**Record Statement for National Innovation Act Introduction**

Today I rise with my colleague Senator Ensign to introduce the National
Innovation Act, S. 2109. This Act is about building a new century of
progress and prosperity for our nation by spurring a new wave of
American innovation -- better known around the world as "American
ingenuity."

Our nation was founded by innovators. Washington, Jefferson, Franklin
and many of our other Founding Fathers not only created a new republic,
but in their spare time were inveterate experimenters and inventors, as
well, who believed that innovation would be important to the growth and
security of their new nation.

The generations that followed took up the call. Whitney, Bell, Edison,
Fulton, Morse, Ford, Colt, the Wrights -- I don't even have to say their
first names and you know who they are and what they did.

Now we face a new century with new challenges -- a global age where
competition can come as easily from across an ocean as from across the
street. We got a wake up call earlier this week about how tough the
challenge is when it was announced that China had overtaken the United
States as the world's largest exporter of high-tech products. According
to statistics released by the Organization for Economic Cooperation and
Development (OECD), China shipped \$180 billion worth of such goods
worldwide last year, exceeding U.S. exports valued at \$149 billion.
Even more significant, however, is the fact that the historical
paradigm, one that has fueled much of our economic growth in the
technology sector in this country, is quickly changing. China now
imports far fewer components for tech goods, choosing instead to produce
them itself. The OECD noted that between 2000 and 2004, the U.S. and EU
shares of China's total imports in such components dropped from 27 to 12
percent. Instead of relying solely on its lower labor and production
costs to assemble high-tech goods from components produced in places
like the United States and Europe, China increasingly does it all itself
now. Chinese scientists now develop many of the newest technologies.
Their engineers now design the latest cutting-edge products, and their
factories continue to assemble and spit out the goods, all the while
steadily lowering costs. Many of the people involved are educated here
or in Europe, though even that is changing, in part due to our
restrictive immigration policies and technology transfer rules. If this
continues unabated, the highest-end and best-paying jobs, key to the
innovation-driven economy, could be found in Shanghai and not in
American tech centers.

In May of 2004, I released a White Paper on the topic of outsourcing.
When I issued that White Paper, I stated that the first thing we should
do was to stop blaming others and face the hard facts ourselves. Since
that time, there are even more hard facts we need to face, including the
statistics I just mentioned, all of which point to the urgent need for
action if the American economy is going to adapt to the fundamental
changes and growing competition in the global economy. Forrester
Research Inc., a Cambridge Massachusetts research firm that has been
studying this issue, has estimated that by 2015, 3.3 million high-tech
and service industry jobs will move overseas. Deloitte Consulting has
estimated that approximately 2 million jobs in the financial services
sector, which signifies nearly 15 percent of the industry's total, could
move overseas in the next five years. But even more importantly, we are
not just losing jobs. I fear we are beginning to lose critical pieces of
our innovation infrastructure, and with them, our competitive edge in
the global marketplace. What we always believed was our nation's
ultimate competitive advantage -- our high-end R&D and technological
prowess -- is increasingly under siege. I said in 2004, the outsourcing
of jobs is just the tip of an economic iceberg that America is sailing
towards. If the most recent statistics tell us anything, it's that we
are even closer to that iceberg than ever before.

Luckily, these developments have not gone unnoticed. Earlier this year,
the Council on Competitiveness -- drawing on the insights of many
experts from industry and academia, and led by Sam Palmisano of IBM and
Wayne Clough of Georgia Tech University -- circulated a report with
detailed recommendations on how to reinvigorate our innovation economy.
The National Innovation Act, which Senator Ensign and I are introducing
today, is based on the Council's recommendations. This is a strongly
bipartisan bill, cosponsored by 16 of our colleagues in the Senate.
Further, this bill is wholeheartedly supported by members of the
business and academic communities in this country, many of whom are
eager to see a reinvigoration of American ingenuity. A few examples of
these supportive statements include the following:

George Scalise, President, Semiconductor Industry Association:

"U.S. leadership in technology has been the cornerstone of America's
strategies for driving economic growth and ensuring national security.
U.S. leadership is being challenged as never before. The National
Innovation Act of 2005 addresses a number of the most critical issues
involving technology leadership, especially those related to federal
support for basic research....We are especially pleased to support a
bipartisan approach to ensuring U.S. technology leadership. The issues
at stake -- national security and our standard of living in the 21st
century -- are far too important to become entangled in partisan
politics."

Nicholas M. Donofrio, Executive Vice President, IBM Corporation:

"IBM applauds the introduction of the National Innovation Act of 2005
... Innovation underpins American economic growth and national security.
In today\'s era of global opportunity and change, the rewards flow to
those who innovate and turn disruptive shifts to their advantage.
America has a long, proud history of recognizing when change is required
and rising to the challenge. We are at such an inflection point today.
The National Innovation Act of 2005 will create synergies among
America\'s academic, business and government communities to ensure the
future growth of the United States. I urge all Senators to support this
legislation."

Deborah L. Wince-Smith, President, Council on Competitiveness:

"On behalf of the Council\'s 180 CEOs, university presidents and labor
leaders, I applaud the Senators' efforts and desire to ensure the United
States remains the most competitive economic power in the world. We
must, as a nation, innovate to compete and to prosper. This legislation
is a critical step forward towards that goal."

Dave McCurdy, CEO, Electronic Industries Association:

"EIA is thrilled by today's introduction of the National Innovation Act
of 2005 (NIA), which includes so many measures that can help the U.S.
remain an economic leader in the global high-tech economy. It is an
ambitious piece of legislation that spans the policy spectrum, but with
the commitment and support of policymakers from both sides of the aisle,
we hope to see these important provisions quickly begin to take effect
and fuel the U.S. innovation engine."

John J. Castellani, President, Business Roundtable:

"On behalf of Business Roundtable, an association of 160 chief executive
officers of America's leading companies, I applaud Senator Ensign and
Senator Lieberman for their leadership on this critical issue.
Maintaining our competitive edge in today's world economy is a top
priority of the business community, and the National Innovation Act of
2005 is an important step in the right direction."

The list of organizations and companies that have already endorsed this
bill includes many of the major players in the field, companies and
organizations working to keep America at the cutting edge of technology
development, including the following: American Chemical Society,
American Mathematical Society, ASTRA (Alliance for Science & Technology
Research in America), Athena Alliance, Bell South, Business Roundtable,
Center for Accelerating Innovation, Computing Research Association,
Council on Competitiveness, Council of Scientific Society Presidents,
Electronic Industries Alliance, Federation of American Scientists, IBM,
IEEEE-USA, Progressive Policy Institute, Semiconductor Industry
Association, SEMI North America, and TechNet. In addition, many academic
institutions and organizations support our bill because they recognize
the importance of expanding education in science, math, and engineering.
We have received strong indications of support from the academic
community, including the Association of American Universities (AAU) ,
the Council of Graduate Schools (CGS) and Georgia Institute of
Technology.

While I won't describe every provision of this far-reaching bill today
(a section-by-section summary accompanies this statement in the Record),
I will say that the National Innovation Act addresses three broad
categories -- talent, investment, and infrastructure -- all of which are
key to America's regaining our competitive position among our trading
partners.

Number one, *Talent*: Innovation requires the incubation of curious
minds. That means we absolutely must educate and train our science and
engineering talent base that is essential to our continued global
economic leadership.

The number of jobs that require technical training is increasing at five
times the rate of other occupations. To encourage more students to enter
these technical professions, our legislation increases federal support
for graduate fellowships and trainee programs in science, math, and
engineering by more than \$800 million over five years. Specifically,
the legislation expands the National Science Foundation's (NSF) Graduate
Research Fellowship Program by 1,250 fellowships and extends the length
of each fellowship from three to five years. These fellowships are
portable fellowships which afford students the greatest flexibility in
choosing graduate programs that fit their needs and interests. The
legislation also expands the NSF Integrated Graduate Education and
Research Traineeship (IGERT) program by 1,250 new traineeships. In the
IGERT program, grants are awarded to universities to develop
cross-disciplinary training programs for students in areas including
science, math, engineering, and policy.

The legislation also expands upon existing Department of Defense efforts
and creates new programs in order to encourage more students to enter
the fields of science, math, and engineering. Specifically, provisions
are included to expand the Defense Department Science, Mathematics, and
Research for Transformation (SMART) scholarship program by \$41.3
million per year over five years and to expand the National Defense
Science and Engineering Graduate Fellowship program by \$45 million per
year over five years. A new competitive traineeship program, which will
initially include 80 students, is created to provide interdisciplinary
training in science and engineering to students who are encouraged to
work for at least ten years in the Department of Defense after
graduation.

This legislation also supports new and existing Professional Science
Master's degree programs. These Master's programs typically try to
provide cross-disciplinary training within the science, math, and
engineering disciplines, and also to couple traditional technical
disciplines with business, entrepreneurial, and business law training.
Graduates of these programs will comprise a cadre of technical
professionals with broad skills in both business and science that will
give our industry an edge.

If we are to develop talent at the graduate levels, we must also
emphasize science, math, and engineering at the K-12 and undergraduate
levels. The results from the International Student Assessment of 2003
showed that U.S. 15-year-olds performed below the international average
in math and science literacy. In order to bolster our highly-skilled
science and engineering workforce, we must improve performance in our
elementary, middle, and high schools.

Recognizing that new approaches must be realized, this legislation
establishes a grant program of \$10 million in 2007 and \$20 million in
2008 and 2009 to help primary and secondary schools develop new
experientially-based teaching techniques in math and science. It further
addresses the issue of improving talent in scientific disciplines by
expanding the existing Technology Talent program to the scope originally
intended. The Technology Talent program provides competitive grants to
undergraduate universities to develop new methods of increasing the
number of students earning degrees in science, math, and engineering. It
is essential that we increase the number of college graduates with the
skills to contribute to the science and technology workforce, yet this
program has never been fully funded.

Number two, *Investment*: Great ideas need research money if they are to
move from imagination to market. But, federal R&D spending as a
percentage of GDP has been in steady decline since the mid-1960's. It is
less than half of what it was then. This bill bolsters the mission of
the National Science Foundation (NSF) by more than doubling its research
budget from \$4.8 billion in 2004 to nearly \$10 billion in 2011.
Support for NSF is essential as it funds the full range of scientific
disciplines and it encourages multidisciplinary approaches to problem
solving. When it was created in 1950, Congress envisioned NSF as one of
the primary catalysts for research "to promote the progress of science;
to advance the national health, prosperity, and welfare; \[and\] to
secure the national defense." In order for NSF to continue to meet our
tremendous needs in all these areas, which notably remain as vital today
as they did back then, it needs more funding. At the same time, we must
recognize that we, as a country, face difficult choices in how we
allocate our resources. Hard choices may have to be made, but we cannot
avoid the reality that an investment such as the increase in NSF's
research budget that our bill calls for today, is absolutely necessary
if we are to generate the talent base we need to remain competitive. It
is my belief that this investment will pay vast dividends in the long
run for the American people and for the American economy. I also believe
we will pay dearly if this investment is not made soon.

Congress is making steady progress toward finding reasonable ways to
accommodate the needs of our five major research agencies. Our bill
concentrates on two agencies: we double the authorization for NSF and we
ask the Department of Defense (DOD) to spend 3 percent of its budget on
science and technology (DOD's 6.1, 6.2, and 6.3) programs consistent
with Defense Science Board recommendations. The research budget for life
sciences at the National Institutes of Health (NIH) has been doubled in
recent years and this legislation attempts to bring research in the
physical sciences up to the same high level of funding. A major increase
for NASA science research is now under consideration in conference and
the Congress passed a significant increase in the authorization for
Energy Department Science research as part of the energy bill this
summer. So, our bill addresses the remaining top R&D agencies -- NSF and
DOD.

Our bill also creates an "Innovation Acceleration Grants" program to
stimulate high-risk research by urging federal research agencies to
allocate at least 3 percent of their current R&D budget to breakthrough
research -- the kind of research that gave us fiber optics, the Internet
and countless other technologies relied on every day in this country and
around the world. We anticipate this funding would be used for "grand
challenges," for what is sometimes referred to as "connected" or
"translational" research, which moves from fundamental discoveries
through the development and procurement stages. We also anticipate that
agencies would step outside the peer review approach, which can be too
cautious, and empower talented program managers to drive novel and
promising ideas forward. While it doesn't mandate that these agencies
spend at least 3 percent of their budgets on high-risk frontier research
projects, this provision sets a realistic and reasonable strategic goal.
It is our hope and expectation that agencies will view the 3 percent
allocation as a starting point and will take the initiative to expand
from there. The Innovation Acceleration Grants program is designed to be
a streamlined mechanism to support those grants that are making progress
and not support those that are floundering. The program has built-in and
specially-designed metrics to ensure that granting agencies closely
monitor the projects they support, renewing those with strong
performance and phasing out those that don't show enough real promise
for the types of cutting-edge advancements that are truly innovative. It
is important that it is designed in this manner because a cautious
approach to these issues cannot work. In order to face the challenge, we
need to take risks and be patient. However, in an environment of
increasingly tight fiscal pressures, we also must recognize that risk
taking can, and often does, lead to dead ends. While many high-risk
projects may fail, those that succeed can bring tremendous benefit. The
urgency of the threats we face today warrants a balanced approach. We
must continue to encourage the groundbreaking experimentation, tinkering
and longer-term outlook that made this country great. But we also must
continue to take stock of our progress and make sure we are heading
toward the ultimate goal of reestablishing the foundational elements of
our tremendous successes over the last 50 years, and more.

Switching gears briefly, I think it is also important to note that the
government cannot do this alone. The private sector in this country
needs to continue to lead the charge. Private sector investment in
research in this country, after a sharp rise in the 90's, has been
eroding in recent years in part because companies have moved some R&D
operations outside the United States. About \$17 billion a year in R&D
now flows overseas to nations like China and India. And as that research
money leaves our shores, the high-skilled 21^st^ century jobs we need to
compete sail away with them.

Our bill tries to help stem the tide by making the current Research and
Experimentation (R&E) tax credit permanent and extending it to a greater
number of enterprises; the same provision that appears in the Invest in
America Act of 2005, sponsored by Senators Hatch and Baucus with 44
bipartisan cosponsors. These two Senators deserve the credit on this. We
are simply trying to emphasize their efforts. Making the credit
permanent allows our private entrepreneurial spirit to continue to drive
the economic growth of this great nation and at the same time ensures
that other countries like China do not lure away our talent and
investment, and ultimately the innovation that comes from them. It gives
our companies a powerful and reliable long-term incentive to include
domestic R&D as a significant component of their strategic plans. Since
the original enactment of the research credit in 1981, a public-private
partnership has developed, through which the federal government has
worked with businesses of all sizes to ensure that research expenditures
continue to be made here in the United States. The reward has been the
creation of many innovative technologies, well-paying jobs, and an
increased growth rate in our economy. The importance of this effort
cannot be understated.

At the same time that firms are investing more money in R&D, they must
improve their ability to manage the technological innovations that
result from this research. The emerging area of "service science" refers
to both research and training regimens that are now starting to develop
and to teach individuals how to apply technology to solving complex
problems in the service and industrial sector. Eighty percent of our
economy is service-based, yet we do very little R&D in this area. We now
face intense service competition from countries like India, taking
advantage of global IT systems. If we don't improve our services
productivity, increasingly we won't be able to compete. This legislation
asks the Director of the National Science Foundation to conduct a study
for Congress on how the federal government should best support service
science through research, education, and training.

Number three, *Infrastructure*: Once we have helped assure the education
foundation to give people the basic skills they need to use their
creativity, and the resources they need to support their
experimentation, we must then reinvent and transform our manufacturing
processes and technologies so that we can secure the gains from the
fruits of all this labor. In this era of tough international
competition, if we don't manufacture the goods we innovate here in the
U.S., we will forfeit our global economic leadership and our children's
prosperity to other nations who can. To help facilitate this important
goal, our legislation takes several steps.

First, the bill authorizes creates federally-funded and complementary
advanced manufacturing programs at the Departments of Commerce and
Defense. The development and implementation of state-of-the art advanced
manufacturing systems does not happen overnight, nor can it be done
alone. The goal of this new program is to, again, establish a
public-private R&D partnership which enables risk taking and creativity
to generate new processes and technologies. These new processes and
technologies will give us the productivity breakthroughs we need to
maintain our manufacturing competitiveness. I continue to believe in the
spirit of American ingenuity -- if given the chance and the tools to
succeed, we will. This legislation also creates the Test Beds of
Excellence program, which is designed test and refine these new
processes and technologies in a real manufacturing setting once they
have been developed. Then, we ask the Manufacturing Extension Program to
help disseminate this new innovative knowledge throughout to
manufacturing base, including to the many small and mid-sized companies
that will be key to our growth. The Test Beds program is a competitive
one and, as in the case of the Innovation Acceleration Grants program
and other important features of this legislation, it is designed to
self-scrutinize and adapt to the constantly changing needs of our
manufacturing sector.

In addition to the effort at the Department of Commerce, our bill asks
the Department of Defense to work with the private sector to identify
and accelerate the transition of advanced manufacturing technologies and
processes that will enable us to maintain our technological edge on the
battlefield. The Department of Defense relies on innovation, and the
bill seeks to expand the Department's traditional manufacturing sector
work in this area. An additional motivating factor within the Department
of Defense is the inherent security risk associated with using certain
overseas suppliers. American manufacturing must remain competitive in
order to meet the needs of our military in a timely fashion.

These steps will go a long way toward revitalizing our manufacturing
system into a system that is seamlessly integrated with our other
efforts to boost American innovation through education and research.

Our bill goes further, recognizing that innovation fundamentally occurs
not at the national level, but at the local and regional levels.
Certainly there are many lessons to be learned from the rise of Silicon
Valley and other similar regions that have sprung up all over this
country as centers for high-tech growth. Our competitors, China, India,
Israel and many others, have already begun to emulate the success we
have achieved in this way. These clusters have developed in areas of the
country where educational and research institutions, together with
creative elements of the private sector, have partnered to create an
environment conducive to innovation. Our bill encourages the development
of more regional clusters ("hot spots") of technology innovation
throughout the United States. These hot spots spur growth in local
economies and also contribute to progress on a national scale. We don't
try to impose these from above, from the national level. These must
start at the local level to work. But, the federal government can help
local communities identify successful models and the right metrics. The
Secretary of Commerce will publish a "Guide to Developing Successful
Regional Innovation Hot Spots" in order to share successful strategies
in the formation and development of regional clusters.

Finally, it is imperative that the executive branch take a strong role
in leading and coordinating the broad initiative outlined in this
legislation. To help guide progress in all three of the important areas
I have outlined, this bill creates a President's Council on Innovation.
The goal of the President's Council is to develop a comprehensive
national innovation agenda and coordinate all federal efforts related to
this agenda. In consultation with the Office of Management and Budget,
this Council would develop and use metrics to assess the impact of
existing and proposed laws that affect innovation in the United States.
In addition, the Council would help to coordinate the various federal
efforts that must be spread among many agencies that support innovation,
and it would submit an annual report to the President and to the
Congress on how the Federal Government can best support innovation. This
effort cries out for much better coordination and collaboration than
exist now. Why the White House? These issues must be addressed at the
highest levels and in a decisive and organized way to achieve success.

The National Innovation Act is organized into five titles, intentionally
reflecting the Senate committees of jurisdiction in the subject areas of
each title. Title I, "Innovation Promotion" falls within the purview of
the Commerce Committee. Title II, dealing with science, education and
healthcare programs, covers subjects within the jurisdiction of the
Health Education Labor and Pensions Committee. Title III, providing tax
incentives to promote innovation, comes within the Finance Committee
jurisdiction. Title IV covers Department of Defense programs and would
fall within the Armed Services Committee jurisdiction. Title V, which
touches on immigration, patent reform, and possible barriers to
innovation, would be within the Judiciary Committee purview. The issues
of immigration, health care information technology, and patent reform
are reflected in this bill as Sense of Congress provisions, because we
recognize that the committees of jurisdiction are already working on and
moving in these areas and we don't want to get in their way. However,
the bill cites these moving issues to mark the importance of considering
how legislation on these issues may affect our economy's ability to
remain competitive. The provision for an objective National Academy
study on barriers to innovation would allow Congress to understand how
legal and numerous other structural aspects of the U.S. economy may
affect our ability to be innovative.

From the 18^th^ century Franklin stove to the 20^th^ century personal
computer, the United States has long been the leader in the technology
and innovation that created jobs, wealth, and an ever-increasing
standard of living for our people. We call it American ingenuity. It's
time to take that native ingenuity and build a new century of progress
for America.