PRIORITIES FOR FEDERAL INNOVATION REFORM

Science, Technology and Public Policy Program

Belfer Center for Science and International Affairs

John F. Kennedy School of Government, Harvard University

Contact: Lewis M. Branscomb, Aetna Prof. emeritus of Public Policy and
Corporate Management

J. F. Kennedy School of Government, 79 JFK Street, Cambridge MA 02138

Tel: 617 495 1853

Fax: 617 495 5776

Email: lewis_branscomb@harvard.edu

NOTE: *The views expressed here are not the formal views of Harvard
University or its constituent elements, but are those of Prof.
Branscomb. However they are based on many years of collaborative work
with other Harvard faculty and are widely shared. Other faculty might
see a different order of priorities.*

The overall issue of how federal policy might strengthen the national
system of innovation was addressed in depth in a national study
sponsored by the Competitiveness Policy Commission, and encouraged by
the cooperation of the UnderSecretary of Commerce for Technology and the
Office of Science and Technology Policy in 1996-8 and published in Lewis
Branscomb and James Keller, eds, *Investing in Innovation: Creating a
Research and Innovation Policy that Works* (MIT Press 1998). Some of
these ideas were presented to the NSTC Committee on Technology March 10,
1999. Rather than attempting to summarize the ideas in this short paper,
I will select three specific, implementable program ideas that could
contribute to a more effective and more politically realistic set of
policies. I will be as succinct as possible and would be glad to expand
on any or all of these ideas on request. None of the recommendations I
make require significant amounts of new funding; all of them would make
new funding easier to get from Congress.

**I. Stronger EOP focus on national innovation policies (other than
conduct of research)**

With the end of cold war and weakening of the role of federal (military
and space) procurement and the growth of global commercial markets as a
drivers of US innovation, the engines of innovation are in largely in
private hands. The federal and state governments must, however, ensure
the strength and adequacy of the knowledge base, the skills, and the
institutions that create them as well as promoting economic. trade and
competitiveness policies that remove disincentives to private innovation
and risk taking. These two objectives call not for a science and
technology policy but for a research and innovation policy. Of course
one should expect OSTP to play a major role, perhaps lead role, in
identifying opportunities for implementing a Research and Innovation
Policy. But it is the EPC and DPC that are missioned in the policy areas
most critical to the environment for innovation in the USA. This leads
to two sets of needed changes in government activity: new ways of
managing the government support of research (both scientific and
technological) and a better way of coordinating economic and other
policies to focus on avoiding disincentives to innovation, Thus the
first recommendation is:

*I-A. A specific and formal role for promotion of innovation should be
given to the Economic Policy Council and the Domestic Policy Council.
These two bodies should be specifically charged with continuing
assessments of federal economic, trade, tax, competition, standards,
intellectual property, policies to examine their impact on private
incentives for taking innovative risks.* In many cases policies intended
to address larger national issues, such as getting fair treatment by
foreign governments of US exports, or creating a balanced budget and a
moderate growth, low inflation economy, will also promote innovation.
But in other cases, such as too-cautious implementation of competition
policy, or support for intellectual property policies that needlessly
protect entrenched market positions, or tax policies that appear to
encourage firms to cite their R&D overseas, this may not be the case.
Both Councils will need staff augmentation to provide people experienced
in managing and studying innovation in a high tech world, but should
also rely substantially (as they occasionally do now) on OSTP and the
NSTC. This policy could be implemented by the President in an Executive
Order without the need for additional legislation.

**II. Renewing the Advanced Technology Program (ATP) managed by
NIST/DOC**

Expansion of the ATP was the most interesting and potentially fruitful
initiative of the Clinton Gore administration in the 1993 Technology
Policy. The program is, however, too small and too diverse in its focus,
and it suffers from too many near-fatal political handicaps to do the
job the nation needs to address. Fundamentally its problem is too much
focus on addressing incentives for commercialization in single firms and
not enough focus on identifying and developing the most promising of
emerging technologies that promise possible new industries or radical
improvements in productivity. In short, it is seen as a subsidy for
selected high tech companies \-- a kind of government funded venture
capital business \-- rather than being seen as an elite federal research
program consistent with the accepted role of government to invest in the
foundations for private sector innovation but focused specifically on
emerging technologies of commercial significance.

New research is revealing that it is difficult to distinguished, at the
firm level, research to reduce technical risk from research to verify
the needed product performance and cost, since product specifications
define both performance and cost and specify the tests the technology
must pass to satisfy those goals. This makes it more complex for ATP
executives to assure itself that it invests in research but not in
product development. At the same time there is a shift taking place in
both the locus of the interface between university and national
lab-based research and that of industry and in the reach of industry
(importantly including the venture capital (VC) industry) toward the
universities. The former is perhaps a result of Bayh Dole and the
changing research culture of the universities as a number of them see
royalty revenues of the order of \$100 million a year. But it is equally
a result of the increasing codification of engineering and applied
research, reducing both risk and time for development, and shifting both
the locus of risk and of opportunity closer to forefront research where
higher risks are being successfully addressed. Thus in several cases of
the commercialization of MIT inventions studied by entrepreneurship
researchers at MIT Sloan School and Harvard Business Schools, we see VC
firms making early contact (but with very modest funding) with the MIT
basic researchers who created an idea of potential commercial value,
followed by a period of as much as 4 or 5 years of additional technology
research at MIT to understand the new technology well enough to justify
creation of a new firm (in which the VC would invest millions of
dollars.)

*II-A Spokespersons for ATP should emphasize its role as a federal
research activity aimed at creating new technologies that have economic
potential, and should measure outcomes by metrics appropriate to this
mission, rather metrics focused on commercial success of individual
firms and the employment and wealth created by them. These metrics
should focus more on whether the research to create new technology was
successful and the technology had entered the mainstream of the US S&T
enterprise. Economic analysis can then be done on the larger question of
employment, wealth and social value of the technology once it begins to
mature. This change can be made by Commerce management without
legislation; it is a problem of recasting the program and convincing
Congress that the new description is both accurate and appropriate.*

*II-B. While universities do participate as subcontractors in ATP, they
are not allowed to be prime in collaboration with a firm or as leader of
a consortium of firms and perhaps other universities. Universities have
lobbied hard for this change, and the current policy should be
reconsidered. Unfortunately this change requires revision to the
enabling statute, which will have to wait for a Congress motivated to
improve ATP rather than reduce it.* This change recognizes that a
steadily increasing fraction of early stage technology development is
taking place in university and government-funded laboratories (witness
the dramatic case of NIH), and funding universities vs. firms provides a
natural demarcation between exploratory research of commercial value and
commercial product development whose success depends on many
non-technical factors. The argument \[see C. Hill in *Investing,* p.
161\] that universities have ample sources of other funding, does not
recognize two facts: (a) physical science and engineering research are
falling seriously behind bio-medical science, and (b) as engineering and
clinical medicine have become more scientific (codified), much research
that would have been considered a decade ago as either empirical or
applied (hence of limited interest to universities) must now be seen as
basic technology research in the university mainstream. \[See L.
Branscomb in *Investing*, p. 118\].

A third change in ATP would help to implement the Administration\'s
initiative in building stronger partnerships with state governments,
whose collective budgets for research and innovation programs are
several times as large as the ATP budget. The political difficulties
associated with state-based industrial policy are minimal compared to
those at the federal level; the states can address the non-research
issues facing a business sector\'s incentive to innovate while NIST/ATP
become partners to state matching in the commercially relevant research
the states do in their universities, incubators and other facilities.

*II-C. NIST/ATP should restore and revise its program to upgrade the
innovation rate in selected, important sectors of the economy where new
science and technology have attractive economic potential. This first
requires the reversal of the recent termination of the \"focus area\"
strategy for ATP, which was the first and most important innovation in
ATP introduced by Arati Prabahkar for the Administration. ATP should
develop a more formal mechanism, linked to the advice of experienced
innovators and investors from the VC industry but not limited to the
tendency of the equity market to over-concentrate on sector fads, for
making consensus judgements about the areas of technical opportunity.
Preference such first be given to those geographically concentrated
industries where state governments are strongly motivated to collaborate
and perhaps match ATP funding; the ATP program would also garner support
from bi-partisan state congressional delegations which could soften some
of the political opposition.* \[See L. Branscomb in *Investing* p.
165.\] *Such a program might be patterned on the NSF State Systemic
Initiatives (SSI), which partners with states that organize to address
their systemic issues in science and math education.*

*II-D. The Secretary of Commerce should appoint an Advisory Board on
Technology-based Innovation (ABTI) to advise the Secretary and the
Undersecretary Technology on all of the DOC programs aimed at promoting
private sector innovation, but especially the ATP and MEP at NIST and
the Office of Patents and Trademarks. It should draw on the success of
the former Commerce Technology Advisory Board (CTAB), abolished by
President Reagan. The ABTI would be composed of experts in innovation
policy and management, drawn from VC firms, small and large innovative
firms, university business schools and innovation policy programs, and
staffed out of the DOC Technology Administration.* This step could
greatly assist the department in obtaining expert advice on its
strategies and make more visible and accountable the inputs NIST should
seek from the business and investment sectors when choosing \"focus
areas\" of technology for systemic investment. It would be desirable but
probably not necessary to give such a committee the permanence of
statutory authorization.

**III. Multi-agency strategic investments in basic research for high
priority national goals**

The legacy of the end of Cold war is a political and public impression
that scientists, supported by public funds, are not sufficiently
accountable for outcomes of public value, and scientists fearful that
too close linkage to outcomes endangers the independence and creativity
so essential to scientific progress. The basic questions are: \"What
capabilities does the nation require to address the challenges in our
society in the coming century?\" \"How can a multi-agency research
program achieve those capabilities in the most creative way while
remaining accountable to the public?\"

For high priority, long range national goals, such as the quest for
environmental sustainability with moderate growth in the economy, for
improved public health and stable population, or for reversing the
growing gap between rich and poor globally, these two perspectives need
not and should not be in conflict. The US public research investment
should be to enhance the nation\'s capability so pursue such goals
through a long-range commitment to research, education and institutional
development carried out in the most creative atmosphere possible \-- the
atmosphere we associate with basic research. Thus both basic science and
basic technological research should flourish not only as a response to
intellectual opportunities and science training, but also as vital
contributions to the nation\'s capacity to innovate.

Between the flourishing basic, purely curiosity‑driven mode on one end,
and the strategic, problem‑solving mode at the other, there is the
employment of creative research in pursuit of defined national goals.
Gerald Holton \[*Science and Anti-Science*, Harvard Press 1993\] calls
this Jeffersonian Research. It can be defined as doing basic (e.g., PhD
thesis‑ or even Nobel‑Prize‑worthy) work in an area of fundamental S/T
whose state of ignorance may plausibly be at the heart of a widely and
commonly perceived societal problem. The choice of the word
\"Jeffersonian\" relates to Jefferson\'s launching of the Lewis‑Clarke
expedition, in which the practical and the abstract overlap. Invoking
the name of Jefferson will symbolize that practical value of knowledge
is not the enemy of a creative, basic approach to acquiring new
knowledge. It is also serendipitous that the year 2000 is the
bicentennial of Jefferson\'s election to the Presidency.

Despite the fact, demonstrated in polling, that the public strongly
supports the national investment in research, there is a rising call
from the public, reflected by their political representatives, to have
scientific research and technology perform more obviously for the public
good. The passage of the Government Performance and Results Act (GPRA)
reflects just such expectations.

The critical question is, How can one institutionalize a set of
commitments to Jeffersonian research? NIH in general and the NCI in
particular provide strong precedents that this approach can be both
scientifically, programmatically and politically effective. NSF and
other agencies should take the lead in a similar effort. The key is the
identification of a small number of appropriate national goals. A test
case could be a program of research for building a path to sustainable
development, using the 4 year study of the NRC Sustainable Development
Board as the point of departure.

*III-A The NSTC should select one or more national goals that require
multi-agency research over a period of years to most effectively and
economically prepare the nation for achievement. Each agency should then
propose research, both from their current portfolios and from new
research as appropriate, that taken together (and coordinated by the
appropriate NSTC committee) would produce documentable progress. These
plans would include both basic and applied research as appropriate. The
administration should then seek the understanding and support of all the
responsible Congressional committees to support this integrated research
strategy and accept the technical metrics that go with it.* This
approach is consistent with the administration\'s 1994 report *Science
in the National Interest* and with the Ehlers Task Force report
*Unlocking Our Future: Toward a New National Science Polic*y, Science
Committee, House of Representatives September 24, 1998.