The Government Role in Civilian Technology Building a New Alliance (1992) / Chapter Skim
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3 A NEW STRATEGY TO FACILITATE GOVERNMENT SUPPORT OF TECHNOLOGY
3 A NEW STRATEGY TO FACILITATE GOVERNMENT SUPPORT OF TECHNOLOGY
Pages 109-139
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From page 109... ...
U.S. performance in technology commercialization, however, is being challenged more strongly than ever before as a result of improvements in the capabilities of foreign firms.
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From page 110... ...
By financial support for investment in pre-commercial R&D and technology adoption, the federal government, in many instances through public-private cooperative ventures, provided support beyond funding of basic science. Federal agencies, such as the Department of Agriculture, National Institutes of Health, Department of Defense, and National Advisory Committee for Aeronautics contributed to technology commercialization and the adoption of new technology in private firms.
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From page 111... ...
An expanded role for government should center on R&D and technology development projects whose size, scope, or expected return on investment falls outside what a venture capital firm might fund. We do not believe that the federal role in civilian technology should extend to funding R&D projects that are sufficiently viable technically and economically to attract capital funding in private markets (venture capital)
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From page 112... ...
over a number of years. Higher levels of private investment should follow the lowering of any tax, including lower costs to firms anticipating R&D tax credits in future years.4 One assessment of increased corporate R&D spending as a result of the credit indicated that in 1989, for example, $701 million more was spent on R&D in the United States.5 Although there are potential long-term benefits to R&D tax credits, we believe that these credits alone are insufficient to achieve the objective of higher overall rates of technological performance in the United States.
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From page 113... ...
A frequent and serious objection to government involvement in private sector R&D or technology commercialization efforts is that government should avoid promoting one technology area, industry sector, or individual firm over another. It is well established that private markets perform best in allocating resources and "selecting winners" in the commercial marketplace.
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From page 114... ...
Mission agency funding of R&D of this nature is neither sufficiently broad in its coverage of fields nor, in most instances, at the necessary level of continuing funding to affect technology commercialization efforts in a substantial manner. An expanded government role in cooperation with the private sector is inevitable for several reasons.
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From page 115... ...
For cases in which there are high expected social benefits, large externalities and spillovers in other sectors, and appropriability problems for private firms, these costs will fuel pressure for federal action. Finally, there is the growing dependence of U.S.
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From page 116... ...
The guidelines for organizing and rationalizing the process through which federal investment in R&D is undertaken can help ensure a more efficient and rational approach to federal investments in pre-commercial areas. GUIDING PRINCIPLES The congressional request for this report included the mandate to recommend methods to strengthen government-industry cooperation in civilian technology.
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From page 117... ...
The government should not attempt to override private market signals on the direction of development of promising technologies. Direct and unmatched government subsidies or grants to private firms for R&D or technology development projects can redirect scarce resources, both financial and human, into unproductive channels.
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From page 118... ...
A strong link to private sector R&D agendas and commercial markets was missing. These and other initiatives demonstrate that in order to avoid subsidizing technologies with little chance of success in the commercial marketplace, federal programs must include cost sharing.
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From page 119... ...
Principle 4: Diversification of Investments Projects funded under an expanded federal program should complement and not compete or interfere with pre-commercial R&D and technology development activities under way elsewhere in the federal government. This is especially true in programs that have been successful in meeting mission requirements or that currently have close technology links with the commercial marketplace.
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From page 120... ...
Diversification across projects by technology area is also essential to the success of an expanded federal program. A broad portfolio of investments in technical fields, including the biomedical sciences and biotechnology, materials sciences, manufacturing product and process technologies, and computer and telecommunications-related technologies, should help ensure that an expanded government role in pre-commercial R&D does not become captive to the interests of a particular technology champion or a set .
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From page 121... ...
competitive advantages in technology through the closing of domestic markets to foreign goods and services, limits on technology flows, or restricting foreign participation in government technology programs are potentially damaging to long-term U.S. economic interests.
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From page 122... ...
Current efforts to review government R&D programs have suffered, in some instances, from the fact that annual reports to Congress or the executive branch have been conducted by mission agency employees with an direct interest in having projects they evaluate continue. Technical evaluations of the R&D work and of the contributions to national economic welfare of pre-commercial R&D programs should be conducted by nongovernmental groups that do not have a direct role in program management or funding decisions.
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From page 123... ...
Expanded Mission Agency Funding of Pre-Commercial R&D The first alternative considered for an expanded federal role in financial support for pre-commercial R&D is a decentralized, multiagency approach to project funding. Although federal agencies currently fund work in precommercial areas, these efforts are at a level of funding and scope that limits their impact on commercial markets.
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From page 124... ...
Expanded mission agency funding for pre-commercial R&D within present agency structures would also have to follow government procurement rules and civil service guidelines. The panel believes that this system, which is in operation now in many technology transfer and development programs administered by the government, has had only limited success.
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From page 125... ...
This is particularly true when considering the effect that the annual congressional budget process has on mission agency budgets. Financial support for pre-commercial R&D, channeled through mission agencies, has little chance of competing with long-standing basic research (and it should not)
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From page 126... ...
A small percentage of the agency's funds might be invested in R&D that is too high risk to attract private firms on a 50 percent contribution basis. Most models for civilian technology agencies outlined in other reports view the structure of DARPA as a framework for such an organization.~4 The cost-sharing provisions endorsed in the panel's guidelines for an expanded government role in civilian technology, however, differentiate the CTA from a civilian counterpart to DARPA.
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From page 127... ...
An important goal would be to keep administrative costs at a minimum. As is true at DARPA, a high percentage of agency funds, about 90 percent, should be devoted to technology development and R&D commercialization efforts.iS A CTA would require substantial funding over an extended number of years in order to support large-scale projects involving firms in a wide range of industry sectors.
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From page 128... ...
Moreover, a new agency would give special status to technology commercialization, making it a legitimate purpose of the government. It would signal the importance of pre-commercial R&D to technology in strategic sectors.
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From page 129... ...
Trade Representative or DARPA, at least initially.~7 In sum, the disadvantages of a Civilian Technology Agency outweigh its potential advantages. There is a more efficient way to structure an extension of the federal role in civilian technology.
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From page 130... ...
Funding of $5 billion would enable the CTC to make the necessary investments to affect technology commercialization rates in the United States in a wide range of sectors. The CTC would be required to submit to Congress and the President a report on its activities after four years and again when the review beginsno later than the tenth year of operation.
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From page 131... ...
Notably, in contrast to either an expanded program for mission agency funding of R&D or the creation of a new Civilian Technology Agency, a CTC would avoid the political pressures and discontinuity inherent in the annual appropriation process. Placed outside government, the CTC would also have the advantage of flexibility in choice of investment.
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From page 132... ...
If successful, the CTC would provide for higher levels of R&D investment in pre-commercial areas in the United States and, over time, for a larger number of successful technology commercialization projects in the private sector. The government can affect technology commercialization rates to the benefit not only of a single firm or industry but also of the economy and welfare of the nation.
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From page 133... ...
The CTC, unlike a new federal agency, would also be able to make direct loans and grants to ventures under terms acceptable to the board of directors. The CTC would have the flexibility to take direct equity ownership in R&D cooperative ventures, something not possible under current federal guidelines.
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From page 134... ...
technology strategy, it most likely will be more efficient to allocate funds directly for this purpose, through a mechanism like the CTC. Finally, tax credits have limited potential to affect rates of technology adoption or the diffusion of innovative technologies through specific programs tailored to meet this objective.
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From page 135... ...
Some failures are to be expected in these types of investments; if there are none, it signifies that the choices could have been funded commercially. Risk borne completely by the private sector, in investments made by venture capital firms, is arguably different from that shared by the public.
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From page 136... ...
Financial support for precommercial R&D, channeled through mission agencies, has little chance of competing with long-standing basic research or technology needs of the direct objectives of mission agencies. -=, _ Even if available resources were guaranteed a reasonable chance of successfully competing with existing programs in the budgeting process, it is unlikely that a decentralized approach to support for R&D on problems that require choices of important technologies would result in identifiable, long-term benefits to U.S.
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From page 137... ...
The CTC, as an independent corporation, would be able to hire qualified personnel by using competitive compensation packages to compete in private labor markets. The CTC, unlike a new federal agency, would also have the flexibility to make direct loans and grants for pre-commercial R&D under terms acceptable to its board of directors.
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From page 138... ...
Teich, Federal Support of Applied Research and Development: A Review of the United States Experience (Paper commissioned for a Workshop on the Federal Role in Research and Development, Committee on Science, Engineering, and Public Policy, National Academy of Sciences, National Academy of Engineering, Institute of Medicine, and The Academy Industry Program, Washington, D.C., November 21-22, 1985)
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