PART II:
SPEECHES, COMMISSIONED PAPERS, AND PRESENTATIONS AT THE FORUM ON HARNESSING SCIENCE AND TECHNOLOGY FOR AMERICA'S ECONOMIC FUTURE

National Academy of Sciences Building

Washington, D.C.

February 2-3, 1998



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PART II: SPEECHES, COMMISSIONED PAPERS, AND PRESENTATIONS AT THE FORUM ON HARNESSING SCIENCE AND TECHNOLOGY FOR AMERICA'S ECONOMIC FUTURE National Academy of Sciences Building Washington, D.C. February 2-3, 1998

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Keynote Address Honorable Jeff Bingaman U.S. Senator from New Mexico I am very pleased to be here this morning in front of such a distinguished audience. This meeting is very timely. We need to have a national conversation on how to meet the challenges of the twenty-first century, the next American Century, through science and technology. I congratulate Governor Thornburgh and Bill Spencer for putting together what promises to be a very substantive two-day program. For the past 100 years, science and technology have been vigorous engines for U.S. economic growth. In the past 50 years, as Vannevar Bush foresaw, the Federal government has become the primary steward of the health of science and technology in this country. What Vannevar Bush did not foresee, when he wrote Science: The Endless Frontier, is that our system of research and innovation has become vastly more complicated and nuanced than the simple linear model of R&D laid out in his report. What actions should the federal government, as a good steward, take to keep our system the most robust and beneficial in the world? I believe that the federal government must remain very broadly involved in ensuring the overall health of our research and innovation system. Our society's continued ability to create and harness the fruits of research and innovation will probably be the single largest determinant of our future quality of life and standard of living. We already live longer, healthier lives as a direct result of advances in medical science and public health. The revolution in molecular biology promises to increase our knowledge of the basic mechanisms of disease by orders of magnitude.

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Environmental science and our technological responses to its warning may largely determine the type of world we leave to our children. For example, if we do not innovate our way out of increased greenhouse gas emissions by improving our energy efficiency and by developing new energy sources, our children and we will be paying our way out of the consequences. Our standard of living has been lifted by growth in productivity and wages throughout our economy. Economists generally agree that, in this century, roughly 25 to 50 percent of our productivity growth—which is the engine of wage growth—has been created by new technology. These new technologies have boosted our economy and created jobs not just through their sale, but through the efficiencies they have made possible throughout the economy. It is important to realize that if we are a healthier, safer, or wealthier society today than in the past, it is not because we are inherently smarter than our ancestors. Nor do we dominate the world economy because we are inherently smarter than the rest of the world. Our success is due to our society's uniquely powerful system for creating new knowledge and putting it to work for everyone's benefit. How does our system work today, and what are some of its strengths and weaknesses? To gain some insight into this, it is useful to look at three examples: First, the integrated circuit (IC) was first reduced to practice in two companies, Texas Instruments and Fairchild, which were initially outsiders in the solid-state devices industry. They used their own funds to spur the initial development of ICs. The managers of the Minuteman and Apollo programs in the Department of Defense (DoD) and the National Aeronautics and Space Administration needed ICs and became the first to use them widely. As continued innovation led to increased circuit density and lower prices, new markets opened up in the commercial world. By the late 1970s, the DoD was roughly only 10 percent of the market for ICs. Integrated circuits were at the heart of the personal computers that sat, somewhat isolated, on our desktops in the early 1990s. As a second example, while the IC was moving from the defense world into the commercial world in the late 1960s and early 1970s, the Defense Advanced Research Projects Agency (DARPA) was pushing the creation of the ARPANET at universities, firms, and nonprofits. DARPA's objective was to share expensive research computers economically. Unexpectedly, researchers started using the ARPANET as a communication medium within the scientific community. Eventually, the National Science Foundation became the primary sponsor of what came to be called the Internet. Various pieces of software were developed to exploit this new medium, though they were not particularly easy to use. Then, off in Geneva, some high-energy physicists invented and started using the World Wide Web as a practical way to share data via hypertext. This Web idea was picked up by graduate students at a federally funded center at the University of

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Illinois. They added graphics to create a user-friendly program called Mosaic, which quickly spread among all those previously isolated desktop computers. The developers of Mosaic founded Netscape, and the Web and the Internet exploded into homes and businesses across America and the world. A third example of innovation that I want to talk about is a device that I saw on a recent trip to New Mexico. A scientist at Los Alamos National Laboratory, Bob Hockaday, got an idea for a thin-film fuel cell that would produce electricity from methanol and that would be sufficiently compact that it could replace batteries in hand-held devices such as cellular telephones. He quit the lab to work on the idea in his basement, living off the income earned by his wife. As he hit snags in the development of his idea, he used a Cooperative Research and Development Agreement (CRADA) with the lab to tap into its fundamental research expertise. When he was far enough along to have a promising story to tell investors, the lab helped him to contact potential sources of capital to move to the next step of prototyping. He presented his invention to 35 different potential investors before finding one who would put up $1 million to move to the next stage. I was at the ceremony two weeks ago at which the lab turned over its intellectual property rights for commercialization to Dr. Hockaday and his investor. What do these examples tell us about our present research and innovation system? First, we don't see the simple linear progression, of basic research to applied research to development and then to products, that we read about in books. Nor do we see smooth and predictable handoffs between institutions that we read about in strategic plans. The real world of research and innovation features an amazing diversity of institutions, motivations, timescales, and pathways to success. Second, the marketplace to which innovation responds often displays a form of competition that economist Joseph Schumpeter termed ''creative destruction.'' In the technology marketplace, firms do not merely try to be a little better than their competition. Sometimes they seek to radically transform the struggle by inventing new products and forms of organization that will make their competitors obsolete and extinct. The personal computer, which had caught the mainframe unawares and largely displaced it, is now challenged by the idea of the net computer. I expect we'll see more and more of this sort of competition in the next century. To survive in that kind of marketplace, one has to constantly innovate, constantly evolve, or the market will pass you by. The picture that emerges from this description sounds almost biological. We have a rich, vigorous "ecosystem of innovation" in our country. Our research and innovation system is not dominated by a simple, mechanistic process, but by an Amazonian rain forest of complex webs and connections. It features an incredible diversity of actors and is marked by chance, chaos, competition, and cooperation. I should note that the people at the Santa Fe Institute are studying the field of

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complexity and trying to understand what they refer to as "adaptive systems." We may conclude that in many respects our system for creating and using new knowledge and technology is a type of adaptive system. While our innovation system has great strengths, it is also marked by some important gaps. For example, what would have happened to Bob Hockaday's invention if he hadn't had a spouse with a good job? Or if he had given up after being turned down by the fifteenth investor he contacted? Now, the federal government is the primary steward of the health of this ecosystem of innovation. If we are to prosper as a society in the next century, we need to build on the strengths and fill in the gaps in our research and innovation system. We have to move from having an innovation system to being an innovation society. I believe that focusing on the innovation society as a goal for the twenty-first century can help us to both open up and organize our thinking about what we need to do. I'd like to lay out at least two characteristics of an innovation society. First, as I see it, an innovation society values and encourages the search for new knowledge and technological capabilities across a broad range of disciplines and across broad time frames of possible use. Such a broad focus can help us to overcome the false split between so-called curiosity-driven research and so-called problem-driven research. For example, in DoD, we currently use rigid categories of research based on an obsolete linear model of innovation (e.g., 6.1, 6.2, 6.3A). This structure entails a lot of bureaucratic effort to classify and control projects and dollars within individual stovepipes. Is this structure really necessary? What does it really buy us? Couldn't a more holistic view of research and innovation lead to a better, less bureaucratic way of managing these programs? A second characteristic of an innovation society is that it develops a wide variety of incentives and mechanisms to disseminate and use new knowledge quickly because it is in its use that the largest social benefits come. In the past, we have experimented with CRADAs and other forms of partnership arrangements between knowledge generators and users. A focus on an innovation society might lead us to make greater efforts in the future to develop other forms of enhanced technical cooperation and dissemination. A focus on the societal aspects of the innovation society metaphor might lead to new insights into the roles that each of our social institutions will have to play in creating and sustaining innovation in the next century. For example: Elementary and secondary schools, already making efforts to provide higher-quality math and science education, might be encouraged to try to nurture the creative spark in all its manifestations. The quality of our education in every respect must be second to none. Universities, where our most fundamental discoveries are made, must be free from administrative requirements that stifle creativity and better linked to the most difficult problems we face. Federal laboratories, already repositories of unique skills and facilities,

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might be encouraged to grow even closer to potential users of their assets in order to speak their language effectively and to partner with them in innovation. Businesses, the primary force in embodying new knowledge into products and services, might be encouraged to look for new ways to integrate their activities with studies of the fundamental phenomena and processes underlying their products. This would improve their ability to exploit the opportunities for fundamental market shifts that new knowledge can provide. State and local governments might be encouraged to take on an enhanced mission of helping to disseminate new knowledge and techniques to smaller businesses, to assist them in innovation. All levels of government might be encouraged to consider how their policies create an overall business climate conducive to, or hostile to, innovation. I think the time is ripe to develop a bipartisan consensus on the future federal stewardship of our research and innovation system. We went through a tough period in the 1980s, but the competitiveness crisis of those years provoked some serious thinking about innovation. More recently, there was also a great deal of heated argument—some of it useful—in response to the Clinton administration's technology initiatives. I believe that we are now in the eye of the storm. Most of the acrimony about federal technology programs has died down. R&D funding, both in industry and the federal government, is up this year in real terms. The President has announced that his next budget will increase civilian R&D considerably. Our overseas competitors, particularly in Asia, are down on their luck at the moment. And the U.S. economy as a whole is the best it's been in a generation, and is currently the envy of the world. But none of these trends is likely to last very long. We should take full advantage of the reprieve that we've been given to develop a new bipartisan consensus and understanding that will guide us when times get tough again. I see a number of hopeful signs that we are doing just this. One is the major study of science and technology policy being conducted by the House Science Committee. I look forward to seeing what emerges from its work. Another is a bipartisan bill in the Senate that would double the R&D budgets of the civilian agencies over the next 10 years. I am a cosponsor of that bill, S. 1305, along with Senators Gramm, Lieberman, and Domenici. Your discussions over the next two days will be a source of valuable input to us in the Senate as we continue our discussions. You've picked all of the right topics to focus on, in my view. I am looking forward to the results of your deliberations.

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