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1 Introduction The importance of research universities to the strength of the U.S. innovation . system and the national economy has long been recognized. In recent decades, public policies have sought to bolster the contribution of the nation's academic research enterprise to U.S. industry and economic growth. Nevertheless, as of the late l990s relatively few studies had been done on the contributions and impact of academic research on specific industrial sectors of the economy. To address this gap, the Alfred P. Sloan Foundation sponsored a number of industry-specific studies in the late l990s. In 1998, as part of that series, the National Academy of Engineering (NAE) was asked to undertake this study to assess the contributions of academic research to five high-technology manufacturing and service indus- tries reflecting the diversity and shifting balances in the national economy. The five industries are: network systems and communications; medical devices and equipment; aerospace; transportation, distribution, and logistics services; and financial services. This report, based on the deliberations of the study committee and the fact- finding activities of industry-specific panels of experts, describes specific contri- butions of academic research to these industries and modes of interaction be- tween industries and universities. It also provides qualitative assessments of the impact of academic research on the performance of each industry and, where applicable, identifies trends and emerging opportunities for increasing contribu- tions from academic research. 15
16 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE SETTING THE CONTEXT The critical role of university-based research and associated activities in the U.S. system of technological innovation is well documented (e.g., Brooks and Randazzese, 1998; Cohen et al., 1998; Florida and Cohen, 1999; Journal of Technology Transfer, 2001; and Mowery et al., 1999~. With the increase in gov- ernment support after World War II, university research flourished. In the 1970s, research and development (R&D) performed by universities comprised around 10 percent of all R&D in the United States. After a slight dip in the early 1980s, universities' share rose to about 13 percent in 2002 (NSB, 2000; NSF, 2003~. In 2002, nearly three-fourths of total university R&D expenditures were classified as basic research and about 22 percent as applied research (NSF, 2003~. Univer- sities account for roughly half of the basic research performed in the United States (NSF, 2003. Figure 1-1 shows the sources of funding for university R&D from 1953 to 2002. Since 1953, the largest share has been provided by the federal govern- ment, although the percentage of federal support fell from a high of more than 70 percent in the mid-1960s to 60 percent in 2002. By contrast, funding from industry fluctuated from 8 percent in the 1950s to a low of 2 percent in 1966 to 7 percent from 1988 to 2001 (NSF, 2003~. From 1968 to 2002, however, indus- try was the fastest growing source of funding for academic R&D. In constant 1996 dollars, industrial support of academic R&D grew nearly 900 percent 40,000 - 35,000 - 30,000 u, 25,000 o . _ . _ 20,000 1 5,000 1 0,000 5,000 ~ Nonprofits [~1 Universities ~ Industry 1~1 Nonfederal government ~ Federal government O- ~9<~9~9~9~ ~9~9~9~9~9~ ~9~9~9~9~9~ ~9~9~9~9~9~ ~99 ~99 ~99 ~99 ~99 Of FIGURE 1-1 University R&D funding by source (constant 1996 dollars). Source: NSF, 2003.
INTRODUCTION 17 during this period (although it started from a relatively small base) (NSF, 2003~. Several surveys from the l990s indicate that industry accounts for a signifi- cantly larger share of funding for academic R&D in specific fields, especially engineering. A 1993 survey of engineering faculty members active in research showed that 17 percent of their research support came from industry (Morgan et al., 1994~. A survey of more than 1,000 university research centers in 1990, many of which were founded during the 1980s, revealed that 31 percent of their support came from industry (Cohen et al., 1994~.2 Figure 1-1 also shows that, since 1968, the second fastest growing source of funding has been internal academic resources, which increased by nearly 700 percent and accounted for 20 percent of R&D funding in universities and colleges by 2002. Internal funds from universities include general-purpose state and local appropriations, general-purpose grants from outside sources, royalty income, endowment income, and unrestricted gifts. Figure 1-2 shows changes in federal support for academic research by agency. The most striking change since 1970 is the large increase in funding from the National Institutes of Health (NIH); the share of funding from other agencies remained level or declined slightly. This shift has resulted in a corre- sponding shift in the technical fields supported by federal research funds (Rapoport, 1999~. Figure 1-3 shows that, from 1973 to 2001, the percentage of total federal funding for academic research dedicated to the life sciences rose 1 0,000,000 9,000,000 8,000,000 7,000,000 to 0 6,000,000 . _ 5,000,000 4,000,000 3,000,000 2,000,000 1 ,000,000 ,, . ~ . ~ ~f , j~_- ~ o x9~ x9~ x959 x9~ x9~ x9~ x99~ x99~ 99 ~ DOD · NSF ~ All others FIGURE 1-2 Federal obligations for academic R&D by agency, 1973-2001 (constant 1992 dollars). Source: NSF, 2001a.
8 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE 1 00% - 90% ~ 80% - 70% - 60% - 50% - 40% - 30% - 20% - 10% - .~ ~ ~ t~ ~ ~ ~ ~ t.~ ~ .~ ~ .~ . ~ ~ . ~ ~ tt ~ 0% if~ .~9~ ~9~ ~9( ~9~9 ~9~ ~9~ ~9~ 9~ 9~9 99~ 99~ 99~ 9~ 999 Other sciences 151 Social sciences, total ~ Engineering, total El Math & computer sciences, total ~ Environmental sciences, total PI Physical sciences, total ~ Psychology, total PI Life sciences, total FIGURE 1-3 Percentage of federal obligations for total academic research by field, 1973-2001. Source: NSF, 2001b. from 54.8 to 63.7 percent, and the share allocated to mathematics and computer science research increased slightly from 3.1 to 5.5 percent. During this period, engineering's share of the total federal funding of academic research remained flat at roughly 8 percent; funding for the physical sciences decreased from 14.7 to 9.9 percent; funding for the social sciences decreased from 5.8 to 1.8 percent (NSF, 2001b). During this same period, federal funding for aca- demic research increased from $1.6 billion to $15.2 billion in current dollars (NSF, 2001b). The amount and distribution of support for academic research in specific subfields (e.g., aeronautical engineering vs. biomedical engineering) varies widely over timed
INTRODUCTION 19 Another indicator of the role of universities in the U.S. research enterprise is patenting. Throughout the 1970s and early 1980s, government policy increas- ingly favored stronger protection for intellectual property resulting from publicly funded research. Several universities had already increased patenting activity in the 1970s, largely as a result of the emergence of biotechnology, but the propen- sity to patent increased markedly after 1980.4 Before 1980, all American univer- sities were issued fewer than 250 patents annually; by the mid-199Os the number had exceeded 1,500, the majority in the health care and life sciences (Nelson, 2000~. Overall, the number of university-held patents increased more than 10- fold between 1982 and 1998 (NSB, 2000~. In fiscal year 2000 (FY00), U.S. universities applied for more than 6,300 new patents and were issued more than 3,700 (AUTM, 2001~. Other indicators of the growing industrial relevance of academic research are the approximate doubling of the percentage of papers coauthored by university and industry personnel from 1981 to 1995 (NSB, 1998) and an increase in the percentage, from 49 percent in 1988 to 55 percent in 1996, of front pages of industrial patents that cite university papers (Jankowski, 1999~. Research by the Association of University Technology Managers (AUTM) shows that university involvement in several kinds of commercially relevant activities accelerated in the 1990s (AUTM, 2000~. In FY00, at least 368 new companies were formed based on academic discoveries. More than 100 licenses to university patents generated over $1 million apiece for their university own- ers, with the University of California system holding 10 of these and Columbia University 16. Total license income to universities in FY00 was $1.076 billion, much of it attributable to a few big winners (AUTM, 2001~. Examples include the $160 million earned by Michigan State University over the life of two cancer-related patents, the $143 million lifetime earnings of Stanford University for the recombinant DNA gene-splicing patent, the $27 million paid to Iowa State University for the fax algorithm, and the $37 million earned by the Univer- sity of Florida for Gatorade (Rogers et al., 2000~. The combination of growth in nonfederal funding sources, shifts in the tech- nical fields receiving the largest share of government support, the increase in academic ownership of intellectual property resulting from academic research, and the increase in financial rewards from the licensing and commercialization of research results have changed the role of academic research in the U.S. innova- tion system. The university's role of participating in large government research programs driven by Cold War priorities has given way to an environment in which university researchers and research managers are much more aware of the potential for the commercialization of their research. Greater ownership, and therefore greater control, of intellectual property has put research universities more directly into the value chain of new technology development, especially in the life sciences. Technology transfer offices have been created at more than 200 research universities to manage patents, licensing and royalty contracts, and other business and legal issues related to universities' intellectual property
20 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE (Sampat and Nelson, 1999~. Although the flow of license and royalty income remains confined to a small number of universities just 10 universities plus the University of California system accounted for more than two-thirds of license income in FY00 university managers now recognize the potential of generating income from their research and are paying much more attention to increasing returns on their intellectual property by managing relationships with corpora- tions, supporting start-up companies by faculty, and negotiating beneficial licens- ing agreements and royalty terms (AUTM, 2001~. ASSESSING THE IMPACTS If the economic benefits of academic research could be unambiguously quan- tified, the choice of effective research investment policies might be straight- forward. Unfortunately, it is extremely difficult to apportion the economic output of an industry to the results of academic research. Although a large number of specific results of university research certain drugs, software applications, algorithms have been applied directly to industrial practice and products, the overall benefits of academic research are surely much larger. The cumulative scientific and technological knowledge in a field that underlies varied products and services may be even more important than specific inventions or innovations. A programmer who writes a Web-based order-entry system for a new business, for example, makes use of countless contributions from academic research that led to low-cost integrated circuit chips, software tools, the Internet, and a myriad of related technologies. Several economists have attempted to calculate the private returns (returns to investing firms) and the social returns (returns to both firms and consumers) from university research.5 Others have used regression analysis to evaluate the impact of academic research on industrial patenting, manufacturing productivity, and other measures of industrial performance (Adams, 1990; Jaffe, 1989~. Possible approaches to a quantitative assessment of the impact of academic research on industrial performance are summarized in Box 1-1. No matter which approach is adopted, measuring the impact of academic research is an inexact science. Isolating, tracking, and measuring the contribu- tions of a given body of academic research to the performance of particular firms, industries, and regional economies is complex and difficult (Feller, 1996~. There- fore, this committee's assessments of individual industries are necessarily quali- tative, based on informed judgments by knowledgeable experts in industry and universities, as well as case studies, informal surveys, workshop deliberations, and examples. The NAE deliberately selected diverse industries for this study. Each indus- try is influenced by many factors, such as size, age, trade dependence, and re- search intensity, all of which influence both the amount of relevant research performed and the ability of an industry to absorb the results. On the one hand,
22 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE
INTRODUCTION 23 the diversity of the five industries precludes the emergence of universal, economy- wide truths. On the other hand, the committee was able to identify best practices that could be generally implemented, as well as critical issues and shortcomings common to these five industries, and perhaps others. For example, the studies of the five industries clearly indicate the importance of research in both the natural sciences and engineering, as well as the social and behavioral sciences, in the development and broad implementation of innova- tions. Academic studies of consumer behavior, for instance, have been important to the emergence and success of electronic commerce. Policy research on regula- tions and standards has contributed to changes in banking (the end of Glass- Steagall, which prohibited banks from accepting deposits and underwriting secu- rities and established the Federal Deposit Insurance Corporation), communications (the break-up of AT&T), logistics (the deregulation of trucking and airlines), and a wide range of similar legal and regulatory changes. The contributions of academic research to a social, legal, political, and economic environment that encourages innovation are often overshadowed by the more familiar contributions to advances in science and technology. SECTOR-SPECIFIC STUDIES This study is based on the premise that the research and technology needs and strategies of industries are sector specific as well as company specific, as is the character of academic-industry interactions. Because the frontiers of commer- cial research, development, and innovation vary widely among companies in the same industry and among industries, research and resulting innovations can have a wide range of effects on commercial success. Some of the differences are a function of the characteristics of science and technology, but most of them are attributable to differences in research intensity, necessary returns on investment, market size, competition, product mix, and other distinctive characteristics of an industry. The five industries examined in this study encompass a great . . many var~ahons. Box 1-2 summarizes the five industries, all of which are important in terms of U.S. sales and employment, technological intensity, expected growth rates, and other metrics. One of the difficulties encountered in defining these indus- tries is that subsectors in an industry may differ widely. In network systems and communications, the panel focused on the innovative computer networking seg- ment of the industry rather than on older communications services, such as telephony. In the medical devices and equipment industry, the panel assessed only the more sophisticated subsectors of the industry. The aerospace panel focused on five subsectors of the aerospace industry, three of which are large, mature businesses whose interactions with universities differ substantially from those of the two smaller subsectors. In transportation, distribution, and logistics services, the panel focused primarily on the contributions of one technologically
24 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE driven approach, namely integrated logistics, to the movement of freight. This subsector has undergone a good deal of innovation with significant contribu- tions from academic research; the industry as a whole, however, has not. The financial services panel took a comprehensive view of the industry, including consumer and commercial services, investment banking, and insurance. The medical devices and equipment industry and the network systems and communi- cations industry have a history of extensive collaboration with academic re- search. The aerospace industry, the financial services industry, and the transpor- tation, distribution and logistics services industry generally have had more limited, less systematic interactions with academic researchers.
INTRODUCTION 25 All five industries have demonstrated an impressive capacity for innovation over the past decade. However, only the three manufacturing industries (net- work systems and communications; medical devices; and aerospace) have long- standing, well developed R&D functions. By contrast, the two predominantly service industries (transportation, distnbution, and logistics services; and finan- cial services) have only recently begun to develop an R&D ethos in the tradi- tional sense. The following chapters describe each industry in greater detail and summarize the findings for each industry. NOTES 1 there are serious limitations to using the categories basic research, applied research, and devel- opment to characterize the R&D enterprise (Stokes, 1997). In spite of the uncertainty in placing specific research projects into these categories, science and technology agencies that produce R&D data routinely use them. 2In some cases, the federal government requires that a university obtain matching funds from industry as a prerequisite for supporting a research center. 3The five industry sectors examined in this study do not correspond exactly to categories for which industry research and other data are collected. Furthermore, academic research in several fields may contribute to these industries, making it difficult to assign the contributions of specific disciplinary research in universities to a specific industry sector. 4Several factors contributed to this: a 1980 Supreme Court decision, Diamond as Chakrabarty, upheld the validity of a broad patent in biotechnology; the Patent and Trademarks Law Amendments Act (P.L. 96-517), often referred to as the Bayh-Dole Act of 1980, changed long-standing federal policy that had not allowed research institutions to own inventions developed under federal research contracts or to license or otherwise pursue commercialization of the invention; and the creation of the Federal Circuit Court of Appeals in 1982 provided a strong champion of patent-holder rights (Mowery et al., 1999). 5In an assessment of seven industries, Mansfield (1991) estimated that the annual social returns from academic research from 1975 to 1978 were 28 percent. Mansfield also estimated that 1985 sales of new products based on academic research that were first commercialized between 1982 and 1985 totaled about $41 billion, or 5 percent of total sales for those industries. For a review of approaches to measuring social returns of R&D not specifically focused on academic research, see Jones and Williams, 1998. REFERENCES Adams, J. 1990. Fundamental stocks of knowledge and productivity growth. Journal of Political Economy 98(4): 673-702. AIA (Aerospace Industries Association). 2001, Aerospace Facts and Figures: 2001/2002. Washing- ton, D.C.: Aerospace Industries Association. Available online at: http://www.aia-aerospace.org/ stats/facts figures/95 01_02/ff summary.cim. [ August 21, 2003] AUTM (Association of University Technology Managers). 1999. FY 98 Licensing Survey. Available online at: http://www.autm.net/index_ie.html. [June 24, 2003] AUTM. 2000. AUTM Licensing Survey, FY 1999. Northbrook, Ill.: AUTM. AUTM. 2001. AUTM Licensing Survey, FY 2000. Northbrook, Ill.: AUTM. BankBoston. 1997. MIT: The Impact of Innovation. Special Report of the BankBoston Economics Department. March. Available online at: http://web.mit.edu/newsoffice/founders/. [June 24, 2003]
26 THE IMPACT OF ACADEMIC RESEARCH ON INDUSTRIAL PERFORMANCE Brooks, H., and L.P. Randazzese. 1998. University-Industry Relations: The Next Four Years and Beyond. Pp. 361-399 in Investing in Innovation: Creating a Research and Innovation Policy that Works, L.M. Branscomb and J.H. Keller, eds. Cambridge, Mass.: MIT Press. Cohen, W.M., R. Florida, and W.R. Goe. 1994. University-Industry Research Centers in the United States. Pittsburgh, Pa.: Center for Economic Development, Carnegie Mellon University. Cohen, W.M., R. Florida, L.P. Randazzese, and J. Walsh. 1998. Industry and the Academy: Uneasy Partners in the Cause of Technological Advance. Pp. 171-199 in Challenges to Research Uni- versities, R. Noll, ed. Washington, D.C.: The Brookings Institution. Delaney and Wilson. 2001. Managing Logistics in a Perfect Storm. 12th Annual State of Logistics Report. Washington, D.C.: Cass Information Systems. Feller, I. 1996. Technology Transfer from Universities. Pp. 1-42 in Higher Education: Handbook of Theory and Research, J.C. Smart, ed. New York: Agathon Press. Florida, R., and W.M. Cohen. 1999. Engine or Infrastructure? The University Role in Economic Development. Pp. 589-610 in Industrializing Knowledge, L.M. Branscomb, F. Kodama, and R. Florida, eds. Cambridge, Mass.: MIT Press. Jaffe, A. 1989. Real effects of academic research. American Economic Review 79(5): 957-970. Jankowski, J.E. 1999. Trends in academic research spending, alliances, and commercialization. Jour- nal of Technology Transfer 24: 55-68. Jones, C.I., and J.C. Williams. 1998. Measuring the social return to R&D. Quarterly Journal of Economics 113(4): 1119-1127. Journal of Technology Transfer. 2001. Symposium on Technology Organizational Issues in University-Industry Technology Transfer. Special Issue. Journal of Technology Trans- fer 26(1). Leone, A., J. Vamos, R. Keeley, and W.F. Miller. Undated. A Survey of Technology Based Compa- nies Founded by Members of the Stanford University Community. An unpublished study com- missioned by the Stanford University Office of Licensing, Stanford, California. Mansfield, E. 1991. Academic research and industrial innovation. Research Policy 20: 1-12. McGraw-Hill and U.S. Department of Commerce. 2000. Chapter 45, Medical and Dental Instru- ments and Supplies, in U.S. Industry and Trade Outlook 1999. New York: McGraw-Hill. Morgan, R.P., D.E. Strickland, N. Kannankutty, and J. Grillon. 1994. Research on academic engi- neering research. Part II. How engineering faculty view academic research. ASEE PRISM 4(3): 30-35. Morgan, R.P., D.E. Strickland, M.E. Sava, and N. Kannankutty. 1997. Academic Engineering Re- search at a Time of Change: The Tilt Towards Industry. Pp. 226-234 in Proceedings of IEEE International Symposium on Technology and Society. New York: IEEE. Mowery, D.C., R.R. Nelson, B.N. Sampat, and A.A. Ziedonis. 1999. The Effects of the Bayh-Dole Act on U.S. Research and Technology. Pp. 269-306 in Industrializing Knowledge, L.M. Branscomb, F. Kodama, and R. Florida, eds. Cambridge, Mass.: MIT Press. Narin, F., K. Hamilton, and D. Olivastro. 1998. The Increasing Linkage between U.S. Technology and Public Science. P. 101 in AAAS 1998 Science and Technology Yearbook, A. Teich, S.D. Nelson, and C. McEnaney, editors. Washington, D.C.: AAAS. Nelson, L. 2000. Many Forms of Technology Transfer from Universities. Viewgraph presented at the AAAS Science and Technology Policy Colloquium, April 2000, Washington, D.C. NSB (National Science Board). 1998. Science and Engineering Indicators 1998. Washington, D.C: U.S. Government Printing Office. NSB. 2000. Science and Engineering Indicators 2000. Washington, D.C.: U.S. Government Printing Office. NSF (National Science Foundation). 2001a. Federal Funds for Research and Development: Detailed Historical Tables: Fiscal Years 1951-2001. NSF 01-334. Arlington, Va.: NSF. NSF. 2001b. Federal Funds for Research and Development: Federal Obligations for Research to Universities and Colleges by Agency and Detailed Field of Science and Engineering: Fiscal years 1973-2001. NSF 01-331. Arlington, Va.: National Science Foundation.
INTRODUCTION 27 NSF. 2003. National Patterns of Research and Development Resources: 2002 Data Update. Arling- ton, Va.: National Science Foundation. NSF 03-313. Available online at: http://www.nsigov/ sbe/srs/nsf03313/start.htm. [June 24, 2003] Porter, M., and S. Stern. 1998. Evaluating U.S. Innovative Capacity: The Innovation Index. Presenta- tion at MIT Innovation Summit, March 13, 1998, Cambridge, Massachusetts. Pressman, L. 2000. Measuring Product Development Outcomes of Patent Licensing at MIT. Paper presented at AAAS Annual Meeting, Washington, D.C., February 17-22, 2000. Rapoport, A.I. 1999. How Has the Field Mix of Federal Research Funding Changed over the Past Three Decades? Issue Brief NSF 99-328. Arlington, Va.: National Science Foundation, Divi- sion of Science Resources Studies. Rogers, E.M., J. Yin, and J. Hoffman. 2000. Assessing the effectiveness of technology transfer offices at U.S. research universities. Journal of the Association of University Technology Man- agers 12: 47-80. Sampat, B., and R. Nelson. 1999. The Emergence of Standardization of University Technology Transfer Offices: A Case Study of Institutional Change. Prepared for the New Institutional Economics, September 16-18, 1999. Washington, D.C.: World Bank. Stokes, D.E. 1997. Pasteur's Quadrant: Basic Science and Technological Innovation. Washington, D.C.: The Brookings Institution. Trajtenberg, M. 1999. Economic Analysis of Product Innovation: The Case of CT Scanners. Cam- bridge, Mass.: Harvard University Press. U.S. Bureau of the Census. 2001. Statistical Abstract of the United States. Washington, D.C.: U.S. Government Printing Office. U.S. Bureau of the Census. 2002. Statistical Abstract of the United States-2002. Washington, D.C.: U.S. Government Printing Office. Available online at: http://www.census.gov/prod/www/ statistical-abstract-02.html. [June 24, 2003]