The argument that federal support should be confined to basic research also overlooks the possibility of market failure in the adoption of new technologies—an important area in which the United States needs to improve its performance, as noted in Chapter 1. The issue of nonappropriability, or the inability of firms to capture economic benefits of investment in basic research—long accepted as the rationale for public support—deals largely with a putative undersupply of that type of research. This view overlooks the fact that the transfer and utilization of new scientific or technological information generally involve significant appropriability problems for private firms. The organization of R&D capabilities in industry rests on the inability of firms to capture the returns of investment in technology transfer and adoption activities, as noted below. Public support for technology development, therefore, may legitimately include a role in supporting its utilization and diffusion, as well as the creation of technological knowledge.

In sum, an expanded federal role in supporting pre-commercial R&D and technology, as well as domestic technology adoption, is justified on the grounds that market mechanisms do not promote efficient levels of investment or performance in these areas. Moreover, to improve U.S. performance in technology commercialization and adoption, a better balance between support for basic research and investment in pre-commercial R&D and technology adoption is necessary.

Federal Support for Basic Research

Government involvement in the development of civilian technologies has a lengthy history and has assumed many forms. Many of the high-technology industries in which U.S. firms are now dominant or strong performers within the global economy benefitted from federal funding of basic research or from defense-related research, development, and procurement programs. Basic scientific research has played an important role in advances in telecommunications, environmental sciences, and many other areas. In biotechnology, the growth of start-up companies and advanced applications in genetic engineering have been made possible in part through federal funding of research at universities and medical institutes. Government funding of scientific research has also contributed both to the physical capital necessary to support the nation’s science and technology base—construction of scientific and engineering facilities, and equipment purchases—and to the education and training of the U.S. work force.

The role of the federal government has also included the education of scientific, engineering, and academic personnel employed in government, industry, and universities. As federal funding of research has increased, the number of scientists and engineers has also risen (more than 60 percent from 1977 to 1987 and 8 percent per year in the 1980s).7 Sponsorship of

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