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Opening Address: The End of the Endless Frontier

The Honorable Jeff Bingaman, U.S. Senate

STEPHEN MERRILL: It is my pleasure to introduce the keynote speaker, Senator Jeff Bingaman. Senator Bingaman was elected to the Senate in 1982 after serving as attorney general of the State of New Mexico.

I doubt if anyone would discount the role of Congress in shaping U.S. technology policy, but that was as true in the era of creation as it is true in the era of reassessment, to choose a neutral term. What is indisputable is that no member of Congress has had a more important role in articulating U.S. technology policy and in promoting legislation to implement that vision from several key positions: as a member of the Senate Armed Services Committee and as chair of its Acquisition and Technology Subcommittee, from his position as senior Senate Democrat on the Joint Economic Committee, and from his leadership position in the Democratic Party in the Senate.

Senator Bingaman was an early supporter of SEMATECH, the semiconductor manufacturing consortium and the principal author of legislation creating the Technology Reinvestment Program, including partnerships to create new dual-use technologies. He was the creator of the Critical Technologies Institute, an analytic arm of the White House Science Office, and he has been a strong proponent of partnerships between industry and the national laboratories.

In addition, he has been a leader in national education reform, promoting higher standards for science, math, and other disciplines, and for public school education generally, and he is the author of legislation to make technologies more accessible to public schools.

JEFF BINGAMAN: This is an important time in the Congress and in the country, as far as technology policy is concerned. We have a new majority in Congress. I



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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Opening Address: The End of the Endless Frontier The Honorable Jeff Bingaman, U.S. Senate STEPHEN MERRILL: It is my pleasure to introduce the keynote speaker, Senator Jeff Bingaman. Senator Bingaman was elected to the Senate in 1982 after serving as attorney general of the State of New Mexico. I doubt if anyone would discount the role of Congress in shaping U.S. technology policy, but that was as true in the era of creation as it is true in the era of reassessment, to choose a neutral term. What is indisputable is that no member of Congress has had a more important role in articulating U.S. technology policy and in promoting legislation to implement that vision from several key positions: as a member of the Senate Armed Services Committee and as chair of its Acquisition and Technology Subcommittee, from his position as senior Senate Democrat on the Joint Economic Committee, and from his leadership position in the Democratic Party in the Senate. Senator Bingaman was an early supporter of SEMATECH, the semiconductor manufacturing consortium and the principal author of legislation creating the Technology Reinvestment Program, including partnerships to create new dual-use technologies. He was the creator of the Critical Technologies Institute, an analytic arm of the White House Science Office, and he has been a strong proponent of partnerships between industry and the national laboratories. In addition, he has been a leader in national education reform, promoting higher standards for science, math, and other disciplines, and for public school education generally, and he is the author of legislation to make technologies more accessible to public schools. JEFF BINGAMAN: This is an important time in the Congress and in the country, as far as technology policy is concerned. We have a new majority in Congress. I

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings am sure you are aware it is a Republican majority and there is an effort under way to fundamentally change the federal government's role in science and technology and in trade. Last week, the Senate passed a budget that was designed to eliminate our federal deficit over the next seven years. The House had passed its version of that same budget a week earlier. Although there are some major differences between these two budgets, particularly with regard to tax cuts, defense spending, and domestic discretionary spending, one common feature is that both budgets contain a drastic cut in federal support for civilian research and development across the government. I believe that little attention has been paid to this part of the budget-balancing effort, compared with the substantial attention that has been paid to the issue of cuts in Medicare, Medicaid, and education, and the issue of tax cuts for the wealthy. But in my view, at least, this drastic cut in federal support for civilian research and development may be the place where the Republican budgets will do the most damage to our nation's future well-being and prosperity. Overall, civilian research and development spending will be cut by 30-40 percent by the year 2002 and will then be at a four-decade low as a percentage of our economy. Some agencies, such as the National Science Foundation and the National Institutes of Health, may be cut only at the inflation rate during the next seven years, but the other agencies that are involved in research and development, such as NASA [National Aeronautics and Space Administration], the U.S. Department of Energy, the U.S. Department of Commerce, the EPA [Environmental Protection Agency] appear slated for much deeper reductions. For those who are not familiar with the budget process, let me explain why I cannot speak with a little more certainty about the effect of these budgets. The budget resolutions, which were passed last week and the week before, make many assumptions about federal programs, but the only binding assumption that affects civilian applied research is the total that these budget resolutions contain for this large category called domestic discretionary spending. For fiscal year 1995, the total for domestic discretionary spending is approximately $257 billion. Under the Senate version, in the year 2002, that will drop to $234 billion or a 10 percent reduction, coupled with seven years of no inflation adjustments. Under the House version, the domestic discretionary total in 2002 is even lower, at $229 billion. If civilian research is treated, on average, like other programs in this domestic discretionary spending category, which I believe is probably the best case considering the strong constituency that some of the other programs have, then it would be cut by 30 percent in real terms. If some of the other programs in that category, such as highway funding, law enforcement, and veterans' programs, are protected from deep cuts, when funding is finally allocated by the appropriations committees, then the cuts in civilian research could reach 40 percent in real terms.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings I am tempted to ask what the research community has done or failed to do in recent decades to deserve this particular treatment. The research community has won the Cold War. It has put men on the moon. It has revolutionized medicine. It has invented computers, pioneered electronic, and semiconductor devices and invented a myriad of new materials that have fundamentally changed our lives. These accomplishments are just as Vannevar Bush, one of the giants of the post-World War II generation, predicted in his report, Science: The Endless Frontier, approximately 50 years ago. Bush had the wisdom to know that new scientific and technological fields would emerge—fields such as semiconductor electronics, molecular biology, and material sciences, just to name three. Bush had the vision to see that federal investments in science and technology could transform our lives and contribute to the health and standard of living and security of every American. Federal investments in civilian research and development did not cause the federal deficit; in fact, it was quite the opposite. In 1969 when the federal budget was last in balance, federal civilian research spending was 0.76 percent of the gross domestic product, and, with the sole exception of the Bush administration, it has trended lower for the past 25 years. In 1995 federal civilian research spending was estimated to be at approximately 0.46 percent of the gross domestic product, which is the same as it was in 1992. In 2002, it will be 0.27 percent under the Republican budgets that I have referred to, and that is assuming that research is treated on average the same as other domestic discretionary programs. It is not just that our federal civilian research investments have not caused the current deficit. On the contrary, there is almost universal recognition that these investments have paid for themselves many times by the growth that they have contributed to the economy. It is not an accident that American industries from aerospace to agriculture to electronics to pharmaceuticals enjoy world leadership in their fields. Federal civilian research investments are truly investments in the nation's future, and it is folly to be cutting them to this extent over the next seven years as we enter the new century. The cuts in federal support for civilian research will almost surely not be made up in the private sector. The Wall Street Journal had an article on May 22, 1995, reporting on deep cuts being made by AT&T, General Electric, IBM, Kodak, Texaco, and Xerox in their research budgets. The reason: The private sector firms have an ever-narrower focus and an ever-greater unwillingness to invest in long-term research projects. The benefits of those projects are seen as uncertain and are usually not capturable by any single firm. The governments of our major economic rivals, Japan and Germany, recognize the importance of civilian research investments. In data compiled by the National Science Foundation, comparing investments by the United States, Germany, and Japan in 1992, the German government invested 0.9 percent of their gross domestic product in civilian research. The Japanese government invested 0.5 percent directly, and indirect government incentives spur some of the indus-

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings trially funded research and development as well. Neither Germany or Japan shows any sign that it will join the United States in slashing research spending; in fact, quite the opposite. They and other industrial countries around the world are seeking to emulate the successful American model of the past 50 years, just as we seem bent on abandoning it. U.S. research universities and federal laboratories and U.S. investments in small business research and innovation are the envy of the world. However, under the budgets that have now been passed through both houses of Congress, we risk losing a generation of research and young researchers as the best students are diverted to other professions by the grim job prospects awaiting them in research centers. How did we get into this fix, and how can we can get out of it? That is something that I am sure will be the subject of numerous conversations during this conference. What we have seen over the last two years is an almost complete fracturing of a bipartisan consensus that was forged in the 1980s during the Reagan and Bush administrations on the appropriate federal government role in civilian research and development. The consensus during that time was that the federal role should stop at precompetitive development activity, which should be conducted on a cost-shared basis with industry putting up at least half of the money. One test of the precompetitive nature of the research was whether some of our more intense rivals in industry, such as Intel and Motorola in the case of SEMATECH, could collaborate in the effort. Everyone agreed that the federal role should not include helping individual firms get specific products to the commercial marketplace. In fact, this very term, ''precompetitive development," was first coined by President Bush in a speech he gave to the American Electronics Association in February 1990. He was seeking to distinguish the technology policy that he was pursuing in his administration from the industrial policies of his predecessors in the 1970s. The examples are the Clinch River Breeder Reactor, the Supersonic Transport, and Synfuels Corporation. President Bush proudly spoke during the 1992 campaign of his efforts to expand civilian applied research through a series of new, high payoff investments in critical technologies. Some examples were the high-performance computing and communications initiative to improve manufacturing and performance of materials, an expanded program in biotechnology research, the establishment of the U.S. Advanced Battery Consortium which was funded jointly by industry and government for a four-year period, a significant increase in the aeronautics research budget, and the establishment of seven regional manufacturing technology centers for the distribution of modern manufacturing tools and know-how. This notion of what the appropriate role of the federal government in research is and is not was supported in numerous pieces of legislation that we passed since 1980, with bipartisan sponsorship and with the blessing of the Reagan and Bush administrations. The vast majority of the legislation passed unanimously.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings Indeed, the American bipartisan consensus of 1992 on the appropriate role of government in civilian research and development was incorporated in late 1993 into the Uruguay Round Subsidies Code. It is now the world norm that governments can fund the full cost of basic research, can fund up to 75 percent of the cost of applied research relevant to industry, and can fund up to 50 percent of the cost of precompetitive development without risking trade sanctions. Any development subsidies beyond the precompetitive stage are fully sanctionable, as they should be. Unfortunately, by late 1993 the bipartisan consensus on this policy had fractured. As President Clinton and Vice President Gore pursued a science and technology policy almost identical to President Bush's—they did so, in fact, with real commitment—our debate suddenly reverted to the sort of bumper sticker level that we had mistakenly thought was behind us. Charges of "industrial policy" and "picking winners and losers" were affixed to a broad range of civilian research programs. By early this year, the bumper sticker pejorative had become "corporate welfare,'' a phrase that was unfortunately popularized by Secretary of Labor Robert Reich to cover a variety of tax incentives and subsidies. Republican leaders in Congress argued mistakenly that federal support of research in areas from aeronautics to computers to health, energy, agriculture, and the environment was illegitimate either because it was corporate welfare or it represented some variation on industrial policy and was merely a duplication of private sector efforts. As David Sanger pointed out in an article in the Business Section of The New York Times on May 23, 1995: "Such arguments underscore the sharp difference in the way technology and trade policy is dealt with in Washington and in the capitals of its major economic competitors, where trade is considered national security and picking winners and losers is a phrase with no political resonance." The overall budget prospects facing civilian research in United States in the years ahead demonstrate just how high a political resonance this issue has today within at least part of our political spectrum. Because I do not believe that this is a policy that makes sense for our nation, I led an effort during the Senate debate last week to make spending on research and technology and related trade promotion and trade law enforcement programs a high priority in allocating funds over the next seven years. The amendment that I proposed would have put the Senate on record in favor of maintaining the overall fiscal year 1995 level for these programs without any inflation adjustment, doing so over the next seven years. It would have put the Senate on record against any net tax cuts unless this goal could be achieved first. The amendment did not seek to allocate the funds that we were trying to maintain in those budgets between the civilian research agencies. That would have been left to the authorizing and appropriating committees, and some agencies might have kept pace with inflation, whereas others undoubtedly would have seen fairly severe cuts.

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings By the year 2002, even under the amendment's language, federal civilian research and development investments would be at a four-decade low as a percentage of either federal spending or as a percentage of the gross domestic product. My amendment was intended to provoke a debate and to serve as a warning. It would not have fixed the problem of sustaining our investments at the level of our economic competitors. Even if its prescription had been followed, we would still be spending slightly more than half of what the Japanese government spends and about a third of what the German government spends as a percent of the gross domestic product by the year 2002. Unfortunately, this very modest effort, exemplified in the amendment, was defeated 53 to 47, with all Republicans except Senator Jeffords, voting in opposition and all Democrats voting in favor. Almost a century ago, the head of the Patent Office is alleged to have proposed to close up shop, believing that everything that could be invented was invented. A half-century later, Vannevar Bush laid out a very different vision for the federal role in science and technology. And now, as we prepare to enter the twenty-first century, we face a choice among those competing visions for the future. Because I believe the scientific and technological frontier is still endless and because I do not want to risk condemning our children and grandchildren to a less prosperous, less healthy, less secure future, I intend to continue fighting for federal research investments, even as we pursue a balanced federal budget. I hope that we can restore bipartisan support for these programs before the damage is irreversible, and I fear that this may take years to achieve. Perhaps this very timely conference will begin the process of rebuilding the lost consensus and of pointing out the consequences of the course that we are setting for this nation. PARTICIPANT: You raised the point about the role of the research community. Do you feel that they have been active in aiding your efforts in Congress? JEFF BINGAMAN: I believe that the speed with which the two budget resolutions passed the House and Senate was such that there has not been much opportunity for the affected groups to focus on the implications and respond. So I would say that the research community has not, in my view, focused on the implications of what has been passed in both the House and Senate and have not responded, understandably. PARTICIPANT: What do you think of the prospects for the proposal to consolidate a lot of the science and research agencies? Is that very likely to happen in this legislative session? JEFF BINGAMAN: I do not see much prospect for a genuine consolidation. I believe that it is much more likely that we will end up with a dismantling of some

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings programs. Alan Wolff referred to the Advanced Technology Program at NIST. There does not seem to be a majority supporting that in either the House or Senate, and both the House and the Senate proposed to eliminate the Department of Commerce, where the Advanced Technology Program is housed. So that is not a particularly hopeful sign either. PARTICIPANT: What will happen to defense R&D? Is it the same approach there? JEFF BINGAMAN: We face the same types of arguments in defense R&D, except I believe that the total dollars allocated to defense, as agreed on by both the House and the Senate, will remain steady essentially over the next seven years, with a slight increase in the last two or three years. The problem is that we are starting with such a high number of active duty personnel that, unless we can adjust our goals in that regard, we are going to be constantly stealing from those investment accounts, and research and development will inevitably be cut to maintain the level of personnel that both the President and the Congress seem to want. The same arguments about industrial policy and corporate welfare are being raised in criticism of the Technology Reinvestment Program and several other initiatives. PARTICIPANT: For years we have had an on-again, off-again research and development tax credit. What are your views of the tax credit as an appropriate incentive for private research and development as opposed to programs that hand out dollars for specific products in research areas? JEFF BINGAMAN: I favor making the research and development tax credit permanent. The reason we have not done that is because, under the congressional and budgetary scoring process, it costs a lot of money to make it permanent. Accordingly, every year when that question comes up, we end up extending it a year rather than making it permanent. I do not believe that this is an adequate substitute for some level of direct support by the government for joint government-industry initiatives. Even though R&D tax credit is a good thing to have and should be made permanent, I believe that we would lose a great deal if we back away substantially from some significant level of federal subsidy of R&D activity. PARTICIPANT: Increasingly there is going to be trans-border cooperation among companies of different nationalities or different ownership nationalities. Given the fact that business by itself will not invest sufficiently for the long term, do you see a possibility for a continuing government role, dealing with other governments and with private companies in consortia that are more broadly based than a single company?

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings JEFF BINGAMAN: Each of these issues becomes very complicated when you get down to the specifics of whose investment is involved, and where the jobs are created, and where the research is done. However, I believe that trying to get joint government-to-government cooperation on research projects is a goal that we should definitely pursue. I also believe that there are some opportunities, particularly in environmental and energy conservation areas, where there is a real coincidence of interest between the major industrial powers. PARTICIPANT: You stated that the reductions in government spending most likely would not be offset by the private sector. Does that apply in the United States or worldwide? And if it is offset worldwide, what would that mean in terms of the infrastructure in the United States? JEFF BINGAMAN: I was referring to it not being offset by U.S. companies, based on the information I referred to in The Wall Street Journal article. I am not sure about worldwide. However, I have seen no evidence that, internationally, there is a backing away from investment in research and development by other global companies. PARTICIPANT: In historic terms, it is unusual for the Republicans to be so monolithically against this R&D, because historically they have recognized the defense arguments in that direction. Do you think there has been a one-time permanent shift in the Republican mindset or do you think this is rather a temporary ideological flush that has made them all against R&D spending? JEFF BINGAMAN: I believe that there is a general belief abroad in the land that the federal government can do nothing right. And there is widespread doubt about the efficacy of government activity in all regards. So this is just a fallout. If you start on the assumption that anything the government is doing, the private sector should be doing instead and can do better, then you naturally arrive at the conclusion that we should not be supporting a major federal investment in research and development. PARTICIPANT: To follow up on exactly this question, somewhere between an investment tax credit and larger projects, such as SEMATECH, are there programs in the small and medium-sized firm sector that might in turn provide a political constituency that would seem more congenial to the current congressional majority? JEFF BINGAMAN: I believe that there are some programs that do have some significant participation by small and medium-sized firms. I have not seen the statistics, but my impression is that the Advanced Technology Program has some

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International Friction and Cooperation in High-Technology Development and Trade: Papers and Proceedings substantial participation, as does the Technology Reinvestment Program. Obviously, small business innovative research grants are available to anyone, and I believe that many small firms benefit from that. Therefore, I do not believe that there is a shortage of opportunity or a shortage of participation by small and medium-sized firms. For some reason it has not coalesced as a political force or taken part in these debates so far. Thank you.