux Research, Inc., released in October 2004, the nanotechnology value chain cuts from nanomaterials to nanointermediates to nano-enabled products.² Nanomaterials are nanoscale structures in unprocessed form, such as nanoparticles and nanotubes. Nanointermediates are products with nanoscale features, such as coatings and memory and logic chips. Nano-enabled products at the end of the value chain are finished goods incorporating nanotechnology, such as cars and computers. In addition, the Lux report differentiated between “established” and “emerging” nanotechnologies. It defined established nanotechnologies as coming from well-understood processes, used for decades, which happen to yield products with nanoscale features. Examples include synthetic zeolites, high-strength metallic alloys, and microchips with feature sizes of less than 100 nanometers. Emerging nanotechnologies were defined as resulting from innovations using nanomaterials and nanointermediates, such as quantum dots, fullerenes, and nano-delivered drugs.

The 2004 Lux report estimated that nanotechnology accounted for $158 billion in global product revenue in 2004, with 92 percent ($146 billion) stemming

from established materials and processes.³ According to that report, only a small fraction—less than $13 billion—of 2004 product revenues came from sales of innovative, emerging nanotechnologies, with $12 billion of those sales deriving from nano-enabled products. The Lux report predicted that by 2014, emerging nanotechnologies would be incorporated into all computers and consumer electronics devices, 23 percent of drugs, and 21 percent of automobiles and that nanotechnologies would result in $2.6 trillion in product revenue corresponding to 15 percent of global gross manufacturing output. It also predicted that products incorporating emerging nanotechnologies would constitute $920 billion in value added, accounting for 2 percent of global gross domestic product. The committee could not verify the basis for these estimates or determine how they might compare with other figures.

The 2004 Lux report estimated that the number of new jobs created by nanotechnology was relatively small in 2004, with approximately 1,200 nanotechnology start-up companies creating about 6,250 positions worldwide, mostly for Ph.D. researchers, and more established corporations adding 3,000 similarly qualified workers worldwide. Although the number of R&D jobs increased slightly in 2004, the number of manufacturing jobs did not change, suggesting that workers already employed in manufacturing jobs were transferred to jobs involving the manufacture of nano-enabled products. The Lux report did forecast that the number of manufacturing jobs involving nano-enabled products would grow in the next 10 years.

The committee notes, however, that nanotechnology, like virtually all other disruptive or enabling technologies, will lead to the destruction as well as the creation of jobs. The Lux report noted that as emerging nanotechnologies develop and come to market, improved nanotechnology products will also drive second- and third-order disruptions across industries. The resulting impacts will be challenging to predict. For instance, the availability of new nano-enabled lubricants that reduce maintenance requirements could lead to a significant decrease in the demand for auto services, but a decrease in demand for lower-value maintenance services could be offset by the benefits associated with production of lubricants Given that nanotechnology is now still in the earliest stages of discovery and development, assessing its economic impact is speculative, although the importance of developing measurable relevant indicators is clear.

An indication of the future trajectory of nanotechnology product development was provided to the committee by M.C. Roco of the National Science Foundation, who has described four overlapping generations of new nanotechnology products that can be expected to evolve from the systematic control and manufacture at the nanoscale.⁴ The first generation of products began to appear in 2001 in the form of passive nanostructures such as nanostructured coatings composed of dispersed

nanoparticles and bulk materials such as nanostructured metals, polymers, and ceramics. The second generation of products, which appeared starting in about 2005, includes active nanostructures such as transistors, amplifiers, targeted drugs and chemicals, actuators, and adaptive structures; the key focus of research for this generation of products is novel devices and device system architectures. A third generation of products, expected around 2010, will comprise three-dimensional nanosystems and systems of nanosystems capable of various synthesis and assembling techniques, for which the focus of research will be heterogeneous nanostructures and supramolecular systems engineering. A fourth generation of products anticipated around 2015 will be based on heterogeneous molecular nanosystems, each molecule of which will have a specific structure and role; the focus of research will be manipulation at the level of atoms for the design of molecules and supramolecular systems, as well as characterization of the dynamics of a single molecule and the design of molecular machines.

An analysis by Cientifica estimated that capacity utilization in the manufacture of one first-generation product—nanotubes—was at no more than 50 percent, perhaps as a result of high rates of investment and limited commercial demand at present.⁵ It is thus likely that for capital invested in the production of nanotubes, the current returns are very low or negative. How should economic effects be calculated for production activities that are yielding negative or very low near-term profits? Approaches such as attempting to value the intellectual property being created as a result of R&D leading to currently available nanotechnology products might give a different perspective on the returns to be expected from early-stage nanotechnology investments.

Technology transfer is an essential step in realizing a positive economic benefit from technology development, and measuring the progress of transitioning technology into the private sector is possible. For example, from 1987 to 2002, under the mandate of the Stevenson-Wydler Technology Innovation Act of 1980, the Office of Technology Policy at the Department of Commerce prepared biennial reports on progress in the transfer of technology from federal laboratories. Under the Stevenson-Wydler Act as revised in 2000, the reporting process was changed, requiring each federal agency that “operates and directs federal laboratories … to provide the Office of Management and Budget with an annual report on its technology transfer plans and recent achievements as part of its annual budget submission.”⁶ As part of its reporting, each agency now provides statistics for a

core set of technology transfer indicators, such as cooperative research and development agreements, invention disclosures, patent applications and awards, and licensing agreements. The Department of Commerce (DOC) then prepares an overall assessment for the President and Congress based on the information in these federal agency reports.

According to the DOC’s December 2004 report, which brought together the data on technology transfer from the agencies and also responded to a May 2003 PCAST report,⁷ federal technology transfer indicators for all science and technology for selected agencies in FY 2003 (Table 3-1) showed that the top five agencies for inventions disclosed, patent applications filed, and patents issued were the Department of Defense (DOD), Department of Energy (DOE), Department of Health and Human Services (HHS), National Aeronautics and Space Administration (NASA), and the U.S. Department of Agriculture (USDA). However, because these indicators of output are not tracked against funding inputs by the individual agencies—and notwithstanding the inherent difficulties in valuing technology transfer and its effects—it is not possible now to link the NNI-related funding from these various agencies to the data collected on indicators of technology transfer. A complete analysis of technology transfer and its effects on the economy requires a capability for making such linkages and would also benefit from an ability to link data on research funding with data on publications or patents, given that publishing papers allows for the distribution of knowledge developed under the NNI and that acquiring patents resulting from research funded under the NNI could protect the research results as a valuable asset for further exclusive use by selected licensees.

From a broader perspective the committee notes that the federal government has played a role in assisting companies, in particular small start-ups, to cross the significant gap between technology development and product commercialization, the so called “valley of death.” The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants⁸ reserved for small businesses are designed specifically to help bridge this gap while meeting the government’s R&D needs. The new STTR program focuses on expansion of the public and private sector partnership to include joint venture opportunities for small business and nonprofit research institutions, including universities. Under the SBIR program, each participating agency with an annual extramural R&D budget of more than $100 million must allocate 2.5 percent of its R&D budget for SBIR funding. Under the STTR program, the participating agencies whose extramural R&D budgets total more than $1 billion must allocate 0.3 percent (doubled in FY 2004 from the previous allocation of 0.15 percent) to aid in collaborative efforts between small businesses and non-profit research institutions.

Many start-up companies conducting nanoscale R&D have utilized SBIR grants, and the funds have been described as “crucial” for developing an economically viable product or technology.⁹ This type of early-stage development funding differs from the funding for commercialization that venture capital might provide, in that it allows a much longer time frame for a return on investment. Some commentators object to restrictions on SBIR funding that prevent access by companies that have received venture capital investment.¹⁰

Other government programs for bridging the “valley of death” have included the Advanced Technology Program,¹¹ which was administered by the National Institute of Standards and Technology (NIST) and was designed to help industry invest in longer-term and higher-risk research with the goal of accelerating the development of early-stage, innovative technologies. The major emphasis of the DOD’s Advanced Concept Technology Demonstration program, which focuses on technology assessment and integration rather than technology development,¹² is to help expedite the transition of maturing technologies from developers to users by demonstrating the initial operational capability of research concepts prior to their transition to acquisition and fielding.

The committee believes that productive partnerships between industry and government will be an important component in the successful commercialization of nanotechnology.¹³ While government may invest in a variety of R&D activities and technology transfer mechanisms,¹⁴ it remains the role of industry to provide the primary support and funding for commercialization activities. Public–private partnerships, however, can leverage the resources at academic and federal laborato-

ries and also mitigate risks and maximize the outputs from expenditures on basic research.¹⁵ A positive atmosphere in which companies can work with the recipients of NNI research funding can produce a multiplier effect that will increase and nurture nanotechnology innovation.

Partnerships between federal and state-level entities are also part of this positive atmosphere. In addition to federal–state partnerships, industry–state partnerships are essential to launching nanotechnology initiatives at the state level, as indicated at the 2003 NNI Workshop on Regional and State Programs.¹⁶ State investments in nanotechnology include state–corporate partnerships, state–university partnerships, and partnerships with consortiums of corporations. It is worth noting, however, that on occasion disputes over intellectual property ownership have been a barrier to the successful implementation of these kinds of partnerships.

An example of state activity is provided by New York. Albany NanoTech, one of the world’s largest centers for nanotechnology R&D, houses the New York State Center of Excellence in Nanotechnology and Nanoscience, the New York State Center for Advanced Technology in Nanomaterials and Nanoelectronics, and the northeastern headquarters of International SEMATECH, the research arm of the Semiconductor Industry Association.¹⁷ Albany NanoTech is based at the University of Albany-SUNY and supports accelerated commercialization of high-technology products. More than 100 companies have partnerships and collaborations with Albany Nanotech, which “helps companies overcome technical, market and business development barriers through technology incubation, pilot prototyping and test-bed integration support leading to targeted deployment of nanotechnology-based products.”¹⁸ To date, these industrial and research partnerships and collaborations have yielded $1.6 billion in investments toward developing facilities, tools, and knowledge at Albany Nanotech that provide small, medium, and large companies with R&D programs access to these resources to serve their near-term and long-term technology development needs. This is a unique model involving collaborations among state and federal government, academia, and industry.

The first wave of innovations from nanoscale materials and processes is appearing in the marketplace, as reported by companies both large and small. Technological advances, while incremental, are stimulating vibrant activity at business forums and conferences. However, “valley of death” challenges remain, as does the need for continued federal R&D assistance in overcoming these challenges. Considering what is now known regarding the long timescales over which significant measureable economic impacts accrue from major R&D innovations, a sustained investment over many years from industry and government in support of the transition of nanotechnology to the marketplace will be required both to realize major economic benefit and to stay internationally competitive.

Evaluating the economic impacts of investments in nanotechnology R&D in a rigorous fashion will require a set of metrics and an aggregation of high-quality, uniform data on technology transfer and commercialization. Measures of intellectual property acquired and collaborative R&D partnerships established can also be useful to help gauge technology transfer activities in nanotechnology. For example, the potential for a financial return from patents held provides an economic incentive to individuals and corporations to innovate at the nanoscale. As discussed in Chapter 2, patents relating to nanotechnology are increasing in number, indicating that research results are leading to innovation. Applications for patents represent an initial step toward commercialization of nanotechnology and can serve as an indicator of economic progress, although patents serve as only one element of the entire technology transfer process.

In lieu of patents and other means of protecting intellectual property, some companies possess trade secrets to protect their technologies and products, but trade secrets are by definition impossible to track. Data on publications in scientific journals (see Chapter 2) are typical indicators of technical progress, but not necessarily of economic progress. Similarly, data on the recruitment of graduate students in nanoscale-related fields can be tracked, but it is difficult to link their work in this field to economic growth. Also, since nanotechnology is interdisciplinary and not yet a recognized field with a corresponding degree at universities, accounting rigorously for the number of students in nanotechnology-relevant areas is a challenging task. Today some data on cooperative research and development agreements, invention disclosures, and licensing agreements are being collected at the federal level as indicators of technology transfer. These data are not, however, being tracked for nanotechnology under the NNI.

While the reporting by NNI-participating agencies on federal funding of nanoscale R&D is an important first-order data point for policy and benchmarking, it does not yield information about state funding or private investments. In particular, R&D expenditures by industry are important for commercialization and realization of a positive economic impact. Although collecting workforce data from nanotechnology-based small companies is easier than measuring the jobs in large corporations that result directly from advances in nanotechnology-enabled products, currently jobs in nanotechnology R&D and manufacturing are not clearly reported. Sales of nanotechnology-enabled products can be tracked and possibly linked to data on the products that nanotechnology products are replacing, but the collection of these data is not widespread. While the number of

nanotechnology-enabled companies is tracked, it is subject to varying definitions of “nanotechnology-enabled.”

It is clear to the committee from its search for relevant data and metrics that the current quantity, quality, and nature of data on and indicators for tracking the economic impact of nanotechnology are severely deficient: the current data for tracking and assessing impact are unreliable, inconsistent, or non-existent, and many questions remain unanswered. Currently, there also tends to be too much forecasting based on assumptions and guesswork, and not enough on hard data or any rigorous empirical economic framework. Clearly, evaluating the economic impact of nanotechnology will require careful consideration of exactly how to measure the full effects of an emerging and pervasive technology, as well as assessment of the feasibility of developing, collecting, and tracking the relevant data and metrics.

Conclusion. Currently, it is too early to gauge the economic impact of nanotechnology, which is still in very early stages of discovery and development. Moreover, any future analysis of economic impact will be hindered unless data are collected and metrics developed that will facilitate a rigorous analysis of economic indicators such as jobs created or individuals employed as a result of nanotechnology development. As both an enabling and a disruptive technology, nanotechnology will have effects that extend beyond one specific industry or market sector and will also be pervasive in multiple applications, a circumstance that will present additional challenges to rigorous assessment of the technology’s economic impact.

While it will be important for each federal agency to devise a set of data and metrics pertinent to its particular mission, some consistency and uniformity in reporting across the agencies will be important if future economic analyses are to aggregate data across the government. The committee believes that the NNI’s demonstrated coordination capabilities across the NSET-member agencies will be critical to the successful development of the most relevant metrics.

Nanoscale technologies enable S&T progress and innovation with the promise of broad-based economic impact. Indicators must reflect the breadth of nanotechnology to capture the full benefit. Successfully developing metrics of progress, success, and return on investment could provide policymakers with the means to more confidently design and assess economic forecasts of the effects of nanotechnology. Greater emphasis is now needed to establish the foundations to aid future analyses. Given that nanotechnology is in its infancy, the timely development of indicators will facilitate the development of a more complete database of trends as nanotechnologies mature in the marketplace.

The committee concluded that currently available data are insufficient to permit a quantitative analysis of the economic impact of nanotechnology. In addition, those public and private forecasts of the impact of nanotechnology that are available lack consistency. The committee believes that the feasibility of developing methodologies and perhaps new indicators will have to be studied if high-quality data are to be available for future assessments of economic impact that are more quantitative than qualitative in nature. The committee therefore thinks that the NSET Subcommittee co-chairs should make a priority of studying whether a foundation of data to aid policy and decision makers in future analyses can be established.

Recommendation. To establish a basis for assessing the NNI’s economic impact over time, the committee recommends that, as an initial step, the NSET Subcommittee carry out or commission a study on the feasibility of developing metrics to quantify the return to the U.S. economy from the federal investment in nanotechnology R&D. The study should draw on the Department of Commerce’s expertise in economic analysis and its existing ability to poll U.S. industry. Among the activities for which metrics should be developed and relevant data collected are technology transfer and commercial development of nanotechnology.

The committee suggests that the methodology for any evaluation of economic impact should be broad and generic and might include, for example, best-effort evaluations of innovations in existing and new companies that have led to new products and new industrial processes. While these commercialization efforts are still in their early stages, it is important to initiate now the development of indicators for these activities and, looking forward, to maintain databases on the relevant commercial activities over the life of the NNI. Among the most important indicators are these: trends in nanotechnology-related intellectual property and other research outputs such as publications; the training of scientists, engineers, and technicians in nanoscience and nanotechnology; and technology transfer trends. The committee concluded that better data on technology transfer from R&D into commercial application are needed to understand and ultimately support realization of the societal and economic benefits of nanotechnology.

In addition to a substantial economic impact, many other results of the national investment in nanotechnology R&D are predicted that promise long-term returns for the country. For example, investments in national infrastructure—university

excellence, student education, and national laboratory user facilities—will all have lasting positive impacts on nanoscale R&D in the United States and on the continuing U.S. capacity for innovation and future economic growth. The ability of a national initiative to inspire researchers to greater achievements, and especially to inspire students with as-yet-unidentified potential to study in this field, is almost impossible to measure but is nevertheless of clear benefit to the nation.

The benefits for the nation are likely to be greater because of the interdisciplinary focus of nanoscience and engineering. Students are now being trained across traditional disciplinary boundaries, and projects in universities and research institutes are being structured similarly. Now more than ever, industry values cross-disciplinary skills and seeks to hire researchers who have the ability to solve fundamental problems, who possess multidisciplinary knowledge, and who have a variety of technical experiences.¹⁹ Many of the most promising innovations are a result of the application of interdisciplinary research. In the end, encouraging researchers to explore the areas at the interfaces of traditional disciplines may be the greatest qualitative contribution of the NNI, while NNI coordination across agencies to help shape and realize national priorities is likely to catalyze technology development of lasting economic importance. Benefits may range from advances in transportation and energy to benefits in human and environmental health. No doubt we will also benefit in a number of ways from a greater understanding of the world around us. Nanoscience and nanotechnology are making significant contributions in these areas, yet these contributions are difficult to tie to specific and measurable indicators.