Issues and New Approaches to International Cooperation

Kenneth Flamm, The Brookings Institution, United States

I would like to set out two fundamental issues that are international in scope but very difficult to answer. The first point is illustrated by the Korean approach discussed by Dr. Chung. As I understand it, the aim is to acquire proven advanced technologies and commercialize them. This is increasingly the focus of U.S. private industry as well. In historical context, the United States was willing support a high percentage of the world's basic research when it was assured of gaining a high percentage of the return. But when we can only be assured of gaining 35–40 percent of the return on basic research investments and other countries are getting a return without making the corresponding investment, then it is less attractive to continue supporting basic research at the same level.

In short, the first issue is that given the globalization of R&D in a competitive world where there is no predominant party capitalizing most on basic research, there will be a temptation to do less and less basic research. So how do we go about equitably making investments in this global good? How do we share the load? Coming up with some kind of global arrangement to share the cost and expense in investing in the basic overhead for the entire science and technology infrastructure is a significant issue that we are just beginning to confront today.

The second issue is somewhat related. Just as countries have different perspectives on the value of research, so do government and private industry. When the U.S. government invests dollars in an enterprise that supposedly contributes to productivity and standard of living in the United States, it is using a national concept of return on investment. But when a private company invests in that same activity, it is thinking about its shareholders.

There are some obvious circumstances under which the return to the nation from a taxpayer investment in R&D might logically diverge from the returns of the company on a private investment in R&D. In one example, we had a cooperative development program with a foreign nation in aircraft, with the foreign nation essentially producing an indigenous, somewhat modified, version of the U.S. aircraft. The United States had invested billions of dollars on the technology of this aircraft. From the point of view of the private aircraft manufacturer whose cooperation was required to transfer the technology, the relevant consideration was whether the transfer would create a potential competitor downstream. And they could assess this risk and figure out that for $800 million or $1 billion dollars it made sense to go ahead with the deal.



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--> Issues and New Approaches to International Cooperation Kenneth Flamm, The Brookings Institution, United States I would like to set out two fundamental issues that are international in scope but very difficult to answer. The first point is illustrated by the Korean approach discussed by Dr. Chung. As I understand it, the aim is to acquire proven advanced technologies and commercialize them. This is increasingly the focus of U.S. private industry as well. In historical context, the United States was willing support a high percentage of the world's basic research when it was assured of gaining a high percentage of the return. But when we can only be assured of gaining 35–40 percent of the return on basic research investments and other countries are getting a return without making the corresponding investment, then it is less attractive to continue supporting basic research at the same level. In short, the first issue is that given the globalization of R&D in a competitive world where there is no predominant party capitalizing most on basic research, there will be a temptation to do less and less basic research. So how do we go about equitably making investments in this global good? How do we share the load? Coming up with some kind of global arrangement to share the cost and expense in investing in the basic overhead for the entire science and technology infrastructure is a significant issue that we are just beginning to confront today. The second issue is somewhat related. Just as countries have different perspectives on the value of research, so do government and private industry. When the U.S. government invests dollars in an enterprise that supposedly contributes to productivity and standard of living in the United States, it is using a national concept of return on investment. But when a private company invests in that same activity, it is thinking about its shareholders. There are some obvious circumstances under which the return to the nation from a taxpayer investment in R&D might logically diverge from the returns of the company on a private investment in R&D. In one example, we had a cooperative development program with a foreign nation in aircraft, with the foreign nation essentially producing an indigenous, somewhat modified, version of the U.S. aircraft. The United States had invested billions of dollars on the technology of this aircraft. From the point of view of the private aircraft manufacturer whose cooperation was required to transfer the technology, the relevant consideration was whether the transfer would create a potential competitor downstream. And they could assess this risk and figure out that for $800 million or $1 billion dollars it made sense to go ahead with the deal.

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--> Yet this technology was the fruit of U.S. government investment, possessed by several companies. So this single company making a decision on its break-even point was not taking into account lost sales and possible downstream competition for other companies. In this context, does the U.S. government, which used tax-payer money to fund the technology in the first place, have a responsibility to take the big picture into account? In any event, the issue is that if the investment is a truly private investment, then there is no problem. Companies are free to go ahead and make whatever kind of deal that makes sense taking into account cost, revenues, profits, potential competition, and so forth. But where the government is involved in funding investment, selling or trading technology becomes a much more complicated matter. There do not appear to be neat formulations that might resolve either of these issues. Questions for Future Discussion Raised During the Symposium __ The symposium participants raised and grappled with a number of critical questions that have come to the fore due to the ongoing globalization of science and technology.5 If national strategies are increasingly focused on S&T investments that spur economic growth, and the private sector will play a predominant role in overall funding and globalization, how do we ensure adequate long-term investment in S&T that addresses global problems? Is there a role for expanded international cooperation? What lessons have we learned from positive and negative examples of the last decade? What contributions can existing and new institutions, such as ICSU, OECD, EU, APEC, IIASA, UNESCO, and others make? __ Would it be desirable to pursue a more coordinated global approach to funding research that advances fundamental knowledge and aims at broad areas of application? If knowledge is a global public good, how do we ensure adequate investment and address the problem of "free-riding" by those who use that public good but do not contribute to it? __ Even as national science and technology strategies converge, and international S&T cooperation in the private sector expands rapidly, differences in national approaches to political economy (producer-oriented vs. consumer-oriented economies) continue to cause international friction. There continues to be tension between national S&T investments for national benefit, on the one hand, and the global movement of capital, technology, and people facilitated by MNCs. Who benefits and who loses when information flows freely but markets are not fully open? 5    See two recent reports of the Academy complex: Hamburg Institute for Economic Research, Kiel Institute for World Economics and National Research Council, Conflict and Cooperation in National Competition for High Technology Industry (Washington, D.C.: National Academy Press, 1996), and National Academy of Engineering, Foreign Participation in U.S. Research and Development: Asset or Liability? (Washington, D.C.: National Academy Press, 1996).

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--> __ If nations and individual organizations need to redouble efforts to access knowledge produced abroad, and forge partnerships with foreign-based entities, they need a capability to uncover and pursue international opportunities. At the national level, science and technology personnel in the foreign ministry and foreign service play an important role. In the United States, budget pressures are leading to cuts in this capability. Is there a strong rationale for continued investments in "science and technology diplomacy," including foreign service personnel and resources devoted to monitoring and interfacing with R & D activities abroad?. __ Although the private sector role in overall R & D is growing, and nations apear to be more focused on economic growth as a goal of R & D investments, national governments still want to pursue other public goals (national security, energy efficiency, environmental protection, public health). Are there good examples of national approaches to leveraging private sector R & D to advance non-commercial national goals (e.g. recent shifts in the U.S. defense industrial base)? Can these synergies be pursued systematically? __ Recognizing that forging more effective international cooperation in science and technology is an incremental, long-term task, would an orgoing exchange could take up several of the issues covered in the symposium, including approaches to program evaluation, participation by foreign companies in government-sponsored programs, greater coordination of national investments to address areas of global importance, and other issues.

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