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S. Hrg. 109–349

AN ASSESSMENT OF FEDERAL FUNDING FOR

PRIVATE RESEARCH AND DEVELOPMENT

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, AND INTERNATIONAL 

SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

MAY 26, 2005

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Chief Counsel 

TRINA D. TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

KATY FRENCH, Staff Director 

SEAN DAVIS, Legislative Assistant 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coburn ................................................................................................. 1

Senator Carper ................................................................................................. 2

Senator Lieberman ........................................................................................... 16

Senator Levin .................................................................................................... 19

WITNESSES 

THURSDAY, MAY 26, 2005

Charles W. Wessner, Ph.D., Director of Technology and Innovation, Board 

on Science, Technology and Economic Policy, The National Academies ......... 4

Robin Nazzaro, Director, Natural Resources and Environment Team, Government Accountability Office .................................................................................. 10

Brian Riedl, Grover M. Hermann Fellow for Federal Budgetary Affairs, The 

Heritage Foundation ............................................................................................ 12

ALPHABETICAL LIST OF WITNESSES

Nazzaro, Robin: 

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 52

Responses to Questions for the Record ........................................................... 63

Riedl, Brian: 

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 104

Responses to Questions for the Record ........................................................... 115

Wessner, Charles W., Ph.D.: 

Testimony .......................................................................................................... 4

Prepared statement with attachments ........................................................... 37

Responses to Questions for the Record ........................................................... 212

APPENDIX 

‘‘Advanced Technology Program, Inherent Factors in Selection Process Could 

Limit Indentification of Similar Research,’’ GAO/RCED–00–114 .................... 66

Copy submitted by Senator Coburn for the Record: 

Chart entitled ‘‘$300 Billion in Revenue, $300 Million in Federal Research Funding’’ ............................................................................................ 118

Chart entitled ‘‘Venture Capital Funding Reaches $21 Billion in 2004’’ ..... 119

Letter dated May 18, 2005, to Hon. Carlos Gutierrez, Secretary, U.S. 

Department of Commerce, from Senator Coburn ....................................... 120

Letter dated May 24, 2005, to Hon. Carlos Gutierrez, Secretary, U.S. 

Department of Commerce, from Senator Coburn ....................................... 122

‘‘Department of Commerce: Discretionary Proposal Advanced Technology 

Program (ATP)’’ ............................................................................................. 125

‘‘OMB Program Assessment Rating Tool (PART)’’ ......................................... 126

‘‘Federal Grants to Advanced Cell Technology, Inc.’’ ..................................... 135

‘‘Measuring Performance, The Advanced Program and Private-Sector 

Funding,’’ GAO/RCED–96–47 ...................................................................... 136

Copy submitted by Senator Levin for the Record: 

ATP Response to Senator Levin’s Inquiry, May 2005, ‘‘ATP: Delivering 

Results’’ .......................................................................................................... 180

Letter dated May 20, 2005, to Senators Carper and Levin from Dr. 

Peter Fiske, Co-founder—RAPT Industries, Inc. ....................................... 183

Page

IV

Copy submitted by Senator Levin for the Record—Continued

Letter dated April 27, 2005, to Hon. Senator Paul Sarbanes, from Jeff 

Serfass, Executive Director, U.S. Advanced Ceramics Association .......... 185

Letter dated May 26, 2005, to Senator Levin from Kenneth R. Baker, 

President and CEO, ALTARUM .................................................................. 186

Letter dated May 25, 2005, to Senator Levin from Dwight Carlson, Chairman, CEO, Coherix, Inc. .............................................................................. 187

Letter dated May 29, 2005, to Senator Levin from James Chew, Chief 

Strategy Officer, TJ Technologies, Inc. ....................................................... 189

Letter dated May 27, 2005, to Senator Levin from Thomas A. Cellucci, 

Zyvex .............................................................................................................. 190

Letter dated May 26, 2005, to Senator Levin from Fawwaz T. Ulaby, 

Vice President for Research, The University of Michigan ......................... 192

Letter dated May 2, 2005, to Frank Wolf, Chairman, Subcommittee on 

Science, State, Justice, Commerce and Related Agencies, House Committee on Appropriations, from numerous undersigned constiuents ........ 193

‘‘Core Findings and Recommendations,’’ The Natural Academics Committee on Government-Industry Partnerships ........................................... 201

(1)

AN ASSESSMENT OF FEDERAL FUNDING FOR 

PRIVATE RESEARCH AND DEVELOPMENT 

THURSDAY, MAY 26, 2005

U.S. SENATE, 

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY, 

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS,

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:37 p.m., in room 

SD–562, Dirksen Senate Office Building, Hon. Tom Coburn, Chairman of the Subcommittee, presiding. 

Present: Senators Coburn, Carper, Levin, and Lieberman. 

Chairman COBURN. The Subcommittee will come to order. I 

thank each of you for attending. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Last year, venture capitalists in this country, 

through the private sector, invested over $20 billion in various 

projects in the United States. The Federal Government outside the 

ATP program invested over $50 billion in research. 

The hearing today is not to say that there are not some good 

things that come out of every government program, but is to assess 

the relative dollar contribution versus the benefit of the programs 

that we are investing in. 

I think one of the things that every American can agree on is 

that having a deficit each year, and I would preface that the last 

time we had a real surplus in our country was 1973. All you have 

to do is look at the national debt to assess whether or not that is 

a true statement because it rose in each of those years. 

The fact is this year it will be over $620 billion. The only thing 

that lasts longer than life are government programs. The purpose 

of this hearing today is to take a good hard look at one of those 

particular programs that has been recommended for elimination 

through President Bush’s budget recommendation, and assess and 

evaluate the quality, the impact and the potential future impact 

and cost benefit for that program. 

With that in mind, I will ask for unanimous consent that my entire opening statement be made a part of the record and I would 

introduce to you our Ranking Member, Senator Carper and ask for 

his opening statement. 

[The prepared statement of Senator Coburn follows:]

2

PREPARED OPENING STATEMENT OF SENATOR COBURN 

Last year, venture capitalists invested over $20 billion into various projects in the 

U.S. economy. Industries including biotechnology, telecommunications, and health 

care services received hundreds of millions, if not billions, of dollars in funding from 

private investors. All of that venture capital funding also doesn’t even take into account the massive amount of money spent each year on research and development, 

or R&D, by publicly-traded American companies. Just to give a few examples, IBM 

in 2004 spent more than $5 billion on R&D, while Motorola spent more than $3 billion on R&D. In short, the private sector of the U.S. economy is researching new 

technologies and products at a feverish pace. 

This hearing today has been convened to provide an assessment of Federal funding for private research and development, with a focus on the Advanced Technology 

Program, or ATP. Created in 1988 by the Omnibus Trade and Competitiveness Act, 

ATP is a Federal program charged to support research that accelerates the development of high-risk technologies in order to increase the global competitiveness of 

American industry. On its web site, ATP states that its goal is to help companies 

meet challenges that ‘‘they could not or would not do alone.’’ Many of the program’s 

most vocal supporters believe that without the Federal funding provided by ATP, 

countless research projects would receive no money at all, and that ATP exists to 

remedy the failure of the market to fund research and development. 

Evidence to support those claims, however, is quite limited. Time after time, ATP 

is shown to fund initiatives that have already been undertaken by the private sector. Year after year, multi-billion dollar corporations receive millions of dollars from 

ATP. For example, General Electric, or GE, one of the most widely known corporate 

brands in the world, has received more than $100 million in grants from ATP. Last 

year alone, GE reported revenues of $152 billion. IBM, with revenues of nearly $100 

billion in 2004, has received $91 million in Federal funds from ATP. In total since 

1990, Fortune 500 corporations have received more than $730 million from ATP. If 

this does not constitute corporate welfare, then corporate welfare does not exist. 

Regarding the claim that ATP primarily funds research that does not already 

exist in the private sector, the U.S. Government Accountability Office (GAO), found 

in a 2000 report that ATP had funded research on handwriting recognition that 

began in the private sector in the late 1950s. GAO found that inherent factors within ATP made it ‘‘unlikely that ATP can avoid funding research already being pursued by the private sector in the same time period.’’ Furthermore, according to the 

Program Assessment and Rating Tool used by the Office of Management and Budget, ATP does not address a specific need and is not designed to make a unique contribution. 

While many supporters of ATP point to the broad societal benefits of scientific research as justification for ATP, the merits of scientific research are not at issue here 

today. As a physician, I know first-hand the benefits that have been realized due 

to breakthroughs in the field of medical research. The main issues before us today 

are the Federal financing of research that may very well be duplicative and the Federal subsidization of multi-billion dollar global corporations. 

We are pleased to have with us here today distinguished scholars from the Government Accountability Office, the Heritage Foundation, and the National Academies. On our first and only panel, Robin Nazzaro, Brian Reidl, and Dr. Charles 

Wessner will give us their assessments of Federal funding of private research and 

development.

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. How is that for timing. It is not always that 

good. 

I just left about 50 screaming kids from Cab Calloway School in 

Delaware in my office, saying do not go to that hearing, stay here 

and take our questions. I thought I would come here and ask some 

questions of my own. 

To our witnesses today, welcome and thanks for joining us. 

I think this is my fifth hearing today and I think it is the last 

one. 

Senator COBURN. You were not in a 5-hour markup for asbestos. 

Senator CARPER. How did that go? 

Senator COBURN. It is going to the floor. 

3

Senator CARPER. That is exciting. 

I have actually quite a long statement here and rather than go 

through it, if I could, let me just ask unanimous consent to enter 

it for the record and we will just get right to these witnesses and 

get this show on the road. Thank you. 

Senator COBURN. Without objection. 

[The prepared statement of Senator Carper follows:]

PREPARED OPENING STATEMENT OF SENATOR CARPER 

Thank you, Mr. Chairman. I appreciate the dedication you’ve shown so far in 

using this subcommittee to closely examine programs—even very popular ones—to 

make sure that the taxpayer dollars we dedicate to them are spent wisely and are 

getting results. 

There’s probably room for improvement in every program. I’m sure the Advanced 

Technology Program is no exception. I think it’s clear, however, that ATP has been 

a success. I think it’s also clear that ATP and programs like it should be seen as 

an integral part of our nation’s economic policy, especially in times like these with 

U.S. industry under so much pressure from overseas competition. 

A recent assessment of ATP conducted by the National Academies shows that the 

program is achieving the goals Congress set out for it when it was created back in 

the late 1980s. According to the panel’s findings, ‘‘The ATP emphasizes economic 

growth and advances the competitiveness of U.S. firms by fostering technologies 

with potentially large net social value that might not otherwise emerge in time to 

maximize their competitive value.’’

I know there are some critics of ATP who would disagree with this assessment. 

I believe GAO will testify today that flaws in the program’s application review process may lead to the funding of research projects that duplicate work already being 

done in the private sector without ATP assistance. There have been others who’ve 

criticized ATP for giving too much assistance to large companies or concentrating 

it in a handful of states. Others say ATP simply isn’t needed and that much of the 

work it funds would happen with or without its help. I think some of this criticism 

misses the point. 

Data collected by ATP’s Economic Assessment Office shows the projects funded 

under the program have had a real economic impact across the country. ATP has 

funded projects in 40 states across the country, plus the District of Columbia. The 

vast majority of these projects were led by small businesses. 

The Economic Assessment Office was able to analyze the impact a few dozen ATPfunded projects more closely and learned that they provided American taxpayers a 

return on investment of some $17 billion. When you consider that ATP has only distributed about $2 billion in grants since it’s founding I’d say that’s an example of 

remarkable success. 

In simple terms, I think ATP’s mission is to find good ideas and help turn those 

ideas into something that can benefit our economy. It shouldn’t matter where those 

ideas come from. And I don’t know that it would ever be possible to guarantee that 

a company receiving an ATP grant would never be able to get funding for their 

project through some other means. 

It’s clear to me that there are some good ideas out there that private venture capital firms probably won’t touch. If those ideas have merit, I think the Federal Government, through ATP or some other means, should try to help them along. 

ATP has probably made some bad funding decisions in the past, Mr. Chairman, 

and I’m sure they’d acknowledge that themselves. They’ll probably make more in 

the future. That’s the nature of what they do—some research projects bear fruit, 

others don’t. But the program is making an impact in a number of ways. The Economic Assessment Office found that ATP grants in most cases help bring products 

to market faster. Grant recipients are able to obtain more patents and hire more 

people. Growth for small firms that receive ATP funds is apparently quite dramatic. 

Fifty-nine small firms surveyed by the Economic Assessment Office doubled in size 

after receiving ATP grants. A handful of others grew even more. 

Mr. Chairman, I’ll close with this. Just over 6 years ago now, when I was serving 

as Governor of Delaware, I asked the General Assembly for $15 million to start up 

the Delaware Biotechnology Institute. What we were seeking to do was to create a 

partnership involving the State Government, the academic community, and the private sector—a partnership that would put Delaware at the forefront of research, development and the commercialization of new life science products. We also sought 

4

1The prepared statement of Dr. Wessner with an attachment appears in the Appendix on 

page 37. 

to work with our partners to create and retain quality jobs and help our State better 

compete with our neighbors and with other States in the biotechnology field. 

I also worked as Governor to help create the Delaware Technology Park—a partnership between the State, the University of Delaware and the private sector that 

gives technology companies—both small and large, some of them start-ups—a place 

to grow their businesses. 

I’m proud to say that the Delaware Biotechnology Institute and the Delaware 

Technology Park are still working to keep jobs in my State and make it a place 

where companies and researchers involved in science and technology want to come 

to do business. 

I think these snapshots of what’s happening in one small State in the economic 

development arena show the kind of good that government intervention like ATP 

can do—and are doing. When I was Governor, I thought a major part of my job was 

to help grow our economy and attract quality, well-paying jobs. I think ATP does 

similar work for our Nation as a whole. 

Thank you again, Mr. Chairman. I look forward to hearing from our witnesses 

and to discuss ATP’s work further.

Senator COBURN. We are going to have one panel today, so I 

would like to introduce our panel of witnesses. Robin Nazzaro has 

been with GAO since 1979, has a wealth of audit experience, as 

well as an incredibly diverse array of issue expertise. For several 

years she worked on tax and financial management issues and 

later in the area of information technology. 

Most recently, Ms. Nazzaro oversaw GAO’s work on federally 

funded research and development, including responsibility for research into the National Institute of Technology and the National 

Science Foundation. 

Also here today is Brian Riedl, who currently serves as Grover 

M. Hermann Fellow for Federal Budgetary Affairs at the Heritage 

Foundation. Mr. Riedl’s research has been featured in the New 

York Times, the Wall Street Journal, the Washington Post, a myriad of other publications. 

Before coming to Washington, Mr. Riedl worked as a policy analyst for Governor Tommy Thompson of Wisconsin. 

Our first witness to present today is Dr. Charles Wessner, esteemed Director of the National Research Council. He has a long 

history of public service, having worked for the Department of 

Treasury, the U.S. Diplomatic Corps, the Organization of Economic 

Cooperation and Development (OECD), in Europe. Dr. Wessner 

currently works as Director for Technology and Innovation at the 

National Academies. 

In the interest of time, your full statements will be made a part 

of the record and I would ask that you try to limit your testimony 

to 5 minutes and we will give you a chance to offer additional comments as we start the questions back and forth. 

Dr. Wessner, if you would please begin. 

TESTIMONY OF CHARLES W. WESSNER, PH.D.,1 DIRECTOR FOR 

TECHNOLOGY AND INNOVATION, BOARD ON SCIENCE, TECHNOLOGY AND ECONOMIC POLICY, THE NATIONAL ACADEMIES 

Dr. WESSNER. Thank you very much, Senator. It is an honor to 

be here to speak before you both. And I would like very much to 

welcome your suggestion that we take a hard look at the program. 

5

Indeed, at the National Academies, one of the things that we specialize in is advising the Congress with hard looks at programs. A 

hard, that is to say, objective look is our goal. 

My goal specifically today is to talk to you briefly about what the 

Advanced Technology Program (ATP) is, what it is not, and why it 

is important to continue supporting what we have found to be an 

innovative and effective program. In the course of that discussion, 

Senator, I would hope we would have the opportunity also to explore some of the myths and realities about innovation in the 

United States. 

Let me say first off that the National Academies’ assessment of 

ATP was conducted under the leadership of Gordon Moore of Intel. 

It found that the ATP is meeting its mission goals. In short, we 

found after careful analysis that the program contributes to our 

Nation’s innovation, economic growth and national security. 

The good news is that ATP investments are already yielding high 

returns. Innovative technologies for knee repair and early breast 

cancer detection enable more productive lives and can lower medical cost. ATP has also helped to fund work on supporting U.S. 

manufacturing, such as printed wiring boards, and supported 

promising new technologies ranging from fuel cells to DNA 

diagnostics that will potentially revolutionize drug discovery. 

There are a lot of common questions about ATP, and let me go 

to some of them. Let me first quote a promising young entrepreneur in Silicon Valley. She was asked why the government 

should fund the development of enabling technologies. And since 

you can read faster than I can talk, I thought I might just let you 

take a look at Elizabeth Downing’s point. Elizabeth Downing, 3D 

Technology Laboratoris, NRC Report, states on page 65, ‘‘Why 

should the government fund the development of enabling technologies? Because enabling technologies have the potential to bring 

enormous benefits to society as a whole. Yet private investors will 

not adequately support the development of these technologies because profits are too uncertain or too distant.’’

We all recognize the potential of new innovative technologies. 

The problem is that private investors cannot adequately support 

them, and for good reason. One of the things that troubles me is 

people often refer to this as just a government program, picking 

winners and losers. The point is that the program is industry driven. Unlike many research programs in the Federal Government, 

the projects have to be proposed by industry, they are directed and 

carried out by industry, they are funded by industry on a costshared basis. This is why the program was adopted on a bipartisan 

basis when it was established. The awards often serve a catalytic 

function, bringing together partners from large companies and from 

small companies as well as universities. 

The bulk of the ATP awards, nearly 70 percent, go to small businesses. Why is that important? Because small business drives innovation, employment and growth in the U.S. economy. 

Does the program work well? Yes, it does. How do we know this? 

We know this because the ATP program, ironically, is the most intensively studied, rigorously scrutinized, and carefully assessed of 

any of the U.S. technology programs over the past 50 years. By 

itself, the National Academies’ review consumed 2 years, three 

6

1The pie chart entitled ‘‘Large U.S. Venture Capital Market is Not Focused on Early-Stage 

Firms,’’ submitted by Dr. Wessner appears in the Appendix on page 41. 

major meetings, two major reports and numerous detailed studies 

led by a 15-person steering committee chaired by Gordon Moore. It 

involved leading economists and wide consultations with the venture community, corporations, small companies, and government 

officials. 

Why do I tell you that? Because the conclusions that we reach 

here today about the program were done laboriously, carefully and 

according to the highest standards of the Academy. 

One of the things I would like to draw to your attention is a common myth. Many in the policy world believe that because we have 

a robust venture capital market, VC finance alone is the solution 

to many of the challenges of early-stage finance. 

But I think what you may realize is that, as Congressman Verne 

Ehlers pointed out years ago, there is actually a valley death where 

it is very difficult to take the ideas from federally funded research 

and take them across the valley to the promised land, as it were, 

of product development, innovation and commercialization. These 

problems are especially severe for risky but promising new technologies. 

One of the things to recognize are the limitations of venture capital. Basically, venture capitalists are not focused on early-stage finance. This is not a failing. They are not supposed to be focused 

on early-stage finance. The venture capital goal is not to develop 

the U.S. economy in the abstract. The goal of venture capital funds 

is to have a return on the funds that are given to them by their 

investors. If you look at this pie chart,1 you can see that the seed 

funding available is actually quite small. 

I would like to quote a member of our board, David 

Morgenthaler, who is one of the past presidents of the National 

Venture Capital Association. David Morgenthaler, Morgenthaler 

Ventures, NRC Report, on page 66 states, ‘‘[The ATP] is an excellent program for developing enabling, or platform, technologies, 

which can have broad applications but are long-term, risky investments.’’ 

‘‘Venture capitalists are not going to fund these opportunities, because they will feel that they are at too early a stage of maturity. 

Government can and should fund these technologies. In fact, it 

should do more than it is doing.’’

What he points out there again is simply that the program is an 

excellent program. It is one that has proven itself, and it is one 

that venture capitalists endorse. 

There is also another myth about the program. Some still ask 

‘‘would not private capital support an ATP project anyhow?’’ The 

short answer is ‘‘usually not.’’ Why? Because the type of projects 

that ATP invests in are usually too risky, the technology often requires competencies that are not controlled by one firm, or the cost 

is simply too high. These are the very factors that the program addresses. Our research supports this view. 

Looking at 1998 ATP applicants one year after, NRC researchers 

found most of the non-winners had not proceeded with their research. 

7

I realize that my time is short here but I would like to emphasize 

that we are not alone. There are a variety of programs around the 

world like ATP. One of the analogies that I like is that I am not 

sure I would actually favor the Air Force in the abstract, sir. But 

if other countries have an Air Force, I think it is a jolly good idea 

that we have one, too, and that it be the best. 

The list below describes some of the Chinese programs in the 

semiconducter sector. 

There is the related problem with some of the programs. When 

they garner share in leading technology industries, even if what 

they did to get them is illegal, they still keep that position. 

But they are not alone in having extensive programs. Look at 

some of the smaller countries: TEKES in Finland, a country of 5 

million people, has a program very similar to ATP. It is funded at 

$540 million for a country of 5 million people. In Belgium, a nation 

of 10 million people, they have a consortium for microelectronics research called IMEC that has budgeted $157 million. The EU has 

a 5-year Framework programme at $22 billion, and they are planning to double that. Taiwan, where I just visited as an adviser to 

the prime minister, has the Industrial Research Institute which is 

funded at over $500 million. 

I do not want to abuse my time here, sir, but I think it is very important to understand that first we have a sunken cost of $132 

billion in research each year that we need to capitalize on, and 

ATP helps us do that. We need to understand the inherent challenges of early-stage finance and the limitations of venture capital, 

both in terms of when they invest in the development cycle and 

what they will invest in. 

In a global economy, as I have pointed out, there are large programs, many large well-funded programs, that are successful in 

what they are trying to do. 

We should also keep in mind historically that the U.S. Government has long played a major role in developing the U.S. economy. 

There was a period when we did not, Senator, from about 1792 to 

1798. Since then the government has helped to develop many 

technolgies from interchangeable parts for muskets to the telegraph. I am very proud of what the Congress did in 1842 when it 

gave Samuel Morse a $30,000 grant, a huge sum at that time, to 

prove this complicated idea that you could actually transmit signals and messages down electric wires. 

Examples also include aircraft frames, turbines, and radio, nuclear energy, computers, semiconductors, the internet, and the genome. 

Senator COBURN. Dr. Wessner, could you try to sum up? 

Dr. WESSNER. Thank you, sir, because I am just reaching my 

conclusion. 

I would lastly like to recall that these contributions to our economy are central elements in our national security. ATP has made 

significant contributions to our national security, to homeland security. They have developed an x-ray technology that lets you see 

what is inside containers. This is very useful for national security, 

very useful for border security. 

So in sum, sir, I would like to give you the final conclusion from 

the NRC report. I think again you can read this more quickly than 

8

I can state. But my point is that we gave a very careful assessment. 

And I would like to stress, in closing, that someone described me 

as a friendly witness. No sir, we are not, at the Academy, a friendly 

witness. We are an objective witness. After careful analysis, we 

found that the program works and that it achieves its objectives, 

and we would hope that you would continue to fund this well managed, effective innovation program. 

Thank you, sir. 

Senator COBURN. Thank you, Dr. Wessner. 

I would welcome our other Member, Senator Levin. If you would 

care to make an opening statement now or you would care to defer, 

it is your privilege, sir. 

Senator LEVIN. Thank you very much, Mr. Chairman, for your 

graciousness. And I think I will make a short opening at the beginning of my questions. But I would like to submit my entire prepared statement at this time. 

[The prepared statement of Senator Levin follows:]

PREPARED OPENING STATEMENT OF SENATOR LEVIN 

America’s tradition of pursing government policies that stimulate economic 

growth, create jobs, and establish self-sufficiency in industries critical to national 

defense dates back to the founding of our Republic. One of our most forward thinking and prolific founding fathers, Alexander Hamilton, not only created the Nation’s 

banking system and laid the foundations for the stock exchange, but he urged a 

Federal role in developing the U.S. economy. 

Alexander Hamilton understood that the wealth and strength of a nation is founded on its ability to innovate, create and manufacture new and useful products. Although much has changed since the early days of the Republic, this basic premise 

continues to hold true. 

Today, American manufacturers and businesses face unprecedented foreign competition. Cheap imports from low-wage nations with weak labor and environmental 

standards put pressure on American manufacturers to shutter their facilities and 

move offshore to remain competitive. According to the Bureau of Labor Statistics, 

nationally we have lost nearly 2.8 million manufacturing jobs since January 2001. 

As a nation, we can’t compete with low wages and weak environmental standards. 

Instead we should compete with cutting edge research and advanced technology. Indeed, America’s strength is our intellectual, inventive and creative capacity and our 

ability to constantly innovate through technological developments to increase productivity. Public-private partnerships and collaboration have been a critical part of 

that process, increasing investment in R&D, leveraging dollars and resulting in 

overall benefits to the economy and society. 

Manufacturers’ investment in innovation accounts for almost two-thirds of all private-sector research and development; this investment in turn leads to advances in 

other manufacturing sectors and spillover into non-manufacturing activities in the 

United States. We should be doing all we can to promote programs that help create 

jobs and strengthen the technological innovation of American companies. 

The Advanced Technology Program (ATP) administered by the Department of 

Commerce’s National Institute of Standards and Technology is one of the few Federal programs available to help American manufacturers remain competitive in the 

global economy. In particular, ATP helps improve manufacturing efficiency and competitiveness which lead to growth in productivity. ATP is a bipartisan program that 

was established under the Reagan Administration and funded under President 

George H.W. Bush’s Administration, which recommended significant increases in 

the program in its FY 1993 budget. This high octane economic development engine 

should be supported by Democrats and Republicans alike. 

The ATP was created in part to ensure that the U.S. economy benefited from Federal R&D investment through partnerships. ATP bridges the gap between the research lab and the marketplace by providing cost-share funding in high-risk R&D 

with broad commercial and societal benefits that would probably not be undertaken 

by the private sector because the risk is too great or because rewards to the private 

company would be insufficient to make it worth the investment. 

9

Less than 1.5 percent of venture funding is available for proof-of-concept (seed 

funding) and early product development. It has been said that the ATP facilitates 

so called ‘‘Valley of Death’’ projects that private capital markets are unable to fund. 

The Valley of Death is the gap between research and commercialization. As one 

small high-tech start-up participating in the ATP put it:

‘‘Technology commercialization is HARD. It is also CRITICAL to the growth 

and economic competitiveness of the United States. For those of us out here 

in the trenches, the ATP is a vital source of support. ATP is unique in that 

it specifically focuses on helping bridge the chasm from the lab to the marketplace.’’

These investments promote the development of new, innovative products that are 

made and developed in the United States, helping American companies compete 

against their foreign competitors and contribute to the growth of the U.S. economy. 

For example, some of the technologies in which ATP was an early investor include 

DNA diagnostics for medical devices and nanotechnology. 

ATP was also an early investor in nanotechnology research. Nanotechnology has 

the potential to revolutionize almost every aspect of our lives—from smaller and 

faster computers, to miniaturized medical devices, to highly sensitive detectors to 

detect chemical and biological warfare agents. Unlike some of the more traditional 

research investments in nanotechnology—the ATP program is structured to ensure 

significant industry investment—which helps the commercialization of this high risk 

technology. 

An example of this is the work being done with ISSYS, a small company in Ypsilanti, Michigan, on the development of a portable multidrug infusion system. The 

need for multidrug infusion has not been met by existing infusion pumps because 

of their size, weight, and power consumption. Many diseases require multiple drugs 

to be administered with high accuracy. Cancer treated with chemotherapy and infectious diseases treated with drug ‘‘cocktails’’ are two examples of disease areas needing multiple drugs delivered in accord with a strict regimen. Programs like ATP 

that are supporting the commercialization of nanotechnologies will ensure that the 

U.S. retains its position as the world leader in this critical technology area. 

ATP is also playing an important role in developing new energy and power technologies that will improve our ability to generate and distribute power efficiently 

and effectively. This is important for our global economic competitiveness and our 

national security systems, and to help reduce our dependence on foreign oil. ATP 

programs invested $225 million (including cost share from industry) between 1997 

and 2003 in advanced power technologies, including fuel cells. An example of this 

is the work of ECD Ovonics in Michigan which, leveraging ATP investment, has developed new materials used to store hydrogen to power fuel cells. This research led 

to a $40 million development program with Chevron Texaco for commercialization, 

and to work with the U.S. Army to develop refueling stations for military fuel cell 

vehicles. 

ATP investments in advanced manufacturing technologies are helping companies 

develop and adopt leaner and more efficient manufacturing processes. This improves 

their competitiveness and helps strengthen the U.S. industrial base. As we are seeing in Iraq and Afghanistan, a strong and vital industrial base is necessary for us 

to produce the systems we need for our military, including body armor, combat vehicles, and electronics for advanced weapons and communications systems. 

Such technological innovations are also critical to homeland security. ATP 

through its own investments and industry cost share has invested over $500 million 

in homeland security technologies like biological sensors. 

A March 1999 study found that future returns from just three of the 50 completed 

ATP projects—improving automobile manufacturing processes, reducing the cost of 

blood and immune cell production, and using a new material for prosthesis devices—would pay for all projects funded to date by the ATP. According to the Department of Commerce’s own 2004 report, returns for the American people, as measured from 41 of 736 ATP projects (just 6 percent of the portfolio), have exceeded $17 

billion in economic benefits, more than eight times the amount invested by ATP. 

That’s a good return on taxpayer dollars. DOC further reports that resulting technologies have been delivered to the nation in new or improved industrial processes, 

products, and services, ranging from more efficient energy sources to improved medical tests. 

ATP involvement accelerates the development and commercialization of new technologies. Time to market was reduced by 1 year in 10 percent of projects; by 2 years 

in 22 percent of projects; and by 3 years in 26 percent of projects. 

10

1The letters appear in the Appendix on page 183.

2The prepared statement of Ms. Nazzaro appears in the Appendix on page 52. 

The ATP has received applications from 50 states and made awards to high technology businesses in 40 states plus the District of Columbia. Over 170 universities 

have participated in ATP awards. 

One criticism of ATP is that it has funded research projects by large businesses. 

In fact, small businesses are the primary benefactors of the program. About 75 percent of all ATP projects include a small business with 66 percent (508 of the 768) 

being led by or involving only a small business. But some amounts of large company 

joint venture ATP participation has been found to be beneficial. The National Academy of Sciences’ National Research Council found that the diversity of the ATP 

awards, involving both large and small companies, is an important feature of the 

program, and should be retained. It found that large companies bring unique resources and capabilities to the development of new technologies and can be valuable 

partners for technologically innovative small companies new to the market. ATP requires large businesses to contribute more matching funds to ATP projects: At least 

60 percent of project costs. 

The ATP has been extensively studied and time and again it has been found to 

be effective. OMB and the National Academies have rated the ATP proposal review 

process very highly. One of the most comprehensive evaluations of the program was 

undertaken in 2001 by the National Academy of Sciences’ National Research Council. Dr. Wessner, the editor of that report is testifying today. As I’m sure Dr. 

Wessner will elaborate in his testimony, the National Academy found the ATP to 

be an effective Federal partnership program that is meeting broad national needs. 

The Academy recommended that the program receive additional funding so that it 

can further achieve its goals. Mr. Chairman, I ask unanimous consent to insert a 

summary of the Academy’s findings in the hearing record. 

The Biotechnology Industry Organization (BIO), the Industrial Research Institute, 

the Alliance for Science and Technology Research in America, the American Chemical Society, the U.S. Advanced Ceramics Association, the National Center for Manufacturing Sciences, the Optical Society of America and many other organizations 

have also expressed support for ATP. The Senate recently confirmed its support for 

ATP on a budget resolution amendment I authored with Senator DeWine. 

I ask unanimous consent to include in the hearing record a number of letters of 

support for the ATP and other important Federal research and development programs.1

Senator COBURN. That is great, Senator Levin. Ms. Nazzaro. 

TESTIMONY OF ROBIN NAZZARO,2 DIRECTOR, NATURAL RESOURCES AND ENVIRONMENT TEAM, GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. NAZZARO. Thank you, Mr. Chairman, and Members of the 

Subcommittee. I am pleased to be here today to discuss our work 

on the Advanced Technology Program. 

ATP was established in 1988 to support research that accelerates 

development of high-risk technologies with the potential for broadbased economic benefits for the Nation. Between 1990 and September 2004, ATP funded 768 projects at a cost of about $2.3 billion in Federal matching funds. Under the provisions of the Omnibus Trade and Competitiveness Act, which established ATP, program administrators at the National Institute of Standards and 

Technology are to ensure that they are not funding existing or 

planned research that would be conducted in the same time period 

in the absence of ATP financial assistance. 

Research can provide both private benefits which accrue to the 

owners of the research results and societal benefits which accrue 

to society as a whole. In some instances, the private sector does not 

fund research that would be beneficial to society because doing so 

might not provide an adequate return on the firm’s investment. 

11

To address this situation, the Federal Government supports research that has very broad societal benefits. However, there is a 

continuing debate over whether the private sector has sufficient incentives to undertake research on high-risk, high payoff, emerging 

and enabling technologies without government support such as 

ATP. 

In this context, we determined whether, in the past, ATP had 

funded projects with research goals that were similar to projects 

funded by the private sector and, if identified, whether ATP’s 

award selection process ensures that such research would not be 

funded in the future. 

Our objective was not to provide an evaluation of the quality of 

the research funded by ATP or the private sector nor the impact 

these projects may or may not have had on their respective industries. 

To determine whether ATP had funded projects similar to the 

private sector projects, we chose 3 of the first 38 completed 

projects, each representing a different technology sector: Computers, electronics, and biotechnology. These 3 sectors represented 

26 of the 38, or 68 percent of the ATP projects completed by 1999. 

We found that the 3 completed ATP funded projects addressed research goals that were similar to those already funded by the private sector. These projects included an online handwriting recognition system, a system to increase the capacity of existing fiber optic 

cables for the telecommunication industry and a process for turning 

collagen into fibers for human prostheses. 

In the case of the handwriting recognition project, ATP provided $1.2 million to develop a system to recognize cursive handwriting 

for pen-based computer input, in other words, without a keyboard. 

We identified several private firms that were conducting similar 

research on handwriting recognition at approximately the same 

time the ATP project was funded. In fact, in this line of research, 

which began in the late 1950s, we identified multiple patents as 

early as 5 years prior to the start of the ATP project in the field 

of handwriting recognition. We found similar results on the other 

two projects. 

Two inherent factors in ATP’s award selection process, the need 

to guard against conflicts of interest and the need to protect proprietary information, make it unlikely that ATP can avoid funding research already being pursued by the private sector in the same 

time period. These factors, which have not changed since 1990, 

make it difficult for ATP project reviewers to identify whether similar efforts are being funded in the private sector. 

For example, to guard against conflicts of interest, the program 

uses technical experts who are not directly involved with the proposed research. Their acquaintance with ongoing research is further limited by the private sector’s practice of not disclosing its research efforts or results so as to guard proprietary information. 

In conclusion, we recognize the valid need to guard against conflicts of interest and to protect proprietary information. However, 

as a result, it may be impossible for the program to ensure that 

it is consistently not funding existing or planned research that 

would be conducted in the same time period in the absence of ATP 

financial assistance. 

12

1The prepared statement of Mr. Riedl appears in the Appendix on page 104. 

Mr. Chairman, that concludes my prepared statement. I would 

be happy to respond to any questions that you or Members of Subcommittee may have. 

Senator COBURN. Thank you. 

Senator Lieberman, while you were out I offered an opportunity 

for you to make an opening statement now or when you start your 

questions, whichever would be your prerogative. 

Senator CARPER. And I spoke on your behalf. 

Senator LIEBERMAN. You gave an opening statement on my behalf? Very nice of you. 

I will wait until the last witness and then, if it is all right, make 

an opening statement. Thank you. 

Senator COBURN. Absolutely. Mr. Riedl. 

TESTIMONY OF BRIAN RIEDL,1 GROVER M. HERMANN FELLOW 

FOR FEDERAL BUDGETARY AFFAIRS, THE HERITAGE FOUNDATION 

Mr. RIEDL. Thank you, Mr. Chairman, and the Subcommittee for 

scheduling this hearing. 

My name is Brian Riedl. I am the Grover M. Hermann Fellow 

for Federal Budgetary Affairs at the Heritage Foundation. The 

views expressed in this testimony are my own and should not be 

construed as representing any official position of the Heritage 

Foundation. 

Federal spending now tops $22,000 per household, the highest 

inflation-adjusted total since World War II, and $5,000 per household more than the government spent in 2001. Budget deficits topping $400 billion are forecast as far as the eye can see. Given the 

Nation’s budgetary challenges, the Advanced Technology Program 

remains one of the least justifiable programs. The President and 

the House of Representatives both support ATP’s abolition. The 

Senate should join them. 

ATP was created in 1988 supposedly to provide research and development grants to help small businesses develop profitable technologies. In reality, ATP funnels taxpayer dollars to Fortune 500 

companies. Between 1990 and 2004, 35 percent of all ATP funding 

was granted to Fortune 500 companies. For example, IBM has received $127 million in ATP subsidies. General Electric has received 

$91 million. General Motors has received $79 million. Motorola and 

3M have each received $44 million. All in all, 39 Fortune 500 companies have received a total of $732 million from the Federal Government in ATP subsidies. 

Mr. Chairman, this is the kind of spending that outrages taxpayers. At a time when the Federal budget is deep in the red, there 

is no justification for taxing waitresses in Tulsa or cashiers in Flint 

in order to lavish hundreds of millions of dollars on Fortune 500 

companies. 

ATP defenders will say that these subsidies generate greater 

technological innovation. They can point to many technologies on 

the market that ATP has funded. Of course ATP has funded some 

successful products. But the key question is whether the market 

13

would have produced those products even without ATP. Both economic theory and practice say yes. 

ATP does not fund basic science research like the National 

Science Foundation. Rather it funds the commercialization of research so the businesses can profit from it. Basic economic theory 

tells us that profit seeking firms have every incentive to fund profitable R&D themselves. If these projects are as promising as 

claimed, the company should have no problem convincing their 

shareholders to fund the projects or tapping into the $150 billion 

that private investors annually spend on R&D. 

The 39 Fortune 500 companies that have received ATP funds report a combined $1.4 trillion in annual company revenues. To suggest that these companies cannot afford their own R&D is baseless. 

Yes, ATP has funded HDTV and flat-panel televisions. But if they 

had not, a line of investors and businesses surely would have. 

The economic argument that ATP merely subsidizes existing 

R&D is also backed up by surveys of ATP participants themselves. 

Although the program is supposed to be a financier of last resort 

for companies that have exhausted all other options, a survey 

shows that two-thirds of ATP applicants never bothered to seek 

any private funding before going to the government. 

And among the near winners who had claimed that ATP was 

their final hope, half of them found private funding after they were 

rejected. Among the other half who did not find private funding, 

most never bothered to apply for private funding. They just continued to play the ATP lottery year-to-year. 

Not only is ATP a giveaway for wealthy companies that merely 

subsidizes existing research, but evidence shows that Uncle Sam is 

a poor investor. Only one out of three ATP projects ever brings a 

new product to the markets. One reason for this abysmal track 

record, as stated by the last presenter, is that ATP officials try to 

minimize conflicts of interest by seeking outside grant reviewers 

with little or no knowledge of the technology markets. And even if 

they sought market knowledge, most private companies in these 

markets conceal their research agendas, leaving ATP officials to 

guess where the market openings are. This blindness results in 

grants for projects that either duplicate existing private research or 

are doomed to fail. 

Consequently, ATP has granted money for technologies that had 

already been developed, patented and marketed by other companies years earlier. It has granted money to projects that have been 

discredited by their entire industry. 

Simply put, investors have better knowledge and more skill investing than government officials. 

In conclusion, technological advancement is vitally important to 

this Nation’s economy. Yet when the governments try to pick the 

winners and losers by micromanaging technological innovation, the 

results will always disappoint. ATP subsidizes Fortune 500 companies that already have the money and incentive to fund their own 

profitable projects. And too many companies see ATP as little more 

than an ATM for the projects they would never spend their own 

money on. 

14

With Federal spending at $22,000 per household and growing by $1,000 per household each year, ATP should be the first target lawmakers seek for savings. 

I will be happy to answer any questions. 

Senator COBURN. Thank you. We will start the questioning with 

our Ranking Member, Senator Carper. 

Senator CARPER. Dr. Wessner, I just want to ask you to respond 

just briefly to some of the comments we have just heard. 

Dr. WESSNER. Thank you. I appreciate the opportunity. 

I have gone over Mr. Riedl’s commentary on the ATP program, 

and I apologize, but I think some of the references there illustrate 

some of the basic flaws in the analysis. 

First, when he refers to basic economic theory, and while economic theory is a really interesting thing, it does not have a lot to 

do with how the economy actually operates, particularly in the 

murky stage of early-stage finance. 

The idea that the references to profitable R&D, which strike me 

as something like an oxymoron, decrying that the ATP program 

only succeeds one of three times. The last time I checked, a .333 

batting average was a pretty good batting average. 

In the venture capital community, if you succeed 2 out of 20 

times, you are doing well. I am not sure that ATP actually succeeds 

3 out of 10 times. But the point is that for early-stage finance, that 

is a very high success rate. 

I would also point out, just for a second, if we want to talk about 

economics, that there is a serious selection bias here. Two-thirds of 

the program goes to small firms and all the Heritage criticism is 

devoted to the funds going to large firms. It misses the very conception of the ATP program, which was to do both grants to small 

firms with promising technologies and to encourage cooperation between large and small companies, which is good for the large companies and good for the small companies. It is a way of strengthening the industrial fabric in the United States on which our national security ultimately rests. 

There are also claims that have been made, for example, regarding the Communications Intelligence Corporation on the cursive 

handwriting recognition. There is a factual error there. That program ultimately succeeded. That ATP program has been adopted 

by the Palm Operating System. 

But fundamentally, what it is important not to leave out, when 

we talk about how well ATP does, is a point of comparison. What 

are we comparing it to? We are working in an area where we want 

to convert research investments into products that help us in our 

lives, that enhance our national security, improve the ability of the 

government to complete its missions. ATP does all that. It does it 

arguably better and with more careful assessment than any other 

program we have. 

I am very pleased to see this status report here. Have you ever 

tried to get a status report on the success of projects from the Department of Energy or the Department of Defense? We have been 

mandated by you, the Congress, to look at the SBIR program. We 

cannot get this kind of data on the SBIR program. 

What this data underscores is in fact one of the strengths of 

ATP. It has one of the most rigorous and effective assessment proVerDate 0ct 09 2002 10:57 May 23, 2006 Jkt 021826 PO 00000 Frm 00018 Fmt 6633 Sfmt 6601 C:\DOCS\21826.TXT SAFFAIRS PsN: PAT
15

grams in the U.S. Government. Its assessment program is considered a best practice model around the world. 

Let me just close by saying, that 2 hours ago I left a Dutch delegation at the Academies. They were here to talk with us about how 

they might adopt SBIR and expressed their interest in ATP. The 

rest of the world thinks that what America is doing with these programs is really quite interesting and quite effective. 

Senator CARPER. Dr. Wessner, how do you measure success at 

ATP? 

Dr. WESSNER. That is a good question, sir. One of the ways you 

can measure success is in commercial sales. You can also measure 

it in terms of patent licensing. You can also measure it in whether 

you have effective spillovers. 

Let me give you a quick case. In the early 1990s there was an 

investment with Bell Labs in extreme ultraviolet lithography. That 

did not seem to work out for about 3 years. And then Intel decided 

that was actually the technology it would need to maintain its global position, and it began a consortium based on this technology 

with Sandia National Laboratories. I think that illustrates the 

synergies that this program can develop—and particularly, for enabling technologies. 

I would consider a metric of success for the funding of 

Afametrics, which may revolutionize how we develop drugs. As 

many of you know, we have a serious problem in drug development 

in this country. 

I would also suggest that the investments in microturbines and 

fuel cells, where ATP has more success than much larger programs 

elsewhere, are a way of enhancing our energy security and a way 

of enhancing our national security by being able to provide secure 

and portable energy supplies. 

There are a whole range of things, but let me just close on one 

of the most amazing set of investments, in nanotechnologies, in 

Zyvex in Dallas. I was inspired by a speaker who described how 

important ATP was to developing his nanocompany. And that is exactly were ATP should be in that early phase, where it is hard for 

the companies to obtain funding and too risky for venture capitalists to invest. 

And I would want to stress here that this is not an either/or. We 

need the basic research. We need the applied research that often 

comes out of the military. We need other programs like SBIR that 

are designed to encourage this. And we need ATP. Asking which 

one is more important is like asking which rung in the ladder do 

you think you need. You need all the rungs on the ladder. That is 

how you get there. You may be able to skip one, but it gets very 

hard to skip two. 

Senator CARPER. Dr. Wessner, my staff tells me that the percentage of funds that are invested in larger firms, you mentioned GE, 

General Motors, and others, that the percentage of funds going to 

large firms like that has declined over time and that now the percentage of monies that are going to smaller firms is closer to 75 or 

80 percent. Is there any truth to that or is that a bold-faced lie? 

Dr. WESSNER. No, that is absolutely true, sir. It has gone up 

sharply. In fact, to illustrate the power of the synergies of working 

with large and small firms, thanks to an ATP grant GE and a 

16

small company were able to develop a new digitalized breast imaging that has offered serious health advantages to women and to the 

society. 

Very briefly, the advantages are not that it is better than what 

a very experienced doctor can do, but it is better than what the average doctor can do. Because it is digitalized, you can get a second 

opinion easily. It has fewer false positives, which has enormous 

consequences. My understanding is that biopsies are running in the 

$20,000 to $25,000 range. So not having false positives that result 

in unnecessary biopsies, not to mention the terror imposed on the 

woman, is a major gain for society. 

And because it was with GE, imagine if the company just did it 

alone. Here is Joe New Company——

Senator CARPER. Dr. Wessner, I am going to ask you to wrap up. 

Dr. WESSNER. My point is that by working with GE they were 

able to extend this across the Nation, lower the cost, and get it out 

to areas where there is less coverage. So it is working with poorer 

people and more geographically thinly populated areas. It is a positive sum that was only possible by the double combination. 

Senator CARPER. Thank you. Thanks, Mr. Chairman. 

Senator COBURN. I would just make one comment. GE has digitalized every area, every radiographic area, that they work in. This 

had no impact in terms of doing it. Because GE would have spent 

the money to do that anyway. The cost on a biopsy is about $4,000, not $25,000, and digitalization has been taking place in the radiographic industry for years 

with the plan that everything would become digitalized. And the 

fact that a company that spends $5 billion a year on its research 

needs ATP to accomplish this one goal is a way of supporting a 

small company, I would grant you. But in an environment when we 

have $622 billion that we are going to spend, over $22,000 per 

man, woman and child, that we do not have the money for today, 

to say that ATP is responsible for that and extrapolate it out is not 

good science. 

That is an anecdotal observation that would not have happened 

had you all not been there. And I would tell you that in every other 

area of contrast radiography, CTs and everything else have been 

completely digitized. That would have happened anyway. They 

were going to spend the money on it because they had to spend the 

money on it to get it to the point it needed to be so that all x-ray 

technology can be digitalized. And it is all digitalized today. 

They all read them from home at night or in the afternoon, sipping tea. 

Senator Lieberman, welcome. 

OPENING STATEMENT OF SENATOR LIEBERMAN 

Senator LIEBERMAN. Thanks, Mr. Chairman. thanks for your 

kindness to me. We ought to get together and sip a little tea. 

Senator COBURN. And read an x-ray or two. 

Senator LIEBERMAN. Yes, read an x-ray or two. 

I thank you for calling the hearing. I am an unabashed admirer 

of ATP, so I disagree with respect. 

There is no question about the overall point that Mr. Riedl spoke 

to, which is that we have an imbalance between our revenues and 

17

expenditures in the Federal Government that we have to work to 

close. But I would not start here. 

Last time I looked, I think this was about $140 million or $150 

million a year out of a budget now of $2.7 trillion. And I think this 

has a multiplier effect that is powerful for our economy. 

It is also in the best tradition of public/private partnerships that 

have made the United States the world’s technological and economic leader. We have to continue to do that if we want to stay 

there. 

Our history actually shows that from the telegraph to the Internet, from the automobile to the airplane, it really was Federal support and investment that helped bring those products to the market to spur commercial and consumer demand, and to create jobs. 

One that I love is that when Samuel Morse sat in the Supreme 

Court building in 1844 and typed out that history telegraph message, ‘‘what hath God wrought,’’ he was doing it in a demonstration 

fully funded by Congress, less of a multiplier effect, I guess, in dollars, than what we are talking about. This is the spirit of ATP, 

which has nurtured the kind of breakthroughs that Dr. Wessner 

has talked about. 

The numbers I have say that overall ATP has invested $2 billion 

in nearly 800 projects, helping attract another $2.1 billion in private investment. And that the current portfolio of ATP investments 

is expected to return at least $17 billion in benefits to the American people, which I think is a really good return. 

Senator Carper made the point that I wanted to make, that the 

vast majority of these ATP investments go to small businesses. 

There was some earlier inclination to try to involve some of the 

larger businesses cited and to try to push them into collaboration 

with the smaller businesses. But that has receded now. 

To me, ATP is a success story that has earned our continued support, particularly at a time when we are facing competition from 

abroad exactly in this area. I cite a few countries, Sweden, Finland, 

Israel, Japan, and South Korea each spend more on research and 

development as a share of GDP than we do in the United States. 

That is a bad sign. 

Also, today foreign-owned companies and foreign-born inventors 

account for nearly half of U.S. patents. Of the 25 most competitive 

IT companies, only 6 are based in the United States and 14 are 

based in Asia. By the end of 2005, there are going to be 59 advanced semiconductor fabrication plants worldwide and this industry, which was essentially founded in the United States, only 16 of 

those 59 are going to be based in the United States. 

So we have got a problem here and I think de-funding ATP 

would really be withdrawing from the field and could mean losing 

economy changing new technologies to foreign countries, to innovators who could not finance their research and development efforts here. 

The point is this, that we are living in an age of technological 

advances at very high speed. The famous fable aside, in this case, 

in this global economy and technological world, the hare will always beat the tortoise. There are a lot of hares waiting to get out 

of their cages but cannot unless they receive the kind of support 

18

that ATP gives that they cannot find from the venture capital community. 

So I really hope that we will sustain this organization. 

I want to just ask one question and not indulge on your goodness 

in giving me time. Dr. Wessner, I wanted to ask you this, if you 

could think about and speak to what other public or private entities would be available to accomplish the goals of ATP if ATP were 

eliminated? In other words what are we at risk of losing? 

Dr. WESSNER. Thank you, Senator. At least, I think I thank you. 

That is actually an interesting, which is to say a difficult, question. 

I think the short answer is twofold. First, there is not a program 

like ATP. You would open up a gap in the innovation system. And 

I think over time there would be a loss for the U.S. economy and 

for our competitiveness. 

I am not, by any means sir, predicting immediate disaster. That 

would be unwarranted. I would argue that there would be things 

that we would lose out on having funded here and lose out on having those benefits and technological——

Senator LIEBERMAN. If I hear you correctly now and in your earlier statement, what we are talking about here is that point between the breakthrough discovery and commercialization where 

venture capital often does not tread, which I have heard some people refer to as the valley of death in the innovation cycle. 

Dr. WESSNER. Yes, absolutely. And the program is uniquely designed to address the valley of death. And something that has impressed us in the course of the Academy study, and we do not say 

this about some of the other programs we are looking at, is that 

the program has developed exceptional expertise in evaluating 

these applications and in processing them. I think that some of the 

difficulties they have about knowing whether or not other research 

is going on is to be expected. That is true in the venture community. That is true in the banking community, as well. This is not 

unusual. 

But they do have valuable institutional knowledge. There is a 

substantial body of work about the importance of what economists 

call intermediating institutions. Between the very powerful, and 

very positive, private marketplace, which characterizes the U.S. 

economy, and the sunken costs of the basic research that we carry 

out, these intermediate institutions act as a bridge across that valley of death. In short, ATP would be very hard to replace. The accumulated expertise is invaluable. 

And could I suggest, sir, that there are two areas of application. 

One is on the health care side where, when we held our first meeting on this, senior officials from the National Cancer Institute argued that this program could be very helpful to them in capitalizing on the increased R&D investments. And second, we are coming out shortly with a report that stresses the importance of public/

private partnerships in developing new technologies against terrorism. The fight against terrorism is exactly the type of area 

where you want to bring new technologies and products forward 

faster than the market alone would. 

The fact that ATP already has helped in some important areas 

of the war on terror is important. 

19

Senator LIEBERMAN. Thank you. Thanks, doctor. Thanks, Mr. 

Chairman. 

Senator COBURN. Senator Lieberman, I would like to just put in 

the record to note that according to the testimony we had, the written testimony, the U.S. market share of high technology from 1988 

until 2004 has remained exactly the same at 31 percent. I, like you, 

worry about how we are going to compete in terms of globalization. 

But I am also concerned that the economics of production favor production outside of this country. And to the point that we are facing 

today, it is starting to support the research outside of this country. 

I think that is a valid point. 

I wanted to clarify that the hearing today is not about whether 

research is important to us. The hearing is about are there other 

ways to do it? And are there other ways to spend the money? And 

contrast that with the effectiveness of what we are seeing today 

versus maybe spending that money in other areas. 

We spend a ton of money through NIH and through the National 

Science Institute. It is not a question of decreasing the research. 

It is a question of is there a better way to spend the money to get 

more bang for the buck? 

Senator LIEBERMAN. Mr. Chairman, I would just respond briefly. 

Of course, I believe that this ATP does fill a space in the apparatus 

uniquely that is not filled elsewhere. But I agree with the two 

other things you said very strongly, which is the real danger now, 

you are right, we have lost jobs for economic factors, basically that 

people can get things done more cheaply elsewhere in the world. 

The danger now is exactly what you have said, which is that we 

will lose the research and development base of our country abroad, 

including the research and development base of American companies, because now they can find highly skilled, highly educated 

workers abroad who are still working for much less in comparable 

here. That means we are going to lose the engine of innovation 

which drives the new jobs. 

The other thing, and this is a topic for a separate conversation 

between me and you, but particularly in the health area I have 

been talking to people and trying to put some legislation together, 

and I am going to give you a call and sit down with you, aimed 

at—I am focusing now for a moment on NIH—on making sure that 

we get more from what we are investing there and that we develop 

systems for—and here is the big term that I have learned in the 

last few months, Mr. Chairman—translational research. 

That we figure out a way, as I put it in lay language, to take 

the clinical breakthroughs and move them more rapidly to the bedside, to the doctor’s office, to the medicine chest. That is a real gap 

that is not being filled now. Thank you. 

Senator COBURN. Senator Levin. 

OPENING STATEMETN OF SENATOR LEVIN 

Senator LEVIN. Thank you, Mr. Chairman. I was really intrigued, 

Mr. Riedl, when you made reference to that waitress in Flint. I 

have talked to a lot of waitresses in Flint. And they are deeply concerned about 2.7 million lost manufacturing jobs in this country the 

last 4 years. And ATP is one of the few programs that we have 

which is directly aimed at trying to see if we cannot have some fuVerDate 0ct 09 2002 10:57 May 23, 2006 Jkt 021826 PO 00000 Frm 00023 Fmt 6633 Sfmt 6601 C:\DOCS\21826.TXT SAFFAIRS PsN: PAT
20

1Letter from Dr. Peter Fiske, Co-founder—RAFT Industries, Inc., dated May 20, 2005, to Senators Carper and Levin appears in the Appendix on page 183. 

ture manufacturing jobs in America where the government is actively involved in supporting technologies which might otherwise 

not be supported. 

Would they otherwise be supported? That is the question that we 

can argue over. But we have got some good evidence on that from 

people who are right there on the front line. We have a lot of folks 

who have received these grants who have said that but for these 

ATP grants, they would not have produced the technology. That is 

pretty direct evidence. There are a lot of people who have said this. 

Here is a letter from RAPT Industries in Freeport, Pennsylvania.1 ‘‘My company, RAPT Industries, was the recipient of an 

ATP award from 2003 to 2005. RAPT is developing a revolutionary 

new process for manufacturing precision optics. ATP has played a 

critical role in our success, funding our technology development 

when NO OTHER source of commercial funding was available.’’

So it is kind of easy for us to talk about theory, and we do a lot 

of that. But there are an awful lot of folks out there who have received these grant awards, who have said to us that but for that 

support they would not have been successful and that they could 

not have produced what they produced. And what they produced 

has been a success. 

So I am willing to put an awful lot of stock in those stories that 

we receive from people who have actually been recipients of these 

grants. 

I am also deeply concerned about what other countries do, compared to what we do. I am talking here governments. We look at 

worldwide government funding for nanotechnology. Japan spent 

$800 million in 2003 compared to our $774 million. We used to 

spend more than Japan on nanotechnology, by the way. They have 

now caught us and overtaken us. 

I think that there is a philosophical issue here in terms of the 

role of government. You just described this as government picking 

winners and losers and that is it for you. We pick winners and losers all the time. 

In energy we pick winners and losers. We decide we are going 

to provide this kind of tax credit for this kind of energy development or oil exploration. We are going to supply this kind of tax 

credit for biotechnology. We are going to produce Ethanol. I guess 

the credits for Ethanol is picking a winner or loser is it not? 

Mr. RIEDL. Not one that we support, either. 

Senator LEVIN. That is exactly my point, that there is a real philosophical issue here. This is not just a question of whether or not 

this specific program has produced more than it has invested, and 

I will get to those numbers in a minute. 

But there is a philosophical issue, a philosophical backdrop to 

your testimony here, which has to do with the role of government 

and just how active do we want our government to be in terms of 

giving incentives or in terms of giving the kind of support that 

some public policy would suggest we ought to support, whether it 

is energy production or whether it is putting in energy saving windows. We decided at one point we were going to give tax credits 

21

1The 2004 Report on Economic Progress submitted for the Record appears in the Appendix 

on page 125. 

to people who will put in energy saving windows as a matter of 

public policy. There were a lot of folks who asked what are we 

doing that for? They said let the market decide that. 

We decided well, if you let the market decide that we may stay 

on the same course that we are on relative to energy, which is a 

huge deficit in energy. So we cannot just let the market work its 

will or else we are not going to do things that we need to do in 

energy conservation. We are not going to do the things we need to 

do in global warming. Do we want to let the market do what it 

wants to do in global warming? Or is there a public policy that is 

telling us hey, if you keep going down that road, we are going to 

pay a heavy price. You cannot just let the market play out and 

have its will on everything. 

That does not mean you do not believe in the market. It just 

means you believe in a government role as well. I think there is 

a difference here, a significant difference in emphasis, that lies behind your testimony than lies behind Dr. Wessner’s testimony. 

Now in terms of what this produces, what does the ATP program 

produce? There is a report from the Department of Commerce. It 

is the 2004 Report on Economic Progress measuring the impact of 

the Advanced Technology Program. It is a Department of Commerce publication. It says the following: Returns for the American 

people as measured from 41 of the 736 projects, which is just 6 percent of the portfolio, have exceeded $17 billion in economic benefits, 

more than eight times the amount invested by ATP. Resulting 

technologies have been delivered to the Nation in new or improved 

industrial processes, products and services ranging from more efficient energy sources to improved medical tests. 

I would ask that the report be made part of the record. It may 

have already been made part of the record.1

Senator COBURN. Without objection. 

Senator Levin, are you aware of how that $17 billion number 

came into existence? 

Senator LEVIN. No. 

Senator COBURN. Could we have somebody address that, if anybody would care to on the panel, the $17 billion number? 

Let me give you the history of how it came about. There was a 

survey asked by ATP about what do you think the economic benefit 

is of your product. There was no scientific study. There was no actual econometric measurement. That was a response to a question 

by ATP of what they thought it was. And it has no connection with 

what reality is because it is a thought. It is not a measured response, in terms of economic return. 

So we really do not know whether that is a true statement or 

not. It may actually be much higher. But it was on the basis of a 

poll of the ATP awardees that asked them about the potential 

value of that project. 

Senator LEVIN. I think it could be off but it could be accurate. 

It is the best evidence we have, though. 

Senator COBURN. But from a scientific standpoint, Senator Levin, 

if we are going to make decisions based on total guesses on the 

22

ATP, and that is what we are doing. There is no econometric model 

that is measuring that. 

And maybe that is something we should do if we continue ATP. 

The other thing that I was thinking as you were talking is why 

should the government not have some ownership associated with 

this investment, as we do in a lot of drugs and a lot of other money 

that we fund? Why should the government not get a return for that 

risk? Should there not be a way of sourcing the Federal Government back for the risk that it is taking, the American taxpayers, 

in terms of putting this money out there? 

This may very well be a true number. I just would tell you, as 

looking at how the number came about, it is hard to know whether 

it is a real number or not. 

Senator LEVIN. Let me just read something, and I thank you for 

that. I think it is the best evidence we have, even though it comes 

from the people who received the grants, is what you are saying, 

the people who actually were in the program. I will give them a 

presumption that they are telling the truth. I think there is the 

presumption that they are giving us on an honest estimate. 

But in any event, let me just read this one piece and I think my 

time is up. ATP’s Economic Assessment Office, according to this 

piece of paper I am reading, and maybe we can ask the witnesses 

if they know if this is accurate. But ATP’s Economic Assessment 

Office uses statistical analyses, case studies, economic and econometric analyses, surveys and other methodological approaches to 

measure program effectiveness and return to taxpayers. 

I do not know where this came from so I cannot tell you that this 

is accurate but I have to assume it is, since my staff gave it to me. 

They always give me accurate information. 

But according to this, the Economic Assessment Office at ATP 

does use econometric analyses. So we ought to find out just what 

is the basis from them, since they are not witnesses here today—

I wish they were. But in any event, perhaps we could ask them 

what is the basis for that $17 billion. 

Senator COBURN. Absolutely. That is a fair question. And actually, without objection, we will ask that question of ATP. 

Senator LEVIN. That would be great. Thank you, Mr. Chairman, 

my time is up. 

Senator COBURN. You are welcome to continue if you would like. 

Dr. WESSNER. Senator, may I make a small comment? 

Senator COBURN. Absolutely. Please do. 

Dr. WESSNER. Let we say that I admire your skepticism about 

numbers in the evaluation process. I think that is often most warranted, and I mean that very sincerely. 

What I can affirm is that our multi-hundred page study here 

looked very carefully at their assessment program. And our view, 

a view of independent economists not attached to the program, is 

that it had the greatest rigor of any comparable program. 

Senator COBURN. In the Federal Government? 

Dr. WESSNER. Yes, in the Federal Government. Now that may 

not be a high standard. 

Senator COBURN. That is a low standard. I want you to know, 

that is a very low standard. 

23

Dr. WESSNER. Given, Senator, that I said compared to what? 

They do way better than most. 

Second, could I draw to your attention, and I do not want to read 

it at any length, but on page 208 we have a paper by two independent economists. They concluded—and I will be very brief here, 

Senator—that ATP is selecting projects and firms that have greater 

potential for increasing the circulation of new knowledge and for 

having the business connection necessary to realize economic benefits from its activities. 

I am jumping ahead. We provide evidence that the investment 

community values the ATP award. Among firms that seek additional funding, we find that ATP award winners are more successful than non-winners. 

Now I am very attached to the private markets, and what I find 

validating for ATP is that after they have made those awards the 

companies get this halo effect, this certification effect, where the 

private investors are attracted to them. 

Senator COBURN. So what you are saying, there is value to recognition by ATP through a grant that allows them better access to 

more marketable money? 

Dr. WESSNER. It generates better recognition—because the investment community recognizes that the selection criteria are 

tough. Remember only 12 percent of the firms are selected. In that 

regard, that is why I reject this idea that ATP is corporate welfare. 

Corporate welfare, as you know, is an entitlement for a class of 

people or firms—but only 12 percent of the ATP applicants receive 

an award. Thus an ATP award is much more akin to getting a 

scholarship. It is very competitive and you have to be good to get 

it. 

Senator COBURN. Thank you. Ms. Nazzaro. 

Ms. NAZZARO. If I may comment, one comment that Dr. Wessner 

made was that the individuals that were doing these reviews were 

not affiliated with the Department of Commerce. You may want to 

include that as a question for the agency because we have found 

in the past that these reviewers are, in fact, paid by the Department of Commerce to do these studies. While we did not review the 

2004 study, we have reviewed earlier studies and have found that 

some of the economic assumptions that are made have been flawed. 

For example, in one case they had cited an example with the 

printed wiring board effort that they had funded. And they had extrapolated that that influence went to the entire industry. Well, the 

industry at the time had 800 members. So there was no way that 

one project had that kind of an impact across the whole industry, 

if you will. 

Granted, what they had done was good research. However, you 

could not make that kind of an extrapolation. 

Senator COBURN. I think it is also fair to note, if you are a stockholder in a major corporation, you are thrilled to get an ATP grant. 

That is return on your money. There is no investment, there is no 

risk on this money. 

I want to ask a question if I might. One of my concerns with ATP 

is this is supposedly grant money from people who cannot get 

money somewhere else. Is that true? Is that the way the project is 

supposed to be set up? In other words, the design behind the ATP 

24

program was that this was going to supply a need where capital 

was not available for research in the private sector? 

Ms. NAZZARO. Just one caveat to that is that it would not be 

funding existing or planned research that would be conducted in 

the same time period, in the absence of ATP. 

Senator COBURN. So there is two points. First, the GAO study 

found that 63 percent of the people who actually got grants never 

asked for money and never applied for any money in the private 

sector? Is that a true statement? 

Ms. NAZZARO. Correct. That was in our 1995 study. 

Senator COBURN. And second, there was no knowledge on the 

part of ATP in granting that whether or not there was any other 

research being done in any of the private sector. Is that a true 

statement, as well? 

Ms. NAZZARO. At that time, yes. 

Senator COBURN. Is that not true now? Has ATP responded to 

that criticism? Do we see something different now? 

Ms. NAZZARO. Yes, in response to that report that we did in 1995, 

when we did bring them to task, if you will, on the fact that they 

were not aware of whether these individuals had applied for funding other places, they do now ask that question of whether they 

have. As to what weight that bears in their final determination, I 

am not aware of. 

Senator COBURN. My staff tells me having not sought private 

funding today is still not a disqualifying factor. 

Ms. NAZZARO. As I said, I do not know what the implication is 

but they do ask the question. 

Senator COBURN. Mr. Riedl, did you want to say something? 

Mr. RIEDL. On that, that is exactly the same research that we 

have seen, that 63 percent never sought private funding that apply, 

65 percent of the winners never sought private funding, and 56 

percent of the near-winners never sought private funding. 

Again, of those who said it was the financier of last resort who 

just came up short, half of them miraculously found funding after 

they were rejected. Most of the other half who did not never looked. 

These are people who never looked before and never looked after. 

They decided that we are only going to keep playing the ATP lottery year after year. 

So for the most part, the argument that we need these grants because we need this technology to keep up with other countries is 

tough to sustain when data shows that those who do not get the 

grants or who look are able to get funding elsewhere. What that 

shows is that we are subsidizing existing research. Despite the best 

of intentions to create new research, it does not do that. 

The point also that I want to make on that is, in terms of the 

broad argument about how we need to fund technology and how 

important it is, total Federal R&D spending, according to OMB, 

has jumped 53 percent since 2001 to $122 billion. ATP represents 

0.1 percent of the Federal R&D budget. 

So we are not talking about totally taking five steps back, in 

terms of Federal R&D spending. We are talking about the small 

sliver, 0.1 percent, that really has an abysmal track record. And 

that could be shifted into, say, the NSF or the NIH or something 

25

else where you do not see evidence that you merely be subsidizing 

existing research. 

The final quick point that I wanted to make was regarding the argument that ATP creates $17 billion in new value, again that 

$17 billion number is only relevant if you assume that none of 

those ATP grants would have been funded by the private sector. If 

ATP projects create $17 billion but you assume that most of those 

projects would have been funded anyway and then you would say 

the private sector would have created $17 billion in new growth for 

the economy other than the ATP. 

And if it is important to have the ATP’s endorsement in order 

to attract more seed funding, I would be happy to have ATP slap 

a sticker on certain projects, saying the Department of Commerce 

thinks this is a really good project so other investors go for it, without necessarily giving them the grant. If the grant is not the best 

thing, just the endorsement, give them the endorsement. 

Senator COBURN. Let us go back to those people who do not get 

grants from ATP. What percentage of the people who do not get 

grants, who apply for grants but do not get grants from ATP, get 

funded in the private sector? 

Mr. RIEDL. The only surveys that I have seen only look at the 

near-winners, the people who came up really close. Half of them 

find private funding after, is the number that I have seen. And 

again, of the half that do not, that overwhelmingly correlates with 

those who do not look for private sector funding afterwards. So 

among those who look, the vast majority find private sector funding. 

Ms. NAZZARO. Our numbers support that statement, that half of 

the near-winners continued their projects without relying on ATP 

funding. 

Another important note is that seven applicants in our study 

turned down offers from the private sector because they could not 

reach an acceptable funding arrangement. 

Senator COBURN. In other words, they went ahead anyhow but 

they did want the private sector because they did want to give as 

much of a percentage of ownership should they have been successful? Was that the implication? 

Ms. NAZZARO. That was why they came to ATP, because they had 

actually sought funding but turned down offers from the private 

sector. 

Senator COBURN. Dr. Wessner if, in fact, the Federal Government continues ATP and does it in a way to where the Federal 

Government gets a revenue stream off of it, and if your numbers 

are correct, in 2 or 3 years we can fund more than $125 million 

just off the earnings potential of the research that you are doing. 

Why would we not want to make this an investment, rather than 

a grant, and saying that we are a participant, just like our universities are on drugs and other patents and other patents. Why 

would we not want to turn ATP into that type of a vehicle? And if it is really getting a $17.2 billion return on $125 million, 

why would we not want to grow that in a private investment mechanism and endow it? 

On the things we fail to do in Washington is to endow things. 

That is why we are struggling with Social Security. We are strugVerDate 0ct 09 2002 10:57 May 23, 2006 Jkt 021826 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 C:\DOCS\21826.TXT SAFFAIRS PsN: PAT
26

gling with Medicare. We are struggling with them because we do 

not save in advance. We do not prepare for the future. 

I would just love your thoughts. What about sharing—what is 

wrong with the American taxpayer, who has now put over $2 billion into this program and gotten what looks like a 900 percent return to the economy over the life of the program, what would be 

wrong with the American taxpayer sharing enough to continue the 

program? 

Dr. WESSNER. Thank you, sir. We have analyzed a number of 

other programs and are in regular dialogue and consultation with 

countries around the world who have similar programs. The European Union, because of their suspicion of the private sector, is always trying to have recoupment mechanisms. And Senator, there 

is strong support from lawyers and accountants to do recoupment 

programs from which they would profit. 

The difficulty is that it is very hard to calculate the exact benefit 

that results from any particular grant or any particular project. 

CEOs generally think it is thanks to their leadership and vision 

that the company goes on to have major sales. The technical staff 

generally think it is because of their competence and skill. The government likes to claim——

Senator COBURN. But that is an intermediary problem. That is 

negotiated every day in the private sector. I am going to give you 

$50,000, here is what I am going to expect if we are successful and 

we have a patentable and marketable product. Here is the share 

of the return and here is the share of the gross sales. 

Dr. WESSNER. We think the government already is a partner. 

The government is a partner because if the company is in existence 

and paying salaries, we tax them. If the company is making any 

money, we tax that revenue, as we should. It is a much cleaner, 

simpler system. 

Senator COBURN. Except for everybody that is not getting an 

ATP grant, they are not getting the money and they are getting 

taxed as well. 

Dr. WESSNER. It is a competitive program, sir. Not everybody 

gets a scholarship 

Second, if I could go on, we are drawing our figures from this 

analysis, which is publicly available both on the Web and we have 

them here. Some of these claims, leaving aside my GAO colleague, 

I do not recognize where they come from. I would like to say, in 

a friendly but very sincere fashion, that this is a serious topic. And 

making unsubstantiated claims that the private sector would have 

done it anyhow, as one of my colleagues here has done, is simply 

not acceptable analysis. There is no documentation for that. Our 

figures do not support that assertion of the same high number of 

companies being funded anyhow. 

Senator COBURN. What do your numbers show, in terms of——

Dr. WESSNER. Seventy percent do not go on at all or at the same 

level. 

Senator COBURN. How many go on, at any level, that are turned 

down by ATP? 

Dr. WESSNER. Thirty percent, if my memory serves me. 

Senator COBURN. At any level? 

27

Dr. WESSNER. At any level. But I would be happy to get back to 

you for that and we can actually document this for the record in 

a serious fashion. 

Senator COBURN. So 70 percent of the people who do not get an 

ATP scholarship do not continue their research? 

Dr. WESSNER. In that area, of course. 

Senator COBURN. In that area. Nobody picks it up, it does not 

continue. And you all have looked at the studies to see whether 

that has been picked up by the private sector? 

Dr. WESSNER. My understanding is that the figure is 70 percent 

either not at all or not at the same level. These things are measured in some nuance, Senator. It is difficult to ascertain if it is a 

major program or does the company just have one engineer working on it? 

One of the points I raised earlier, and as Senator Lieberman suggested, is that it is important to dialogue about this because the 

hurdle rates and the development process within a firm are hard 

to understand. Asking a CEO what he is going to do in a particular 

area, how many resources he is going to put in, what is the potential, can management justify the investment compared to alternatives, is difficult. In the best of circumstances, this is all very 

tough to learn even without any Federal award at all. 

What we have seen is that the Federal awards have a catalytic 

effect that tend to provide internal justification for investment and 

also attract external investment. The awards help get something 

done. 

Occasionally, a researcher can come in from the R&D unit and 

say ‘‘look, we just got this ATP award and we want to go forward 

with this.’’ And the CEO who had turned down the project earlier 

will say ‘‘OK, let’s go for it. There may be a market there, and this 

will provide me with some reputational benefits which will enable 

us to go ahead.’’

And again may I put a nuance here? We are not saying that the 

early-stage financing system in the United States would not work 

in the absence of ATP. That would be absurd. But to say that this 

program adds value is true. Also, what I liked was your opening 

remark, ‘‘Is it a quality program?’’ Yes, it is both internationally 

and nationally, a quality program. In fact, it is one of the best we 

have. 

Is there an impact? Yes, and they have made a real determined—not perfect but determined—effort to measure it much better than others. 

Is there a significant benefit? Yes. Have I associated the Academies’ work with that $17 billion return number? No, sir, I have 

not. 

Senator COBURN. The problem is, and maybe it is our measurement. But if you use the PART program that we are trying to use 

in the Federal Government to assess whether programs are successful, whether they have a measurable end point, can you mention the benefit, do you have defined objectives, it does not meet 

it. And that is why it was on the President’s list. 

And the whole purpose of this hearing is to see is if that is legitimate? 

28

Let me just stop for a minute and I want to raise the level. Every man, woman, and child in this country right now owes $36,000 on 

the Federal Government’s debt. The interest on that is $1,800 this 

year. Plus we are going to add another $2,200 associated with the 

budget deficit, the real budget deficit, this year. Plus we are going 

to add another $1,100 in Social Security increased liability and we 

are going to add another $2,600 this year to everybody in this 

country in terms of Medicare unfunded liability. 

So we are either going to start making the tough decisions about 

what is good for us and what is not and it may be that ATP is a 

great program. But should we be spending the money on that great 

program when there are other great programs that we could? And 

can we continue to spend $125 million or $135 million on ATP program when what it is doing is actually cutting the legs out from 

underneath the children of the next two generations because they 

are going to have a reduced standard of living? 

So it is not about priorities. That is where we have to get to. And 

I recognize and I will tell you, and I think your performance and 

your demonstration and defense—I read your testimony, it is an 

excellent defense of this program. And I think it is done very well. 

But I also think that there are still questions that need to be answered with this program. 

One of them is on this slide. The fact that there is no status on 

programs from 1992, 1994, 1997. The fact that we do not know the 

status? That is a problem in itself. 

But again, let us look at it macro. What should we do as a coun- try, now that we are almost $8 trillion in debt on the regular budget, that we have $43 trillion in unfunded liabilities for the baby 

boomers, that is my generation and maybe a few of you sitting out 

there. And we are going to ask our children to pay for it. So it becomes a matter of priority. 

Which is the best programs that we should fund? What should 

we fund first, second, third, fourth, and fifth. 

If we were in surplus, I probably would not even be having this 

hearing because there has been marked improvement in the ATP 

program since 1996. They have markedly changed. They have 

changed the amount of money that goes to small businesses and 

taken a lot more away from it. 

But that is not what the issue is. The issue is: Can we afford to 

have a program when we are having the kind of deficit and problems that we are having today? And is it, looking at the next two 

generations, in the priorities of where we should be spending our 

time today? 

I believe that we can justify most of the Federal Government programs that we have. I think most of them are well-intentioned, 

well-meaning, the thought behind them, the people that created 

them, the people that work in them are well-intentioned. But when 

we put all that together and then we say our grandkids are not 

going to be able to afford a college education—it is not going to 

matter whether we send technology oversees. We are not even 

going to be able to afford a college education for them as we struggle with this unfunded liability that is in front of us. 

So we need to have a critical look, not emotional but a critical 

look, at everything this government is doing and say which is the 

29

most important priorities. And if you look at the numbers that are 

happening to us and what the projections are, we cannot grow our 

way out of it. 

So the answer then has to come back as where do we squeeze? 

Now we could do what I have offered several times. Let us cut everything 5 percent. We could make it. If we cut ATP 5 percent and 

everybody else 5 percent, we could make it. We know we could do 

that. But we do not have the political will to do that. We do not 

have the political will to send that signal to the international financial markets, which is our biggest problem today. 

So I do not want you to take this personally, I do not want the 

people at ATP to take this personally. This is about a good, open, 

honest evaluation, not is it good. But is it good enough to continue 

spending the money on that is going to undercut the future of this 

country? Because this money is borrowed. On 30-year notes we are 

paying 4 percent on it and it is going to be compounded every year. 

So by the time you really start compounding, you get a lot of 

money. 

What is our obligation? Is it to make the easy choices now and 

fund ATP so that everybody at home is happy and the people who 

run ATP are happy? Or is it to make the hard long-term choices 

that are best for this country? How do we best secure the future? 

And that is my consideration. Ms. Nazzaro. 

Ms. NAZZARO. Dr. Wessner points to some of the studies that we 

have done. In our most recent study, where we looked at three 

projects, our concern was to look at whether this is research that 

the private sector would have funded. In those three projects we 

identified that they were funding projects that were similar to the 

same goals that the private sector would have funded. 

In their agency comments, the Department of Commerce came 

back and said if we had looked at all 199 projects that were funded 

at that time, we would have reached the same conclusion. So they 

concurred that we were not trying to pick examples hopefully to 

make a best case. 

Senator COBURN. So Department of Commerce readily admits 

that they are funding things that would have been funded in the 

private sector? 

Ms. NAZZARO. In the comments to our report, first they said, we 

presumably picked these three projects with the intent to make a 

particular point. We said we did not. We picked three technology 

areas. Those technology areas represented almost 70 percent of the 

projects that had been funded by the program. 

Initially, we intended to look at nine case studies. But when we 

realized how labor-intensive it was to do an adequate and thorough 

job, we cut that back to three to make sure that we were really researching to make sure that these projects were, in fact, similar research goals. 

And when they came back and commented on our report, they 

said if we had looked at all 199 projects that they had funded to 

date, we would have reached that same conclusion. 

Senator COBURN. Thank you. Mr. Riedl, I think it is really fair 

for you to be able to reference your numbers. I think Dr. Wessner 

makes a great point. And I think if you do not have those numbers, 

you need to——

30

Mr. RIEDL. I do. 

Senator COBURN. I will give you an opportunity to do that. 

Mr. RIEDL. The numbers that I had mentioned, specifically that 

the idea that ATP individuals who are near-winners could find 

funding in the private sector, is not just an economic theory that 

Heritage has pulled out of a hat. This is based off a survey through 

a GAO report that was reported in January 1996, which I believe 

you have with you today. 

Senator COBURN. It is a part of the record. 

Mr. RIEDL. That shows specifically that half of those near-winners reported finding private sector funding later. And the vast 

majority of those who did not find private sector funding later reported in a survey to GAO that they did not seek private sector 

funding. 

And furthermore, there is actually a report that was written by 

the National Institute of Science and Technology within the Department of Commerce in December 1996 that admitted that ATP 

funds projects which are the most profitable, the most ready for 

commercial success, and therefore the ones that the private sector 

would have most incentive to fund anyway. This is the Department 

of Commerce, itself, saying this. 

So I think there is some degree of universal agreement in most 

areas that there is a real economic issue regarding whether or not 

we are subsidizing existing research that would have happened 

anyway, or new research. The evidence seems to show whether it 

is a PART, GAO, or a Heritage’s analysis, that we are probably 

subsidizing existing research. 

And while I do not want to quibble with the studies that are 

being quoted by Mr. Wessner, he did mention that one of the studies was led by Intel, a gentleman from Intel. And it is not uncommon for studies headed by the industry receiving government studies to show that the subsidies lead to the public good. That is not 

uncommon to see those conclusions. 

Senator COBURN. My observation is that there has been some 

pretty good improvement through what Dr. Wessner has given forward in his testimony versus 1996. And so I think our dependence 

is on that. 

But I think there is a valid point in what you say, Mr. Riedl because if, in fact, they want us to believe the $17 billion survey but 

do not want us to believe the survey that says the opposite of that, 

you cannot use those same methods and come down. 

I think it is important for us to have a healthy look at it. 

Dr. Wessner, I am going to give you an opportunity to comment 

again because I want to make sure you get into the record what 

you want and rebut what you heard from Mr. Riedl if you want to. 

Dr. WESSNER. Thank you. There are two things. 

One is there are perhaps three brief elements. The first I would 

like to express quietly a level of outrage about the most recent comment about Gordon Moore. As I am sure you know, sir, Gordon 

Moore was a founder of Intel. At the time of this study I think he 

was worth many billions of dollars. He is retired after a long, 

arducous, and successful career. Many of the medical instruments 

that you use are as a result of the advances that have gone on 

through Moore’s Law. He is a distinguished person and has chaired 

31

the CalTech Board. The idea that we need to raise an ad hominem 

comment about a man who gave freely of his time in his retirement 

years to lead the study is repugnant in the extreme. 

I would point out that Gordon Moore was initially skeptical 

about ATP. He was skeptical that we should intervene in the market at all, although he recognized that the semiconductor consortium Sematech was not a bad idea, (and a successful one I would 

note). Indeed, Gordon Moore likes to point out that in the case of 

Sematech, the entire Federal contribution over the 9 years is paid 

back quarterly by Intel in its taxes. 

His observation illustrates the point that as these partnerships 

to go forward, the gains that you are looking for are realized. Let 

me also stress that I am very sensitive to the deficit. My son is 19. 

He is taking economics, bless him. And he came down and said 

‘‘dad, how are we going to pay back this deficit?’’ And I said ‘‘who 

is we, paleface? This problem is yours.’’ 

Senator COBURN. But that is a very important point and let me 

make it just for a second. Never in the history of our country have 

we had one generation of Americans about to leave the next generation in such sad shape. Our heritage defies that we would do 

that. 

And so when we come to a $125 million program that may have 

some good, is there another $125 million program that has more 

good? 

In other words, it is not about everything is bad. It is not. Unfortunately, my frustration is we cannot get enough people up here 

thinking that way because we are not going to trip the deficit until 

we have a financial disaster in the international financial community. I am pretty well down to that. But that does not mean we 

should not try. 

And so the improvements that have been made in the ATP program are great, and it is not that we should not do research, and 

it is not that there are not good outcomes from some of that research. And it is not that everything that ATP does is wrong or less 

than perfect. It may be that 80 percent of it is right. The question is can we afford to continue to spend $125 million in this area, versus should we cut $125 million out of Medicaid? Or 

should we reverse the Stark Law so that we allow medical technology to flow from hospitals to doctors so we decrease medical 

error? 

The point is that we have to make those decisions and it is incumbent upon us to start doing it pretty quickly or we are all going 

to be in a pretty good sized jam. 

I think your testimony, and your defense of where they are, demonstrates very well that there has been major improvements since 

1996. Your testimony said that. 

Some of the anecdotal—and I have trouble with anecdotal stories 

because they do not mean anything scientifically, they do not mean 

anything mathematically, and they do not mean anything economically because they are an observation of what happened but do not 

compare what happened to what might have happened by chance 

or in the private sector. 

So when we try to make decisions for investment of Federal taxpayer money based on anecdotal observation, it is not good science. 

32

And we have enough junk science up here, and we certainly should 

not be using it with economics. We cannot make that decision. 

An example being digitalization of mammography. I will guarantee you as much as I take my next breath that that would have 

happened in the private sector without the first penny from ATP 

because it was happening everywhere and it had to happen if GE 

wanted to sell mammography units. They would have funded it had 

you not funded it. 

Dr. WESSNER. Senator, first off, we at the Academies do not fund 

it. And I would be the last——

Senator COBURN. I mean ATP. 

Dr. WESSNER. I will be the first person to defer to your expertise 

in medical technologies. But I can give you, at the close of this session, the page number where Dr. Griffiths from GE made that argument. 

Senator COBURN. If you are from the private sector, you would 

make the argument every time. You do not have to spend the 

money. You did not have to spend the money, the Federal Government spent the money for you. 

Dr. WESSNER. Actually, they had to spend a lot more money. 

Senator COBURN. But they got Federal Government money. If I 

got a grant and I said hey, I am successful with it, you guys did 

it. 

Dr. WESSNER. I can only tell you what the interview found. We 

did not conduct the interview—it was done by a group of Harvard 

researchers—who found that GE basically did not think that there 

was any money in this technology, in this mammography system. 

And they were not willing to do it. The ATP award let the advocates of this new technology win the day inside. While recognizing the reality of a $2.7 trillion budget I would 

suggest that the real challenge, if I may venture, Senator, is that 

the difficult choice is to keep ATP. 

Senator COBURN. Maybe. 

Dr. WESSNER. Because the tides are against it politically. The 

difficult choice is to say that the ATP program is actually seed 

corn. And the seed corn is what we need to plant. 

Senator COBURN. That is a great point. 

Dr. WESSNER. Will every one sprout? No. But the chance that 

only a third of them do is, in fact, a very positive statement. And 

they can pay back—that is my point about Intel. They can pay 

back over time to help reduce this deficit. 

Senator COBURN. But we have to qualify. A third do but many 

of those would have anyway, according to the research that has 

been done about ATP. Because the private sector would have funded about half of them. And half of those who did not get funded 

would have gone on anyway. 

Dr. WESSNER. I am running a team right now of about 16 economists for an evaluation that the Congress mandated of the SBIR 

program. The hardest thing in the world, Senator, is to figure out 

what would have happened anyhow. The question is analogous to 

‘‘If you had not married your wife, who would you have married?’’ 

‘‘If you had not gotten the scholarship, would you have gone to college?’’ ‘‘Where would you have gone to college?’’ ‘‘What would have 

happened?’’ Those are darn difficult questions. 

33

Senator COBURN. Those are great points. But we do have testimony and there is a GAO report that says here is the facts. 

There has been improvement and I think you make a great point. 

The hard thing maybe to continue to fund ATP in those choices. 

You may be right. But what we have to do is really know what the 

return on it is. 

The other thing that I am a little bit disappointed in is everybody pays taxes that does research in this country that makes any 

income. They pay it on their employees and everything else. And 

I believe I see a way to fund ATP in the future. And it ought to 

be endowed by the money, the seed money it puts in. And it ought 

to get a return for the taxpayers. 

And if we continue ATP, then we ought to be figuring out a way 

for ATP to become self-funded. And if ATP is great, then let us selffund it and let us let it grow. And let us let it get bigger. 

Dr. WESSNER. We would be happy to study that for you, sir. 

Senator COBURN. I do not want to study it. I understand one 

thing. Greed conquers all technological difficulties. It does. The desire to advance, to advance oneself, will cause people to take risks 

that they would not have otherwise if they perceive that risk benefit reward. That is true in government. That is true in the private 

sector. That is true of senators and congressmen. 

And so my hope is that bringing this information forward 

today—actually, I have gotten a good viewpoint. I am enlightened 

somewhat. And I am much more positive about what the changes 

from ATP than what we saw in 1996. But that does not mean it 

should not change some more. 

The question is if it stays around, how should we modify it? How 

should we make it more effective? How should we make sure that 

the American taxpayers, if they are going to fund $125 million a 

year, of which half of it is probably going to have been funded anyway, how do they get a return on that? And how do we build an 

endowment so that endowment pays for that? Ms. Nazzaro. 

Ms. NAZZARO. Just in summary, we would like to also reiterate 

your opening remarks, that ATP has certainly been associated with 

a number of successes. And we have given them credit for encouraging joint ventures and economic growth. 

However, the discussion cannot be just about benefits. It has to 

be about costs. 

And you talked about whether there are other ways to do it? If 

half the projects now are going to small businesses, there is the $1 

billion Small Business Innovation Research Program, as well as the 

Small Business Technology Transfer Program. We have seen that 

some of the applicants not only receive ATP funding but then go 

and get SBIR awards, as well. 

Senator COBURN. They know where the money is. 

Ms. NAZZARO. They know where the money is, that is right. 

Also, your discussion of payback. It is our understanding that the 

Act originally had a payback provision. And each year GAO does 

a report called the Budget Options Report. We have continuously 

made that recommendation, that for research, there should be a 

payback, particularly if it is large companies that are getting the 

money. There has to be a way that you can assess what the impact 

has been, whether you have been allowed to commercialize a prodVerDate 0ct 09 2002 10:57 May 23, 2006 Jkt 021826 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 C:\DOCS\21826.TXT SAFFAIRS PsN: PAT
34

1The GAO report appears in the Appendix on page 66. 

2The letter appears in the Appendix on page 99. 

uct and you are now having sales or revenues, you should be able 

to pay back some of that money and make it a self-sustaining program. 

Senator COBURN. Dr. Wessner. 

Dr. WESSNER. Just a quick observation. We are looking at the 

SBIR Program, as I mentioned. 

One of the things that is important to keep in mind—we refer 

to the active venture capital community, but the fall from $100 billion available in the year 2000 to just over $20 billion now illustrates some of the unpredictability of venture markets. Both SBIR 

and ATP saw very rapid rise in applicants as the private sector—

if you take a glance at this—as they moved farther upstream and 

away from this valley of death area. 

The last point, if I may, simply, for the record, sir, because it is 

an important one, regarding the statement by my colleague, whom 

I respect immensely, that NIST agreed with them on their 2000 report is not accurate. I would simply like to enter into the record 

the director at that time writing that he ‘‘disagreed with both the 

methodology and the conclusions reached in this report.’’ He writes 

that the implied argument in the GAO study is that the Federal 

Government should not fund research that shares the same overall 

goal as research funded outside the government. By that criterion, 

he notes, we would shut down Federal research on cures for cancer 

and AIDS and a host of other diseases, wireless communications, 

computing technologies and manufacturing. The fundamental error 

in this report is its failure to understand and address the central 

aspect——

Senator COBURN. You can submit that for the record and we will 

include it in the record.1

Dr. WESSNER. My point is that they took strong issue. 

Senator COBURN. We will also include the letter from Appendix 

V, comments from the Department of Commerce, page 35, which 

states the opposite of that or a different opinion than that.2

Let me also make one last note, and then we will adjourn the 

meeting. And I want to thank each of you for spending the time 

to come here. Thank you for your efforts and your service to the 

country and your efforts to make sure we make good decisions. 

When you talked about the other countries that, in fact, fund research through their government, what is their percentage deficit 

to their GDP? 

Dr. WESSNER. Most of them just export to us, sir. They are doing 

pretty well. 

Senator COBURN. That is right. Most of them have surpluses. 

They do not have deficits. A big point. 

We could be in a lot of different things if we did not have a deficit, if we were in surplus. I might even earmark something for the 

first time in my political career, which I have never done. 

But the fact is we are not there. So in comparison, you to compare what our investment is as a percentage of our GDP and what 

our deficit is as a percentage of GDP as to whether or not—the fact 

35

is, we cannot grow out of it. It would be wonderful if we could, but 

we cannot. 

I would still make one point, we still have the highest growth in 

productivity of anybody in the world. We have the highest growth 

in productivity. And that is because we are working hard at doing 

it. And most of that is coming out of the private sector. It is not 

coming out of government-funded research. It is coming out of innovation and that concept I talked about before, greed conquers 

technologic difficulties. And we need to recognize that. 

I want to thank each of you for being here. A copy of the record 

will be made available to you. A copy of the record will stay open 

for any additional comments from any other Members of the Committee. 

Thank you very much and the hearing is adjourned. 

[Whereupon, at 4:09 p.m., the Subcommittee was adjourned.] 

(37)

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