Papers Commissioned for a Workshop on the Federal Role in Research and Development (1985) / Chapter Skim
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Federal Funding of Research and Development in Transportation: The Case of Aviation
Federal Funding of Research and Development in Transportation: The Case of Aviation
Pages 305-350
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From page 305... ...
I-his paper discusses the impact of federal research investment on the technological and economic performance of the commercial aircraft industry, focusing on the role of such investment within a policy structure that has affected both the supply of innovations and the demand for the embodiment o f those innovations in new aircraft des igns . Government policy in the aircraft industry not only has supported precommercial research in civilian and military aircraft technologies, but also has played a major role in supporting the diffusion of the results of that research.
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From page 306... ...
Evaluation of the rote that federal support has played requires some assessment of the structure of the innovation process wi~c}~in the commercial aircraft industry. If federal programs are Deco be successful in supporting incus trial innovation, they must be sensitive to ache requirements and characteristics of ache innovation process in specific industries Therefore, this paper incorporates some discussion of the relationship between the characteristics of ache innovation process within the aircraft industry and the structure of federal R&D programs in the incus try .
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From page 307... ...
Cons iderable technological uncertainty thus pervades the development of a new airframe or engine design, rendering the systems integration and des ign phases critical to the introduction of a successful new product. Therefore, R&D investment within the industry is dominated by the integration of components and prototype design and testing, rather than by basic or fundamental research (see below for further discuss ion)
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The importance of this monitoring function and of product support ( spare parts supply and field service) makes the establishment or existence of a global marketing and product suppor ~ organization critical to marke ~ acceptance of a new aircraft des ign .
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From page 309... ...
Kendrick' concluded that the average annual rate of growth in tctal factor productivity in air transportation was 8 percent during 1948-1966~ higher than for any ocher industry. Fraumeni and Jorgenson 3 found ~cha~c total factor productivity growth in air transportation was exceeded only by that o f telecommunications .
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TABLE 1 Measures of Aircraft Performance.
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ore, Volume 7 . Washington , 1: C: Civil Aeronautics Board , ~ 9 84 .
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voucher measure of technical progress estimates the resource savings associated with improved technical performance. A calculation of the " social savings " resulting from technological progress in commercial aircraft compares the costs of air transportation using ache 1983 U
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3 Similarly, direct operating costs for the DC-9 declined by nearly 50 percent during 1966-1983, due to a succession of stretches of the fuselage and the employment of new, fuel-efficient engines. These operating cost reductions reflect modifications in aircraft des ign and improvements in aircraf ~ utilization and maintenance, bo th of which incorporate important elements of leaving in use (see Rosenberg for further discussion)
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From page 314... ...
The Booz-Allen data also are useful because of the ir separation of incus try ~ financed research expend) Scores wi Chin the aircraft industry from expenditures covered by federal reimbursements for military procurement and development contracts.
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Throughout the pos twar period, the military portion of total R&D expenditures never fell below 65 percent. Throughout the postwar period, NASA research funding grew at ~ very modest rate, and it has remained essentially constant since the late 1960' s .
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I\BLE 2 Annual and Cumuiat~ve R&D Investment, 1945-1982 (1972 dollars in ;:illions ) Federal C: v: l Total Ind~s-r`~— Aer~naut: cs Pt: l i tary Feceral F: nar-ec: Year NASA R.'.
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From page 317... ...
FIGURE 1 Annual R&D Ir.vestment, 1945 -1982 ( 1972 dollars, in millions ~ ~ soot Al\ ',-1 2,5002,0001, 500 1, 000500 ~ 300 200 ll ~J \~\ To ta 1 Rag Industry- : ~ ,_ financed RSD; ., if .'' """is' :"' A "a ~ / '~1' I'm i_ .. Federa l Civi 1 Aeronautics RID ( incl .
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From page 318... ...
ME ROLE Or NACA AND NASA The commercial aircraft industry is virtually unique among manufacturing industries in that a federal research organization, the National Advisory Committee on Aeronautics (and, subsequently, the National Aeronautics and Space Administration) , has for many years conducted and funded research on airframe and propulsion technologies.
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From page 319... ...
As World War II approached, NACA focused increasingly on military aircraft design, Deco the partial exclusion of civilian aircraft research. After World tier IT, during which NACA work was exclusively military in character, the structure of ache aeronautics research system in the United States changed considerably.
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From page 320... ...
Despite its reduced importance in the aftermath of World War II, NACA, and later, NASA, played an important strategic role in supporting research and managing a major component of the research infrastructure of the commercial aircraft industry. In addition, NASA proj ects frequently have involved two or more ers awhile competitor firms, encouraging, to ~ modest extent, the pooling of research efforts and results within the industry.
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As ache data ~ n Table 2 indicate, military sources have provided the vast maj ority of the considerable research in~restmen~c in the aircraft industry during the postwar period. With ache possible exception of JR&D, this research investment was not intended ~co support innovation in any but mili~cary airframe and propulsion technologies.
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S commercial aircraft industry noted, "Commercial engines gain service experience 10 to 15 times faster than miti~cary engines, even military transport engines ....
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THE COMPOSITION OF PIES The Booz -Allen study contains da-a on the compos Scion of RED expend) tures in the aircraft industry ~ including both military and commercial aircraf~c)
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~ as, ~ Don `]
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~ I, t9~8 1i~9e Al tj - 7 ~ A. -4 1 9~9 ~ ;? ~5 57ti Cam Age Source: Booz, Allen and Hamilton Applied Research, Inc.
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R&D INl7ESI~ENT: CONCLUS ION During the postwar period, the commercial aircraft industry has benefited frown substantial direct (NASA and NACA) and indirect (military research and JR&D)
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Congressional dissatisfaction with passenger safety and regulatory policy led to Ache establishment of ache CAB in 1938. 57 Through its issuance of operating cer~cifica~ces and oversight of airline fares, the board effectively controlled airline pricing policies, as well as entry into or exit from the air transportation industry, from 1938 to 1978.
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From page 328... ...
As a resut A, throughout the postwar period, the development of short -haul aircraft with more than 19 seats was confined largely deco Europe and Canada, where Fokicer, Aerospatiale, Shorts Brothers, British Aerospace, DeHavilland, and other firms developed commuter aircraft. Rapid growth in ache U
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investment in the commercial aircraft industry, concluding that the return is quite high. While interes ting, the ir analys is overlooks several dimens ions of R&D investment in the industry.
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Clearly, these huge expenditures have yielded substantial benefits to the commercial aircraft industry. Equity [early, fiche existence of spiders has rarely, if ever, governed :he policy of the armed forces toward their R&D programs.
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While the "embodiment ~ age may have been lower in this industry than in others during much of ache postwar period, thanks in part to CAB regulation, it can affect the measureme72 of benefits from R&D investment greatly. Fortunately, Terlecicyj has computed estimates of that lag, which he fixes at six to eight years .
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I.\BL~ 5 Races of Returrt on R&i3 Investmen~c, 1966-1953 Industry—~ ~ nanc:ed 2~/.
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To assess ache significance of such benefits, however, one must compare the income and other benefits of; ob creation in the commercial aircraft Endue try with those resulting from Ache employment o f Ache highly skilled commercial aircraft industry labor pool in other sectors of the economy. It is unlikely - 329
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From page 334... ...
Moreover, while CAB regulat: on aided U S producers of large commerce al transports, it simul~car~eously discouraged domestic demand and innovation in the commuter segment of the aircraft industry, contributing to the current failure of U
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From page 335... ...
The commercial aircraft industry is an excellent example of an industry in which high spillovers from one firm's knowledge base to other fines are associated with high levels of research investment, as a means of absorbing such spillovers (Cohen and Lsvinthal provide a formal analysis of this phenomenon)
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S . automotive industry and ache federal ga~rernment has been far less smooth and successful than for the commercial aircraft industry.
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From page 337... ...
Nonetheless, the tangled and conflicted history of federal automotive emissions con~cro~ regulation underlines forcefully the importance of linking federal technology support with appropriately designed policies deco support ache adoption and diffusion of the technologies developed witch public funds. COttCLUS ION The history of federal research ~n~restnent in the commercial aircraft industry suggests that public Rag)
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From page 338... ...
The creation of an industry knowledge base and the tailoring of R&D support policies to the specific requirements of the industry's innovation process are considerably more impor~can~c than abstract debates over where basic research, for which federal support is Justified, ends, and where applied research, which theoretically is to be handled by the private sector, begins. The federal rol e in the development of the structure and ce~hnology of the commercial aircraft industry and of Ache air transportation industry means that recent federal policy changes will exert a maj or influence on the future developmen~c of both.
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From page 339... ...
S commercial aircraft industry have not been examined Anile regulation' s demise was an unambiguous victory for both consumer welfare and economic efficiency, the implications of deregulation for the adoption of innovations by the domestic air transportation industry and, therefore, for the inno~rati~re performance of the U
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From page 340... ...
found that the aircraft industry ranked third among U.S. manufacturing industries in 1980 in its level of ~ embodied research intensity, that is, R&D expenditures incorporated in purchased inputs.
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ll. As McCulloch has noted, the high fixed costs that characterize the aircraft industry' s cost structure, as well as the strong learning effects, can glare rise to pricing below average costs.
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; direct operating costs per seat mile and available seat miles for the 1983 fleet were taken from Citric Aeronautics Board. Aircraft Operating Cose and Performance Report.
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. The 3C- 8 airframe has proven to be so rugged that the original engines recently have been replaced we Ah fuel-efficient C~S6 engines, reducing the aircraft' s operating costs and extending its operating life greatly.
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These "R&D capital stock" estimates were not depreciated for several reasons . Pres~mab By, the knowledge resul~cing from the public research investment does not depreciate, nor is its value subj ect to erosion through spillovers to competitors, as is assumed frequently in analyses of priorate Ret)
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43 . Me National Research Council' s surveys of industrial research laboratories before and after World War lI convey some idea of the scale of the expansion of the aircraft industry' s in-house research capabilities.
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49. See the "Draft Interim Report of the Ad Hoc Tnfo~maL Subcommittee on NASA Aeronautical Projects," NASA Aeronautics Advisory Committee, 1983.
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l.he influence of Aeronautical R&D Expenditures lJpon Ohm Productivity of Air Transportation. Dayton: University of Dayton Research Institute, 198~ 68.
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79. The unusual combination of high concentration and occasional dramatic changes in the market shares of firms in ache commercial aircraft industry noted by Phillips, op.
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~.Au~omobile Emissions Control Policy: Success Story or wrongheaded Regulations? " In Government, Technology, and the Feature of ire Automobile .
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From page 350... ...
Owen. Washington, DC: American Enterprise Institute i 1983 .
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