industrial research, could be more broadly incorporated in university curricula in collaboration with local industry. The Fraunhofer funding model, which locks in public funding on a virtually permanent basis is an obvious factor underlying the institute’s achievements, could be put in place for a U.S. system of institutes of applied public research, although this may seem improbable in the current impasse over government spending. The Fraunhofer has refined technology networking to what it regards as a higher level than U.S. counterparts, and the adoption of the institutes’ techniques should be studied by U.S. research organizations.

From an American perspective, the German experience is also of interest because like the United States, Germany is a federal system. Some aspects of German federalism would never be considered attractive in the United States such as the interlocking of state-federal responsibilities in a manner which limits the ability of each to act independently of the other. However, in Germany, the Länder have often functioned as laboratories in which institutional innovations have been implemented which, when demonstrated to be successful, have been adopted at the national level. The states of southwestern Germany pioneered the Dual System of education and practical training which was embraced nationally with the enactment of the Handicraft Protection Law of 1897. The Prussian initiative which established the first Kaiser Wilhelm institute eventually led to the creation of a nationwide network of parapublic research organizations. A similar initiative by Bavaria and Baden-Wurttemburg in the 1950s culminated in the creation of the nationwide network of Fraunhofer institutes. The successful postwar efforts by Bavaria and Baden-Wurttemburg to promote education and research and attract technology-intensive industries finds a current expression at the federal level in the form of initiatives to create innovation clusters on a nationwide basis. There is no readily apparent reason why the U.S. federal system could not be used to explore institutional innovations in applied research at the state level with potential for national policy.

From the broadest U.S. perspective, the Fraunhofer system represents a major public investment by Germany in applied research with short-run commercial relevance. The positive effects of that investment over the long run, as manifested in the international competitive performance of German industry, are undeniable. In the U.S. government investments in commercially-oriented research are commonly controversial in the short run and politically unsustainable over the long run. But against the background of an economic environment which has seen the erosion and offshoring of traditional industries in the face of global competition, some elements of the German innovation system merit consideration by U.S. policymakers.

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