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Chapter 4
Recommendations
Many of the specific policy measures suggested below have deep
historical roots, building on the steps taken by previous administrations and the
Congress to nurture and grow the U.S. economy.1 Taken together, and with
adequate and sustained resources, these measures can significantly enhance
prospects for the United States to remain a leading center of innovation in the
21st century.2 Recognizing the fiscal constraints facing the country, our
recommendations are limited to policies fostering investments that will, in our
Committee’s view, repay the expenditures needed many times over.
FOUR CORE GOALS
1. Monitor and learn from what the rest of the world is doing: The
United States needs to increase its understanding of the swiftly
evolving global innovation environment and learn from the policy
successes and failures of other nations. It is generally recognized that
there is much to be learned from the rest of the world in science. This
1
For a review of the national response to the competitive challenge from Japan in the 1970s and
1980s and a call to develop responses to today’s complex challenges, see James Turner, “The Next
Innovation Revolution, Laying the Groundwork for the United States,” Innovations, Spring, 2006.
Turner notes that the 1979 President’s Industrial Innovation Initiatives, the result of an 18-month
Domestic Policy Review, “reflected a strong belief in the free enterprise system and an equally
strong belief in the federal government’s responsibility to nurture an environment in which industry,
universities, and government can function smoothly together.” Key bi-partisan legislation of that era
includes the Bayh-Dole Act, the expansion of the SBIR program, and the clarification of anti-trust
policies to encourage collaborative pre-competitive research by the semiconductor industry. Turner
notes the importance on building on previous successes but also the need to articulate a new vision
around which policymakers can coalesce.
2
The Committee does not specify which agency should act on the particular recommendations made
in this chapter; one or several agencies could take appropriate actions, depending on the sector, the
policies, and the funding available.
163
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164 RISING TO THE CHALLENGE
is equally true with regard to innovation policy. See Recommendation
1.
2. Reinforce support for U.S. innovation leadership: It is very
important that the United States reinforce the policies, programs, and
institutions that provide the foundations for our own knowledge-based
growth and high value employment. These include measures to
strengthen our research universities and national laboratories, renew
our infrastructure, and revive our manufacturing base. See
Recommendations 2, 3, and 4.
3. Capture greater value from its public investments in research: The
United States should improve its ability to capture greater value from
its public investments in research. This includes reinforcing
cooperative efforts between the private and public sectors that can be
grouped under the rubric of public-private partnerships, as well as
expanding support for manufacturing. See Recommendations 5 and 6.
4. Cooperate more actively with other nations: In an era of rapid
growth in new knowledge that is being generated around the world, the
United States should cooperate more actively with other nations to
advance innovations that address shared global challenges in energy,
health, the environment, and security. See Recommendation 7.
This chapter presents the Committee recommendations. There are
seven major recommendations, which are further elaborated in sub-
recommendations. The organization of these recommendations and sub-
recommendations is presented in an outline, below, as a guide to the reader.
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RECOMMENDATIONS 165
OUTLINE OF RECOMMENDATIONS
1. Monitor and Evaluate Investments, Measures, and Innovation Policies
of other Nations
a. Benchmark best practices
b. Engage and cooperate abroad
c. Respond and adapt at home
2. Reinforce the traditional pillars of U.S. economic strength and
innovation capacity.
a. Raise federal support for R&D
b. Sustain support for university research
i. Stabilize university funding
ii. Use dedicated taxes and sources of revenue
iii. Incentivize private donations
iv. Increase funding of tuition
v. Reduce and streamline regulations
c. Support innovative small businesses
i. Reauthorize and expand proven innovation programs
ii. Experiment with and evaluate new initiatives
iii. Provide policy support for innovation capital
d. Strengthen the skilled workforce
i.Support community colleges
ii.Encourage worker training
iii.Increase funding and opportunities for dislocated workers
iv. Create incentives to induce retirees and potential retirees to
remain active in contributing to the American economy
v. Encourage immigration of scientific and entrepreneurial talent
3. Provide a Competitive Tax Framework
a. Benchmark tax and regulatory policy
b. Examine the tax code
c. Pursue prudent deficit reduction
d. Make the Research and Experimentation tax credit permanent
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166 RISING TO THE CHALLENGE
Build a 21st Century Innovation Infrastructure
4.
a. Build world-class infrastructure
b. Expand broadband penetration
c. Secure cross-border data flows
d. Encourage energy conservation
i. Smart grid
ii. Innovative financing
5. Adopt specific policy measures to capture greater economic value from
America’s public investments in research
a. Strengthen university links to the market
i. Provide matching seed funds
ii. Develop university incubators
iii. Expand SBIR support for commercialization of university
research
iv. Develop additional Centers of Excellence
v. Use of innovation prizes
vi. Encourage private foundations to take equity positions in start-
ups by amending SEC rules
b. Strengthen National Laboratories’ links to the market
i. Expand use of research parks
ii. Expand SBIR to the National Laboratories
c. Develop public private partnerships
i. New initiatives in early-stage finance
ii. Support for industry consortia
d. Expand support for manufacturing
i. Provide incentives for manufacturing
ii. Expand manufacturing support programs
e. Sustain federal programs to jump-start new industries
f. Create new institutions for applied research
g. Open foreign markets to business services
h. Expand support for U.S. manufactured exports
i. Foster cluster development
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RECOMMENDATIONS 167
i. Assess foreign clusters
ii. Support the development of science and research parks
j. Leverage government procurement to establish early markets
i. Leverage defense procurement
ii. Encourage procurement from small businesses
6. Recognize that trade and innovation are closely linked
a. Provide a rules-based playing field
b. Develop an enforceable international code of conduct
7. Capitalize on the globalization of research and innovation
a. Strengthen international cooperation
b. Expand exchanges of scholars and students
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168 RISING TO THE CHALLENGE
RECOMMENDATIONS
1. Monitor and Evaluate Investments, Measures, and Innovation
Policies of other Nations: In a world where other nations are investing
very substantial resources to create, attract and retain the industries of
today and tomorrow, the United States needs to increase its
understanding of the swiftly evolving global innovation environment
and learn from the policy successes and failures of other nations.3
a. Benchmark Best Practices: The federal government should
support a systematic, ongoing process to monitor and evaluate
investments, measures, and policies of other nations aimed at
improving their capacity to innovate and compete in the industries
of tomorrow. This should include ensuring that U.S. science
counselors and research agencies support the collection and
analysis of relevant information.4 Foreign innovation programs
should be benchmarked against those of the United States. This
will require a very substantial investment of dedicated resources
across a variety of public and private institutions.5
b. Engage and Cooperate Abroad: The governmental institutions
of the United States should increase their cooperation and
engagement with policymakers, research institutions, academics,
and investors from around the world to both gain from their
investments and better understand the rationale and objectives of
programs to promote innovation, product commercialization, and
development of emerging industries and learn best practices that
can be applied to programs in the U.S.
c. Respond and Adapt at Home: Knowledge gained from this
benchmarking process should be used to inform U.S. policymakers
and legislators, and help to shape U.S. innovation programs, R&D
investments, and incentives and other policy responses, including,
importantly, incentives to encourage investments by industry.
3
See related Finding 7 in Chapter 3.
4
There are initiatives to capture a broader view of foreign government innovation policies and the
opportunities they present for cooperation. For example, the Office of Naval Research, in
cooperation with its Global component, have launched a series of outreach activities designed to
explore best practices in innovation policy and identify cooperative projects. The National
Academies Board on Science, Technology, and Economic Policy is launching an Innovation Forum,
with the support of ONR, to provide an on-going institutional mechanism to benchmark national
innovation policies and to provide a mechanism for regular policy discussions and learning.
5
This recommendation complements Recommendation 10-1 of the National Academy report S&T
Strategies of Six Countries. National Academy of Sciences, S&T Strategies of Six Countries, op. cit.,
p. 95. Recommendation 10-1 calls more generally for “monitoring the transformation from a
national to a global S&T innovation environment.”
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RECOMMENDATIONS 169
2. In a dramatically more competitive world, the United States needs to
reinforce the traditional pillars of its economic strength and
innovation capacity.6
a. Raise Federal Support for R&D: Federal support for R&D
should be raised in line with the goal set by President Obama in a
2009 speech before members of the National Academy of
Sciences, to increase the combined public and private investment
in R&D in the United States to more than 3 percent of the U.S.
Gross Domestic Product.7
b. Sustain Support for University Research: Basic research carried
out at U.S. research universities and national laboratories is
valuable in its own right; it is also the source of the knowledge and
insights that drive U.S. innovation and growth. Universities should
be provided with the necessary resources to maintain and grow
their facilities, attract and retain outstanding faculty and students
from around the world, and provide the educational experience
necessary to maintain and enhance the innovative capacity that
assures America’s position in the world.
i. Stabilize University Funding: The federal and state
governments should reverse the cyclicality and negative trends
in university financing. Steady, sustainable, predictable
increases over the long term are needed for universities to plan
their own investments in research, and would make federal
and state research expenditures more effective and efficient.8
6
See related Finding 2 in Chapter 3.
7
For a transcript of address by President Obama at the annual meeting of the National Academy of
Sciences on April 28, 2009, see http://www.issues.org/25.4/obama.html. According to the
Congressional Research Service, based on 2008 figures, reaching President Obama’s 3% goal would
require an 8.4% real increase in national R&D funding. See CRS, “Federal R&D Funding FY 2012”
June 21, 2011. Returns on federal R&D are considered to be very substantial. See Robert Solow,
“Technical Change and the Aggregate Production Function,” in The Review of Economics and
Statistics, August 1957, 39(3). For a review of the econometric evidence between R&D and
productivity, see Zvi Grilliches, “R&D and Productivity,” NBER Monograph, 1998. More recently,
the Chairman of the Federal Reserve Board has drawn a close link between government support for
R&D and economic growth. See Ben S. Bernanke, “Promoting Research and Development: The
Government’s Role” Speech presented at the Conference on New Building Blocks for Jobs and
Economic Growth, Washington, DC: May 16, 2011, page 38. For a review of how the impact of
federal investments in R&D can be measured, see, National Research Council, Measuring the
Impacts of Federal Investments in Research, S. Olson and S. Merrill, rapporteurs, Washington, DC:
The National Academies Press, 2011.
8
See National Research Council, Breaking Through: Ten Strategic Actions to Leverage Our
Research Universities for the Future of America, Washington, DC: The National Academies Press,
2012. The report calls for “stable, strong, and effective Federal funding for university-performed
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170 RISING TO THE CHALLENGE
ii. Use Dedicated Taxes and Sources of Revenue:9 Dedicated
state funds and taxes are potential sources of reliable revenue
for research universities.10 Shifting more university research
funding from the general state budget to dedicated revenue
sources will provide a more reliable funding stream for vital
investments in the state’s economic future. 11
iii. Incentivize Private Donations:12 Consider expanding federal
tax credits for companies that fund university research in order
to stimulate additional funding for universities.13 In addition,
R&D so that the nation will have a stream of new knowledge and educated people to power our
future, helping us meet national goals and ensure prosperity and security.”
9
See discussion in Chapter 2 section “U.S. Universities Face Financial Challenges.”
10
For a review of the use of dedicated taxes as a means of public finance, see Alan J. Auerbach,
“Public Finance in Practice and Theory,” paper prepared as the Richard Musgrave Lecture, CESifo,
Munich, May 25, 2009. A growing number of states earmark all or part of taxes on hotels,
cigarettes, and alcohol for specific programs, such as road maintenance, schools, and construction of
convention centers and sports stadiums. The attraction is that such sources provide recurring revenue
streams for important programs, even during times of economic downturn, and are not subject to
government budgetary restraints. Other sources of steady, non-tax state income include proceeds
from lotteries, casinos, sales of public land, and oil and mineral rights. Notably, the State of Texas
uses a Permanent University Fund (PUF), established in its 1876 Constitution, to fund higher
education. Currently, PUF land assets deliver proceeds through oil, gas, sulfur, and water royalties,
rentals on mineral leases, and gains on fiduciary investments.
11
A handful of states use non-tax revenue to fund activities relating to innovation. A New Mexico,
for example, has devoted revenues from oil, gas, and land rights in a private-equity fund that has
invested nearly $300 million into local companies in fields ranging from solar power to molecular
diagnostics. (Details of New Mexico’s private-equity investments can be found on the State
Investment Council Web site, http://www.sic.state.nm.us/investments.htm. Descriptions of specific
investments are provided in Sun Mountain Capital, “New Mexico Private Equity Investment
Program: Overview and 2010 Review,” June 2011.) Arkansas used a portion of increased cigarette
taxes to help fund a campus of the University of Arkansas for Medical Sciences. See John Lyon,
“Beebe Signs Tobacco Tax Hike Into Law,” Arkansas News, Feb. 17, 2009. Nebraska invested
$106 million received from a 2002 court settlement with tobacco companies to fund medical
research at state universities, a move that has generated more than $800 million investment and
created nearly 1,800 jobs. See Steve Jordon, “Tobacco Money Gives Nebraska an Economic,
Research Lifeline,” Omaha World-Herald, Feb. 3, 2011. Currently, only 20 states earmark some
dollars for higher education, and the sums are quite small, according to the American Association of
State Colleges and Universities. See Alene Russell, “Dedicated Funding for Higher Education:
Alternatives for Tough Economic Times,” American Association of State Colleges and Universities,
Higher Education Policy Brief, December 2008.
12
See discussion in Chapter 2 section “U.S. Universities Face Financial Challenges.”
13
Reversing a three-decades-long trend of increasingly strong ties between industry and
universities, the absolute value of industrial R&D dollars to academic institutions—funds provided
directly to academic institutions for the conduct of research—began to decline beginning in 2002
after reaching a high of $2.2 billion in 2001. Also, industrial R&D support to academia has
historically been concentrated in relatively few institutions. See National Science Foundation,
“Where has the Money Gone? Declining Industrial Support of Academic R&D,” InfoBrief, NSF 06-
328 September 2006. Leading university and industry leaders have pointed out that U.S. companies
increasingly choose to work with foreign rather than U.S. universities, encouraged by the more
favorable IP rights that foreign universities offer and the strong incentives for joint industry-
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RECOMMENDATIONS 171
assess the potential for state matches for certain private
endowment donations as a way to provide incentives for
private donors or foundations to increase their support for
research universities.14
iv. Increase Funding of Tuition. Students are borrowing more
money to pay for college than ever before, with student debt in
this country exceeding the level of credit card debt. 15 Tuitions
keep rising.16 No other major economy with which the United
States competes places as heavy a financial burden on its
students.17 Although co-investment by students plays an
important role in motivating students to capitalize on their
education, the necessary growth of enrollment and
matriculation as a percent of the U.S. population will be
choked off in the absence of increased federal, state and
private support for tuitions.
v. Reduce and Streamline Regulations: The expanding costs
of compliance with federal regulations are making it
increasingly expensive for universities to conduct research.18
university research that foreign governments provide. GUIRR, “Re-Engineering the Partnership:
Summit of the University-Industry Congress,” Meeting of 25 April 2006, Washington, DC.
14
See National Research Council, Breaking Through: Ten Strategic Actions to Leverage Our
Research Universities for the Future of America, Washington, DC: The National Academies Press,
2012. The report calls for the creation of a “R&D tax credit that incentivizes business to develop
partnerships with universities (and others as warranted) for research that results in new U.S.-located
economic activities.” For an analysis of the impact of financial shocks to a university’s resource
base, see Jeffrey R. Brown, et al., “Why I Lost My Secretary: The Effect of Endowment Shocks on
University Operations.”NBER, May 29, 2010.
15
Institute for College Access and Success, “Student Debt and the Class of 2010” November 2011.
The report notes that two-thirds of college seniors graduated with loans in 2010, and they carried an
average of $25,250 in debt.
16
Published tuition has barely increased at two-year colleges (by only $68 over the course of nine
years), but has increased substantially at four-year colleges (by $3,004 over the same nine year
period). From the 1999-2000 academic year to the 2008-09 academic year, Net Student Tuition
actually fell by $849 at two-year colleges, representing a fairly dramatic decrease in net tuition at the
two-year level, given that the national average for net tuition was never higher than $900 any single
year. In contrast, Net Student Tuition has increased by $1,067 at four-year colleges over the same
time span. While this absolute growth in net tuition at four-year institutions may not seem
particularly high, keep in mind that per capita income in the U.S. declined by $1,325 from 2000 to
2009. See Andrew Gillen, et al., “Net Tuition and Net Price Trends in the United States (2000-
2009), Washington, DC: Center for College Affordability, November 2011.
17
For a comparative review of “who participates in education, how much is spent on it and how
education systems operate,” see OECD: Education at a Glance 2011: OECD Indicators, Paris:
OECD, 2012.
18
Tobin L. Smith, Josh Trapani, Antony Decrappeo, and David Kennedy, “Reforming Regulations
of Research Universities,” Issues in Science and Technology, Summer 2011. See also the January
21, 2011 filing by the AAU, APLU, and COGR on “Regulatory and Financial Reform of Federal
Research Policy.” The document notes that “Rationalizing the Federal regulatory infrastructure is
essential to the health of the university-government research partnership and to the efficient and
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172 RISING TO THE CHALLENGE
Federal and state policymakers and regulators should review
the costs and benefits of federal and state regulations,
eliminating those that are redundant, ineffective,
inappropriately applied to the higher education sector, or
impose costs that outweigh the benefits to society.19
c. Support Innovative Small Businesses: The availability of early
stage funding for small entrepreneurial firms and start-ups is
crucial for the vitality of the innovation process. There are three
elements to address in this regard: public innovation programs, the
policy framework and incentives for angel funding, and other
measures and incentives to encourage entrepreneurship.
i. Reauthorize and Expand Proven Innovation Programs:
The U.S. should expand successful innovation programs, as it
recently has with the SBIR program, restore funding for
NIST’s revamped Technology Innovation Program with its
current focus on manufacturing, 20 and consider new programs
such as the recently announced Start-up America.21 These
early-stage funding programs support the development of new
products and help promising small technology companies
bring new ideas and products to the market, in part by creating
productive use of federal research funding.” Access at
www.cogr.edu/viewDoc.cfm?DocID=151794.
19 19
See National Research Council, Breaking Through: Ten Strategic Actions to Leverage Our
Research Universities for the Future of America, Washington, DC: The National Academies Press,
2012. The report calls for “a balanced regulatory environment in order to increase the cost-
effectiveness of our research universities.”
20
See Chapter 2 of this volume for a discussion of the Advanced Technology Program (ATP) and its
successor, the Technology Innovation Program. A National Academies assessment of ATP found it
to be “an effective federal partnership program.” National Research Council, The Advanced
Technology Program, Assessing Outcomes, C. Wessner, ed., Washington, DC: The National
Academies Press, 2001. See also the discussion of SBIR in Chapter 2. A National Academies
assessment of SBIR found it to be “sound in principle and effective in practice.” National Research
Council, An Assessment of the SBIR Program, Washington, DC: The National Academies Press,
2008.
21
Start Up America, a White House led initiative, is focused on increasing innovation and
commercialization and accelerating support for U.S. entrepreneurs though a variety of policies and
programs. These efforts are being deployed through federal agencies like the Departments of
Energy, Labor, the Small Business Administration and Commerce including the Economic
Development Administration. One example of this is the Jobs and Innovation Accelerator Challenge,
which according to the EDA is “a multi-agency competition launched in May to support the
advancement of 20 high-growth, regional industry clusters. Investments from three federal agencies
and technical assistance from 13 additional agencies will promote development in areas such as
advanced manufacturing, information technology, aerospace and clean technology, in rural and
urban regions in 21 states.” See
http://www.eda.gov/InvestmentsGrants/jobsandinnovationchallenge.
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RECOMMENDATIONS 173
new information that investors need.22 In addition, programs
that fund collaborations between small businesses, and
universities, such as ARPA-E, DARPA, and Energy
Efficiency and Renewable Energy (EERE), should be
expanded where appropriate and provide sustained support.23
When new ideas and promising technologies are not funded
here in the United States, investors overseas may well fill the
gap, thus capitalizing on U.S. investments in R&D.24
ii. Experiment with and Evaluate New Initiatives: Recent
public-private initiatives such as the Administration's Start-Up
America program should be given clear metrics and carefully
evaluated in conjunction with programs at state and regional
levels.
iii. Provide Policy Support for Innovation Capital: Market
inefficiencies and a long term shift away from seed stage
investments have created a substantial gap between the
demand by entrepreneurs for seed and early-stage funding and
the supply in the risk capital market. Bridging this gap is
essential for sustaining the flow of innovation from U.S. R&D
investments and the growth and employment they generate.25
22
See discussion of SBIR in Chapter 1, section on “Public-Private Partnerships” and Chapter 2,
section on “Providing Early-Stage Finance.” See the discussion of ATP/TIP in Chapter 2, section on
“Providing Early-Stage Finance.” See the discussion of StartUp in Chapter 3, Section 4f. Finally
see discussion of EERE in Chapter 1, section on “National Laboratories.”
23
The National Academies 2006 report, Rising Above the Gathering Storm, (op cit.) recommended
the establishment of an Advanced Research Projects Agency—Energy (ARPA-E) within the
Department of Energy (DOE). The 2007 America COMPETES Act, which implemented many of
the recommendations in the National Academies’ report authorized. ARPA-E, but without an initial
budget. The new program received $400 million of funding in the 2009 American Recovery and
Reinvestment Act. The America COMPETES Reauthorization Act of 2010 made additional changes
to ARPA-E’s structure. ARPA-E is modeled after the successful Defense Advanced Research
Projects Agency (DARPA). For a review of the history and the distinguishing features of DARPA,
see William B. Bonvillian, “The Connected Science Model for Innovation: The DARPA Model,” in
National Research Council, 21st Century Innovation Systems for Japan and the United States,
Lessons from a Decade of Change, Report of a Symposium, Sadao Nagaoka et al., eds., Washington,
DC: The National Academies Press, 2009. For a review of the Energy Efficiency and Renewable
Energy program, see National Research Council, Energy Research at DOE: Was It Worth It? Energy
Efficiency and Fossil Energy Research 1978 to 2000, Washington, DC: The National Academies
Press, 2001.
24
For example, Rusnano, the Russian state technology firm, is seeking to make large investments in
U.S. life sciences and technology companies whose products are to be manufactured in Russia. See
Megan Davis, “Rusnano, US fund to invest $760 mln in pharma venture,” Reuters, March 6, 2012.
25
A study by Gittell, Sohl, and Tebaldi finds that technology-based entrepreneurship, particularly by
small businesses, is a more powerful job creator than entrepreneurship in general. See Gittell, Ross;
Sohl, Jeffrey; and Tebaldi, Edinaldo (2010) "Is there a Sweet Spot for U.S. Metropolitan Areas?
Exploring the Growth in Employment and Wages in U.S. Entrepreneurship and Technology Centers
in Metropolitan Areas over the last Business Cycle, 1991 To 2007, Frontiers of Entrepreneurship
Research: Vol. 30: Issue 15, Article 13.
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190 RISING TO THE CHALLENGE
devoting substantial policy attention to attracting, nurturing, and
growing national manufacturing capability, including industry
supply chains and required infrastructure.97
i. Provide Incentives for Manufacturing: The U.S. needs to
support the competitiveness of its advanced manufacturing
sector by making federal incentive programs permanent and
broadening the time horizons of tools such as manufacturing
tax credits and loan guarantees so that companies can
confidently invest for the long term.98 Regulatory and tax
incentives should be considered and expanded where
appropriate to drive downstream demand.99
ii. Expand Manufacturing Support Programs: Consideration
should also be given to the creation or expansion of programs
that directly support manufacturing.100 These programs, in
strategies.” The Journal of Technology Transfer, Volume 35, Number 3, 283-333 (2010). Tassey
argues that an advanced economy such as the United States needs a strong manufacturing sector and
calls for Increasing “the average R&D intensity of the domestic manufacturing sector to 6 percent”;
adjusting “the composition of national R&D to emphasis more long-term, breakthrough research and
increasing the amount sufficient to fund a diversified portfolio of emerging technologies
commensurate with the size of the U.S. economy”; and improving the efficiency of R&D
performance and subsequent technology diffusion.”
97
See the discussion in Chapter 2, section on “Strengthening Manufacturing.”
98
The Department of Energy’s loan guarantee programs (through October 2011) committed $35.9
billion in guarantees to 38 projects including renewable and nuclear power generation, renewable
energy manufacturing, energy efficiency manufacturing, energy storage, and electric vehicle
production.98 This program has now been terminated.
99
Bronwyn Hall and Beethika Khan note that “the regulatory environment and governmental
institutions more generally can have a powerful effect on technology adoption, often via the ability
of a government to “sponsor” a technology with network effects.” See Bronwyn H. Hall and
Beethika Khan, “Adoption of New Technology,” NBER Working Paper 9730, 2003. For an
illustrative review of the impact of regulatory provisions for energy efficiency on new federal, state,
and local policies, programs, and practices across the U.S., see Robert K. Dixon, Elizabeth
McGowan, Ganna Onysko, and Richard M. Scheerb, “US energy conservation and efficiency
policies: Challenges and opportunities,” Energy Policy Volume 38, Issue 11, November 2010, Pages
6398-6408.
100
The Hollings Manufacturing Extension Partnership (MEP) was created in 1988 to offer technical,
business, and financial support primarily to small and medium-sized manufacturers in all fifty states.
The National Research Council currently has an evaluation of the MEP underway. The assessment
will document the achievements and challenges of the program. The Advanced Manufacturing
Partnership was developed on the recommendation of the President’s Council of Advisors on
Science and Technology, which called for a partnership between government, industry, and
academia to identify the most pressing challenges and transformative opportunities to improve the
technologies, processes and products across multiple manufacturing industries. See President’s
Council of Advisors on Science and Technology, “Report to the President on Ensuring American
Leadership In Advanced Manufacturing.” Washington, DC: The White House, June 2011. For a
comparative perspective on innovation and manufacturing policy, see Philip Shapira, Building
capabilities for innovation in SMEs: a cross-country comparison of technology extension policies
and programmes,” International Journal of Innovation and Regional Development, Volume 3,
Number 3-4/2010.
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RECOMMENDATIONS 191
conjunction with programs at the Department of Defense,
offer a substantial framework for encouraging and sustaining
U.S.-based manufacturing and developing promising new
technologies, such as flexible electronics and additive
manufacturing.101
e. Sustain Federal Programs to Jump-start new Industries:
Promising federal programs aimed at accelerating
commercialization of new technologies, including such areas as
photovoltaic cells, advanced batteries, and biomedicine, should be
continued with sustainable long-term funding.102
f. Create New Institutions for Applied Research: The recently
announced National Network for Manufacturing Innovation
(NNMI)—a private-public partnership program aimed at
commercializing and manufacturing U.S. developed
technologies—should be fully funded.103 NNMI calls for
precompetitive consortia to conduct applied research on new
technologies and design methodologies. Modeled on Germany’s
Fraunhofer-Gesellschaft, NNMI can help improve the
101
“The Department of Defense Manufacturing Technology (ManTech) Program is a joint program
of the armed services and the Defense Logistics Agency. The purpose of the ManTech program is to
develop manufacturing technologies for the affordable, low-risk development and production of
weapons systems.” See National Research Council, Defense Manufacturing in 2010 and Beyond,
Washington, DC: The National Academies Press, 1999. See also the discussion in Chapter 2,
sections on “Institutional Support for Applied Research,” and “Strengthening Manufacturing.”
102
These include the NSF’s Engineering Research Centers and Industry-University Cooperative
Research program. See also Chapter 5 of this report, which provides detailed case studies of the role
of federal programs in the development and commercialization of semiconductor, photovoltaic and
advanced battery technologies. For example, the $457 million Sunshot Initiative of the Department
of Energy “is a collaborative national initiative to make solar energy cost competitive with other
forms of energy by the end of the decade. Reducing the installed cost of solar energy systems by
about 75% will drive widespread, large-scale adoption of this renewable energy technology and
restore U.S. leadership in the global clean energy race.” Department of Energy website:
http://www1.eere.energy.gov/solar/sunshot/.
103
“The proposed Network will be composed of up to fifteen Institutes for Manufacturing Innovation
(IMIs or Institutes) around the country, each serving as a hub of manufacturing excellence that will
help to make United States (U.S.) manufacturing facilities and enterprises more competitive and
encourage investment in the U.S. This program was proposed in the President's fiscal year (FY)
2013 budget and was announced by the President on March 9, 2012. The NNMI program will be
managed collaboratively by the Department of Defense, Department of Energy, Department of
Commerce's NIST, the National Science Foundation, and other agencies. Industry, state, academic
and other organizations will co-invest in the Institutes along with the NNMI program.” Federal
Register Notice, May 4, 2012. The President's FY 2013 budget requests $1 billion for the NNMI
program. See also the discussion in Chapter 2, section on “Institutional Support for Applied
Research.”
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192 RISING TO THE CHALLENGE
competitiveness of U.S. manufacturers and capture more value
from U.S. funded research.104
g. Open Foreign Markets To Business Services. Services are a
large and important component of the U.S. economy and the
United States has much to offer the world in high value services.
To capitalize on this comparative advantage, the U.S. should be
pushing aggressively for services trade liberalization, making
common cause with the European Union and other advanced
economies to encourage the large, fast-growing developing
economies to liberalize their service sectors through multilateral
negotiations in the General Agreement on Trade in Services and
the Government Procurement Agreement. 105 The infrastructure
building boom, particularly in Asia, provides an enormous
opportunity for U.S. service firms if the proper policies are in
place. Increased trade in services might help rebalance U.S. trade,
and both advanced and emerging economies would benefit from
the productivity-enhancing gains brought by increased trade in
services.106
h. Expand Support for U.S. Manufactured Exports: The
government and private sector should work together to identify and
seize new market opportunities and reduce barriers to U.S. exports
for products of industries that use advanced manufacturing
including electronics, aerospace, and biotechnology.107 In this
regard, resources for export financing should be re-examined to be
sure that export financing is fully competitive with foreign export
credits.108 In addition the Department of Commerce should
substantially expand the U.S. and Foreign Commercial Service in
104
See Chapter 4 of this report for a description of the Fraunhofer Gesellschaft. See also the
presentation by Roland Schindler, Executive Director of Fraunhofer CSE, at the National Academies
Symposium on Meeting Global Challenges: U.S.-German Innovation Policy, Washington, DC,
November 1, 2010. Germany’s Fraunhofer system has established seven research institutes based at
U.S. universities, including Michigan State University, Boston University, Massachusetts Institute of
Technology, the University of Maryland, the University of Michigan, Johns Hopkins University, and
the University of Delaware. These institutes provide research and development services to help
translate the fruits of research at U.S. academic institutions into products for the marketplace.
105
J. Bradford Jensen. “Global Trade in Services: Fear, Facts, and Offshoring” Peterson Institute for
International Economics, 2011.
106
Ibid.
107
See the discussion in Chapter 2, section on “Strengthening Manufacturing.”
108
Export-Import Bank of the United States, Report to the US Congress on Export Credit
Competition and the Export-Import Bank of the United States, June 2010. The U.S. Chamber of
Commerce is partnering with the Export-Import Bank of the United States on its Global Access for
Small Business initiative to help more than 5,000 small companies export goods and services
produced by U.S. workers. For a concise review of the role and performance of the Export-Import
Bank in promoting U.S. exports, see Stephen Ezell, “Understanding the Importance of Export Credit
Financing to U.S. Competitiveness.” Washington, DC: ITIF, June 2011.
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order to capitalize on the rapid growth of markets in China, India,
and other emerging economies.109
i. Foster Cluster Development: Recent pilot programs by U.S.
federal agencies to align current economic development programs
with specific regional innovation cluster initiatives by state and
local organizations should be assessed and, where appropriate,
provided with greater funding and expanded geographically.110
Efforts should be made to attract, on a competitive basis, more
states and regions, while providing best practice guidance and
incentives, preferably with reliance on matching funds.
i. Assess Foreign Clusters: The scope and scale of efforts by
foreign governments to develop clusters in new technology
areas are impressive. The U.S. needs to assess and draw
policy lessons from these efforts that are helping to shape the
global competitive landscape. A similar effort should be
undertaken for science and technology parks.
ii. Support the Development of Science and Research Parks:
In a similar vein, the U.S. should provide competitively
awarded federal support to state and regional efforts to
develop and sustain modern research parks. These parks can
provide valuable means of supporting the missions of national
laboratories such as those of the Department of Energy and
NASA, national research institutions such as the National
Cancer Institute, and university facilities.111
j. Leverage Government Procurement to Establish Early
Markets: As it has done previously in industries such as
semiconductors, computers, advanced aircraft, and nuclear power,
109
In remarks at the U.S. Chamber of Commerce, U.S. Commerce Secretary John Bryson has called
for restructuring the Foreign Commercial Service to intensify focus on markets where U.S. exports
have the best potential for continued growth, including China, Brazil, India, Saudi Arabia and
Turkey. See Department of Commerce Press Release, “Commerce Secretary John Bryson Lays Out
Vision for Department of Commerce.” December 15, 2011.
110
For a review of recent federal and state efforts, see National Research Council, Growing
Innovation Clusters for American Prosperity, C. Wessner, rapporteur, Washington, DC: The
National Academies Press, 2011.
111
For a review of the mission and accomplishments of the NASA Ames Research Center, see
Simon (Pete) Worden, “NASA Research Park,” in National Research, Understanding Research,
Science, and Technology Parks: Global Best Practices, op. cit. For an early review of the role of the
NASA Ames Park, see National Research Council, A Review of the New Initiatives at the NASA
Ames Research Center, C. Wessner, ed., Washington, DC: The National Academies Press, 2001.
For a description of the National Cancer Institute’s plan to bring together much of its technology
research and development in a park-like setting in Frederick, Maryland, see John Niederhuber, “The
National Cancer Institute and NCI-Frederick,” in, Understanding Research, Science, and
Technology Parks. Op. cit.
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194 RISING TO THE CHALLENGE
federal agencies can play a key role in helping build domestic
markets for important emerging industries such as electric-drive
vehicles, solar power, and solid-state lighting through incentive
programs and government procurement.112 Overall, procurement
programs can enable domestic producers to move up the learning
curve, push down the cost curve, and enable them to compete
successfully in the U.S. and global markets.113
i. Leverage Defense Procurement: Defense procurement is an
important driver of innovation, providing initial markets for
products for the military as well as civilian sectors.114
Traditional defense procurement, however, operates within
established and complex sets of regulatory and managerial
practices. To shift from a culture of compliance to a culture of
results based on performance, cost, and schedule, the U.S.
should establish “incentives and rewards for innovation in
products and processes that result in continuous performance
improvements, at lower and lower costs.”115
• Develop a skilled acquisitions workforce: The
government should build an expanded workforce of
experienced, smart buyers for the military, including
experienced people from industry.116
• Incentivize better performance: The U.S. should
improve its law and regulations concerning procurement
practices and export and import controls in order to
112
For a historical perspective of the impact of federal procurement on innovation in the U.S., see
Vernon W. Ruttan, 2006, op. cit. For a review of the academic literature, see Jakob Edler and Luke
Gerghiou, (2007). “Public procurement and innovation –Resurrecting the demand side.” Research
Policy. 36, 9, 949-963.
113
Note that federal procurement is generally open to foreign suppliers that are signatories of the
World Trade Organization’s Government Procurement Agreement.
114
David Mowery identifies three channels through which public investments in defense-related
R&D and procurement affect the innovative performance of sectors or the overall economy. First,
defense-related R&D investments can support the creation of new knowledge with defense-related
and civilian technology applications. Second, in some cases, defense-related R&D investment can
lead to ‘‘spinoffs,’’ with civilian and applications. And third, by serving as a ‘‘lead purchaser,’’ for
early versions of new technologies, defense procurement can enable supplier firms to reduce the
costs of their products and improve their reliability and functionality. See David C. Mowery,
“National security and national innovation systems,” Journal of Technology Transfer (2009)
34:455–473. For a contemporary review of the role that Defense procurement can play in advancing
new energy technologies, see Ryan Fitzpatrick, Josh Freed, and Mieke Eoyang, “Fighting for
Innovation: How DoD Can Advance Clean Energy Technology... And Why It Has To.”
Washington, DC: The Third Way, June 2011.
115
Jacques Gansler, “Solving the Nation’s Security Affordability Problem,” in Issues in Science and
Technology, Volume XXVII, Number 4, Summer 2011.
116
Ibid.
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RECOMMENDATIONS 195
reward companies that achieve higher performance at
lower costs.
ii. Encourage Procurement from Small Business:
Procurement from small firms, such as through the SBIR
program, can diversify the supplier base and accelerate
innovation through support for early stage funding while
addressing the myriad mission needs of government
agencies.117
Recognize that Trade and Innovation are Closely Linked:118
6.
a. Provide a Rules-based Playing Field: It is the responsibility of
the U.S. government to take an activist approach to enforce
agreements and provide a rules-based playing field for its
industries engaged in competition with foreign industries.
Measures that distort foreign trade and investment should be
rooted out or offset, especially when these measures risk having a
serious adverse effect on U.S. firms continued ability to
innovate119. This will require support from U.S. industry, but
ultimately an independent and well-informed judgment on the part
of the U.S. government of policy responses that are in the national
interest.
b. Develop an Enforceable International Code of Conduct:
Existing international rules have proved to be ineffective in
governing the activities of government enterprises engaged in
commercial competition. An enforceable international code of
conduct is required.
i. Home governments need to be accountable for their support of
their government enterprises as well as the conduct of these
enterprises where trade and investment patterns are distorted.
117
For a review of the opportunities as well as challenges small innovative businesses face with
respect to federal procurement, see National Research Council, An Assessment of the SBIR Program.
op. cit., pages 46-49. In recent years, the European Union has sought to expand the use of public
procurement to foster innovation, particularly among small and medium sized enterprises. See the
Speech of EU Commissioner Geoghegan Quinn to a meeting of IMCO on the role of public
procurement policies in supporting EU innovation strategies, 1 February 2011. See also M.
Rolfstam W., Phillips, and E. Bakker (2011) “Public procurement and the diffusion of
innovations: exploring the role of institutions and institutional coordination .”
International Journal of Public Sector Management, 24 (5).
118
See related Finding 5 in Chapter 3.
119
It is far from clear that protectionist measures actually promote innovation in the countries that
adopt them.
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196 RISING TO THE CHALLENGE
ii. Going forward, every U.S. government international trade or
investment agreement should include a comprehensive code of
conduct that includes detailed rules governing government
owned, government invested and government supported
enterprises (e.g. ensuring enforcement of intellectual property
and competition laws and policies), transparency, and dispute
settlement.
7. Capitalize on the globalization of research and innovation: The
United States should capitalize on the globalization of research and
innovation to cooperate with other nations to advance innovations that
address shared global challenges in energy, environment, health, and
security.120
a. Strengthen International Cooperation: The United States needs
to better capitalize on the new knowledge that is being generated
around the world. As one analyst has recently observed, “Gathered
from afar and reintegrated locally, knowledge developed elsewhere
can be tapped to stoke U.S. innovation.”121 However, international
collaboration is supported by only about 6 percent of federal R&D
spending, and the United States has no strategy to find and use
knowledge from around the world in this regard. 122 The United
States should strengthen and expand opportunities for research
collaboration by American scientists and entrepreneurs with their
counterparts in growing economies such as China, India, Brazil, as
well as those in more established countries such as Japan and
South Korea and historical partners such as Germany, France and
Italy.123 New initiatives with countries such as Poland, the Czech
Republic, Slovakia, Hungary, and Romania should also be
undertaken in order to pool resources and talent devoted to solving
common challenges in areas such as health, energy, security, and
the environment.124 The need for cooperative efforts is great, and
120
See related Finding 7 in Chapter 3.
121
Caroline S. Wagner, “The Shifting Landscape of Science,” Issues in Science and Technology,
Volume XXVII, No. 1, Fall 2011.
122
Ibid.
123
For a review of opportunities and challenges for further cooperation with India, see National
Research Council, India’s Changing Innovation System, C. Wessner and S. Shivakumar, eds.,
Washington, DC: The National Academies Press, 2007. For a first hand review of current trends in
China’s innovation strategies and challenges, see National Research Council, Building the 21st
Century, U.S. China Cooperation in Science, Technology, and Innovation, op. cit.
124
To review opportunities for cooperation on innovation with Poland, the National Academies
convened two major symposia on “Rebuilding the Transatlantic Bridge: U.S.-Polish Cooperation on
Science, Technology, and Innovation” in 2009 and 2010. The meetings reviewed potential for
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RECOMMENDATIONS 197
the potential benefits are substantial. At the same time,
considerable care needs to be devoted to the terms and structure of
such cooperation, notably to ensure that contributions are
comparable and that the fruits of such cooperation are shared in an
equitable and sustainable manner. 125
b. Expand Exchanges of Scholars and Students: Expanding
exchanges of scholars and students can benefit “both sending and
receiving countries, providing access to leading research and
training not available in the home country and creating
transnational bridges to cutting-edge research.”126 In this regard,
self-organized collaborative networks that are steered more by
individual scientists linking together across borders for enhanced
knowledge creation are found to more often lead to highly cited
research articles.127 This is because researchers are motivated to
“compete with each other for collaborations with the most highly
visible and productive scientists in their fields, in their own
country or abroad. Facilitating this global collaboration could have
a considerable impact on knowledge creation and has been
promoted, for example, by the EU Framework requirements.”128
Conclusion
Innovation—from invention through to commercialization—has a vital
role to play in maintaining America’s position of in the world economy and in
addressing the major challenges facing the world today in areas such as energy,
climate, health and economic development. There is no single measure, nor
even a small number of policy measures that can assure success in preserving
cooperative activity in a variety of areas including developing clean coal energy technologies,
environmental remediation, and cancer research.
125
“The costs, complexity, and risk associated with the development of new technologies provide
great opportunities for international cooperation in both the public and private sectors….These
powerful drivers of cooperation are at the same time a source of greater system friction.” See
HWWA, IfW, and NRC, Conflict and Cooperation in National Competition for High-technology
Industry,” Washington, DC: The National Academies Press, 1996, page 46. These challenges
include identifying cooperative projects of equal interest to all parties, distributing the costs and
benefits in an equitable manner, bridging social and cultural differences and divergent expectations,
and ensuring long-term commitment to projects. See page 47. Soundly constructed and effectively
managed International cooperation can bring value to all parties; managing expectations and
assuring equitable arrangements is often a challenge for national bureaucracies. As the U.S.
economic and technological leadership faces increasing competition, we have both greater
opportunities for cooperation but greater care is required to ensure that it is mutually beneficial.
126
National Research Council, Policy Implications of International Graduate Students and
Postdoctoral Scholars in the United States, Washington, DC: The National Academies Press, 2005.
127
Caroline S. Wagner. “Network structure, self-organization and the growth of international
collaboration in Science.” Research Policy Volume 34, Issue 10, December 2005, Pages 1608-1618.
128
National Research Council, Policy Implications of International Graduate Students and
Postdoctoral Scholars in the United States, Washington, DC: The National Academies Press, 2005.
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198 RISING TO THE CHALLENGE
and enhancing the magnificent record that this country has in innovation.
Scientists in industry and government are now accustomed to developing what
they call “roadmaps” to identify the challenges that need to be addressed and to
bringing forward the next generations of innovative products. Looking abroad
to assess what other countries are doing in facing common challenges, this
report is designed to contribute to a better understanding of the strengths and
weaknesses of the U.S. innovation system. Our purpose is to suggest a path
forward. Most importantly, it is essential to understand that this series of
cooperative interactions with other countries and efforts to benchmark American
policies and measures should be continued in order to help U.S. policymakers
improve U.S. performance.
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PART II
GLOBAL INNOVATION
POLICIES
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